S-1 1 d38154ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on October 6, 2020

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ALLEGRO MICROSYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3674   46-2405937

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

955 Perimeter Road

Manchester, New Hampshire 03103

Telephone: (603) 626-2300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Ravi Vig

Chief Executive Officer

Allegro MicroSystems, Inc.

955 Perimeter Road

Manchester, New Hampshire 03103

Telephone: (603) 626-2300

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Peter M. Labonski, Esq.

Keith L. Halverstam, Esq.

Thomas J. Malone, Esq.

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

Telephone: (212) 906-1200

Fax: (212) 751-4864

 

Christopher E. Brown

General Counsel

Allegro MicroSystems, Inc.

955 Perimeter Road

Manchester, New Hampshire 03103

 

Derek J. Dostal, Esq.

Michael Kaplan, Esq.

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

Telephone: (212) 450-4000

Fax: (212) 701-5800

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate
offering price(1)(2)

 

Amount of

registration fee(3)

Common stock, par value $0.01 per share

  $100,000,000   $10,910

 

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the offering price of shares of common stock that may be sold if the option to purchase additional shares of common stock granted by the selling stockholders to the underwriters is exercised in full. See “Underwriting.”

(3)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated October 6, 2020.

 

 

LOGO

                 Shares

Allegro MicroSystems, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Allegro MicroSystems, Inc. We are offering                  shares of our common stock, and the selling stockholders named in this prospectus are offering                  shares of our common stock. We will not receive any proceeds from the sale of shares of our common stock to be offered by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . We have applied to list our common stock on the Nasdaq Global Select Market under the symbol “ALGM.”

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, and are subject to reduced public company disclosure requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 26 to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                  $              

Underwriting discount(1)

   $        $    

Proceeds to us, before expenses

   $        $    

Proceeds to the selling stockholders, before expenses

   $        $    

 

(1)

We refer you to “Underwriting” beginning on page 198 for additional information regarding underwriting compensation.

To the extent the underwriters sell more than                  shares, the underwriters have an option to purchase up to an additional                  shares from the selling stockholders at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2020.

 

 

 

Barclays               Credit Suisse               Wells Fargo Securities
Jefferies   Mizuho Securities   Needham & Company   SMBC Nikko

Prospectus dated                 , 2020.


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TABLE OF CONTENTS

 

     Page  

BASIS OF PRESENTATION

     i  

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

     ii  

MARKET AND INDUSTRY DATA

     iii  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     15  

RISK FACTORS

     26  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     62  

USE OF PROCEEDS

     63  

CAPITALIZATION

     64  

DIVIDEND POLICY

     67  

DILUTION

     68  

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     71  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

     74  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     83  

BUSINESS

     116  

MANAGEMENT

     136  

EXECUTIVE AND DIRECTOR COMPENSATION

     146  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     166  

PRINCIPAL AND SELLING STOCKHOLDERS

     178  

DESCRIPTION OF CAPITAL STOCK

     180  

DESCRIPTION OF CERTAIN INDEBTEDNESS

     186  

SHARES ELIGIBLE FOR FUTURE SALE

     192  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

     194  

UNDERWRITING

     198  

LEGAL MATTERS

     205  

EXPERTS

     205  

CHANGE IN ACCOUNTANTS

     205  

WHERE YOU CAN FIND MORE INFORMATION

     206  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

 

We have not, the selling stockholders have not, and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any related free writing prospectus. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered by this prospectus, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: We have not, the selling stockholders have not, and the underwriters have not, done anything that would permit this offering or the possession or distribution of this prospectus or any free writing prospectus in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States. See “Underwriting.”


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BASIS OF PRESENTATION

As used in this prospectus, unless the context otherwise requires, references to “we,” “us,” “our,” “our business,” the “company,” “Allegro” and similar references refer to Allegro MicroSystems, Inc. and, where appropriate, its consolidated subsidiaries; “Sanken” refers to Sanken Electric Co., Ltd.; and “OEP” refers to One Equity Partners.

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 “2019,” “fiscal year 2019” or similar references relate to the 52-week period ended March 29, 2019. All references to “2020,” “fiscal year 2020” or similar references relate to the 52-week period ended March 27, 2020.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts and results of operations of the Company and its wholly owned subsidiaries. Certain financial measures presented in this prospectus, such as EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, are not recognized terms under GAAP. These measures exclude a number of significant items, including our interest expense and depreciation and amortization expense. For a discussion of the use of these measures and a reconciliation to the most directly comparable GAAP measures, see “Prospectus Summary—Summary Historical and Pro Forma Consolidated Financial and Other Data.”

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Percentage amounts included in this prospectus have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this prospectus may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this prospectus. Certain other amounts that appear in this prospectus may not sum due to rounding.

 

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TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This prospectus includes our trademarks, trade names and service marks, including, without limitation, “Allegro MicroSystems, Inc.®,” “Allegro®” and our logo, which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we or the applicable owner will not assert, to the fullest extent permitted under applicable law, our or its rights or the right of any applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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MARKET AND INDUSTRY DATA

Unless otherwise indicated, information concerning our industry and the markets in which we operate, including our general expectations, market position, market opportunity and market size, are based on our management’s knowledge and experience in the markets in which we operate, together with currently available information obtained from various sources, including industry reports and publications, surveys, our customers, trade and business organizations and other contacts in the markets in which we operate. Certain information is based on management estimates, which have been derived from third-party sources, as well as data from our internal research, and are based on certain assumptions that we believe to be reasonable.

In preparing this prospectus, we have relied on certain third-party publications and research, including:

 

   

Omdia, Magnetic Sensor Market Must Wait for 2020 For Recovery (and associated Magnetic Sensors Report)—October 2019;

 

   

Omdia, Power IC Market Tracker – Interim – 2019—April 2020;

 

   

Omdia, Power Semiconductors in Automotive Report – 2020—May 2020;

 

   

World Semiconductor Trade Statistics, WSTS Semiconductor Forecast—June 2020;

 

   

Gartner, Inc., Semiconductor Forecast Database, Worldwide, 2Q20 Update—June 2020;

 

   

Gartner, Inc., Analog and Mixed Signal Market Share Forecasts—June 2020;

 

   

LMC Automotive, Global Automotive Industry Monitor—July 2020, August 2020;

 

   

Yole Développement, LiDAR for Automotive and Industrial Applications Market and Technology Report 2020—August 2020; and

 

   

Omdia, MEMS & Sensors Competitive Analysis Database – H1 2020—September 2020.

In this prospectus, we refer to Gartner, Inc. as “Gartner.”

In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets in which we operate. While we believe the market and industry data included in this prospectus and upon which the management estimates included herein are based are generally reliable, such information is inherently uncertain and imprecise, and you are cautioned not to give undue weight to such data or the management estimates based on such data. Market and industry data are subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process and other limitations inherent in any statistical survey of such data. Certain of these publications, studies and reports were published before the COVID-19 pandemic and therefore do not reflect any impact of COVID-19 on any specific market or globally. In addition, projections, assumptions and estimates of the future performance of the markets in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us. The content on, or accessible through, the sources and websites identified herein do not constitute a part of this prospectus and are not incorporated into this prospectus except to the extent expressly set forth herein. Any websites are an inactive textual reference only. In addition, references to the third-party publications and research reports named above are not intended to imply, and should not be construed to imply, a relationship with, or endorsement of us by, the third-party producing any such publication or report.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including the ‘‘Risk Factors” and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ sections and our audited financial statements and the related notes included elsewhere in this prospectus before making an investment decision. See “Cautionary Note Regarding Forward-Looking Statements.”

Our Mission

Our mission is to be a global leader in semiconductor sensing and power solutions for motion control and energy-efficient systems in automotive and industrial applications, moving the world to a safer and more sustainable future.

Company Overview

Allegro MicroSystems is a leading global designer, developer, fabless manufacturer and marketer of sensor ICs and application-specific analog power ICs enabling the most important emerging technologies in the automotive and industrial markets. We are a leading supplier of power ICs, and according to Omdia, we are the number one supplier of magnetic sensor ICs driven by our market leadership in the automotive market. Our products are foundational to automotive and industrial electronic systems. Our sensor ICs enable our customers to precisely measure motion, speed, position and current, while our power ICs include high-temperature and high-voltage capable motor driver, power management and LED driver ICs. Our recently acquired photonics portfolio provides eye-safe distance measurement and 3D imaging solutions. We believe that our technology expertise combined with our deep applications knowledge and strong customer relationships enable us to develop solutions that provide more value to customers than typical ICs. Compared to a typical IC, our solutions are more highly integrated, add intelligence and sophistication for complex applications and are easier for customers to use.

Growth in the global semiconductor industry has traditionally been driven by the consumer market. Looking ahead, industry growth is expected to be driven by technology mega trends in the automotive and industrial markets. These mega trends have created requirements for new technologies in vehicles, both under the hood and in the cabin, to support vehicle electrification and advanced driver assistance systems (“ADAS”). These shifts also require technology to enable intelligence and automation in factories and to enable energy efficiency in data centers and green energy applications. According to industry experts, these mega trends are expected to significantly increase the demand for sensing and power solutions like the ones we develop. We believe our patented portfolio of sensor ICs and power ICs and photonics components provide the underlying technology required to establish an early lead in the market and consistently win in the presence of larger competitors. Based on industry forecasts, we believe our total available market from 2020 to 2024 will increase from approximately $14.7 billion in 2020 to $20.0 billion in 2024, a CAGR of 8.0%.

Our longstanding history of innovation over multiple economic and technology cycles in the semiconductor industry is built on our market leading magnetic sensor IC technology. Our “first of its kind” approach took the complexity of magnetic systems design and embedded it within our solutions, significantly simplifying the customer’s design effort while increasing system reliability. This is a pattern we have repeated over consecutive generations of products, enabling us to establish a strong presence in the most rigorous and demanding automotive markets. Our portfolio now includes more than 1,000 products, and we ship over one billion units annually to more than 10,000 customers worldwide. By developing sophisticated, analog mixed-signal IC solutions that incorporate our patented intellectual property, proprietary and robust process technologies and our



 

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unique packaging know-how, we believe we are well-positioned to compete across all of our target markets. Our established position as an incumbent supplier for the automotive market and our long product life cycles attest to the strength of this competitive advantage.

Our value proposition is based on providing complete IC solutions that sense, regulate and drive a variety of mechanical systems. This includes sensing angular or linear position, driving an electric motor or actuator, and regulating the power applied to sensing and driving circuits so they operate safely and efficiently. These capabilities are based on fundamental technical advances we have made in the field of Hall-effect and xMR magnetic sensor ICs and BCD power ICs. These innovations translate to increased driving range for an electric vehicle, smaller and more reliable power conversion systems, improved safety and efficiency of motor and power management systems and safer and more reliable autonomous driving. In the industrial market, these technologies enable the automation at the heart of the industrial transformation commonly referred to as “Industry 4.0,” and support increased energy efficiency for high density data centers and green energy applications and reduce the solution footprint to lower total system cost.

We have maintained our sensor IC leadership and built our emerging power IC business through successfully developing deep customer relationships over time. We count among our customers virtually all of the world’s top automotive and industrial companies. We are a preferred vendor to tier one suppliers in the automotive industry that supply parts or systems directly to OEMs. Our products can be found in vehicles built by nearly every automotive OEM worldwide and in many common industrial systems. We support customers through design and application centers located in North America, South America, Asia and Europe. Our local teams in these centers work closely with our customers on their unique design requirements, often acting as an extension of a customer’s development team.

Beginning in 2016, we began a multi-year strategic transition to: extend our market leadership in high-growth markets; improve our operating model through a fabless and asset-lite manufacturing strategy; increase our IC design footprint and capacity; and accelerate growth through enhanced sales operations. To date, we believe we have begun to successfully realize many of the key objectives of this transition, and we expect to continue to benefit from measures put in place to further enhance our competitiveness, growth and profitability. This has contributed to improving our historical gross margins over the last four years from the 40% range to the 50% range today. As part of our strategic transformation, we began to streamline manufacturing to reduce fixed costs. This resulted in the recent divestiture of our wafer manufacturing facility, PSL and the ongoing closure activity of our AMTC Facility which we expect to substantially complete by the end of March 2021. In our current fabless, asset-lite manufacturing model, we use external wafer manufacturing consisting of both standard and proprietary processes, along with internal and external assembly and internal test to provide both flexibility and scale.

During fiscal years 2019 and 2020, we generated $724.3 million and $650.1 million in total net sales, respectively, with $84.8 million and $37.1 million in net income and $166.8 million and $132.2 million in Adjusted EBITDA in such fiscal years, respectively. On a pro forma basis, after giving effect to the PSL Divestiture and the transfer of the Sanken products distribution business to PSL, our total net sales for fiscal year 2020 were $542.3 million, with net income of $53.1 million and Adjusted EBITDA of $125.5 million in such fiscal year. See “—Summary Historical and Pro Forma Consolidated Financial and Other Data” for more information regarding our pro forma financial data and our use of Adjusted EBITDA and other non-GAAP financial measures and a reconciliation of Adjusted EBITDA to net income.

Our Market Opportunity

Historically, growth in the semiconductor industry has been driven by rapid expansion in consumer electronics. However, as the consumer market reaches saturation, industry experts predict the automotive and



 

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industrial markets will be the key drivers of growth in the semiconductor industry. Within the global semiconductor industry, we focus on the magnetic sensor IC, power management IC and photonic LiDAR markets.

The magnetic sensor IC market is expected to be a $1.9 billion market in 2020, and is expected to grow into a $2.9 billion market by 2024, representing a CAGR of 11.3%. The automotive and industrial markets for magnetic sensors represent higher growth opportunities over the same time frame. Specifically, according to Gartner, our target magnetic sensor IC markets in automotive and industrial are expected to be $1.1 billion and $245 million in 2020, respectively, increasing to $1.7 billion and $395 million in 2024, representing a CAGR of 13.0% and 12.7%, respectively.

Our addressable power IC market, which according to Omdia research is expected to be a $12.9 billion market in 2020, is expected to grow into a $17.2 billion market by 2024, representing a CAGR of 7.5%. Our power IC portfolio is focused on both existing and emerging applications within the automotive and industrial markets. Omdia projects that our automotive and industrial power IC markets, estimated to be $2.6 billion and $2.2 billion, respectively, in 2020, will grow to an estimated $3.9 billion and $3.0 billion, respectively, in 2024, representing a CAGR of 10.8% and 8.1%, respectively.

Additionally, with the acquisition of Voxtel, Inc., we now also serve the LiDAR market. Our photonic and 3D Sensing components address the rapidly-growing global LiDAR market. According to Yole Développement, the global LiDAR market will grow from approximately $1.6 billion in 2020 to $3.1 billion in 2024, representing a CAGR of 18%. Within this opportunity, we believe the automotive market will grow rapidly, making significant progress through 2032. According to Yole, by 2032 approximately 92% of all global vehicles produced will incorporate an ADAS feature (Level 1 and above), up from 50% in 2020. The automotive LiDAR market is set to grow from $139 million in 2020 to approximately $6.8 billion in 2032, representing a CAGR of 38%. Our photonic and 3D sensing components will address a portion of the total LiDAR market size. For more information on our acquisition of Voxtel, Inc., see “—Recent Developments—Voxtel Acquisition.”

Our growth strategy includes both increasing our share within existing opportunities through content expansion as well as expanding our served available market by addressing key market growth opportunities in the automotive and industrial markets.

 

   

ICE, HEV and EVs. We are the market leader in magnetic sensor ICs for internal combustion engine (“ICE”) powertrains. Because the combination of an internal combustion engine and an electric powertrain balances efficiency and cost, production of vehicles that have both ICE and an electric powertrain are expected to represent the majority of xEV shipments through 2030. As a proven and experienced supplier of ICE powertrain ICs and an expert in delivering ICs supporting power efficiency in HEV and electric vehicles, we believe we are uniquely positioned to support the intersection of ICE and electric powertrains. According to LMC Automotive research, automakers’ production of HEV and EV vehicles is forecasted to grow from approximately 7.3 million vehicles in 2020 to approximately 37 million in 2028, representing a CAGR of 22%.

 

   

Advanced Driver Assistance Systems (ADAS) and Autonomous Vehicles. ADAS features are considered some of the most desirable in modern vehicles and are already being adopted in vehicles worldwide. Our devices play a key role in advanced driver assistance systems. We already ship more than 100 million devices every year that enable fundamental safety and drive features in ADAS applications and expect to benefit from increased penetration of ADAS as it scales from luxury vehicles to mainstream and economy vehicles.

 

   

Data Center and Communications Infrastructure. Exponential growth of internet traffic, proliferation of connected devices and global demand for cloud computing services has driven rapid expansion in



 

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data center and communications infrastructure spending. As data center infrastructure expansion continues, there is an increased need for advanced cooling and efficient power delivery technologies. This in turn has led to a growing demand for energy management technologies that reduce cooling costs and improve operational efficiency. Our solutions are uniquely suited for higher voltage operation and therefore, we believe our motor driver and current sensor ICs will gain market share in applications like data centers as they convert to 48-volt operating voltages.

 

   

Smart Factories and Energy Efficiency. The advent of Industry 4.0 increasing demand for renewable energy and the adoption of green technologies represent additional meaningful growth opportunities for us. We believe we can leverage our technology leadership in solutions optimized for high-temperature, high-voltage, high-reliability conditions to expand our presence in these markets.

For a more detailed description regarding the calculation of our market opportunity, see “Business—Market Opportunity.”

Competitive Strengths

The semiconductor market is highly competitive. As a leader in sensor ICs and power ICs, we have a strong track record of winning against both established competitors and new entrants. We believe that by effectively navigating technology transitions, maintaining close customer relationships and anticipating market trends, we have established a leadership position in the automotive market and are rapidly gaining share in our targeted industrial markets, including factory automation, data center and green energy. Our competitive strengths include the following:

Leading market positions. We are the market leader in magnetic sensor ICs. According to Omdia, in 2019, we led the magnetic sensor IC market with an estimated 18.2% market share. We believe that we can continue to increase our share and that our strong market presence and continued innovation in proprietary sensor IC and power IC technologies will enable us to establish leadership positions for new products in existing and emerging applications. As a proven automotive supplier, with high application content per vehicle in internal combustion and comfort systems, we have established an early position in high-growth ADAS and xEV applications that we believe will result in a substantial increase in our content per vehicle progressively over the next decade. Our average product life cycle is ten years or more and we believe that product longevity and our ability to compete effectively in our target markets will enable sustained market share gains over a long period.

Established technology leadership, strong intellectual property and system-level expertise. We believe our technology leadership is based on our strong intellectual property portfolio in analog mixed-signal circuit design, our sensor IC and power IC process technology innovations, and our intelligent packaging expertise. Additionally, we believe our system-level knowledge resulting from close customer collaboration enables us to understand our customers’ specific system requirements and more quickly and effectively develop advanced solutions to meet their needs. For example, our innovations in Hall-effect and xMR sensor ICs include assemblies with integrated magnets and optimized silicon design to enable precise robust performance in high-temperature and high-voltage environments. To date, we believe that our competitors have not been able to duplicate the resulting performance advantage. We believe these innovations have created tangible performance benefits in a variety of customer end products across a broad range of applications, from traditional 12-volt internal combustion engines to 48-volt mild hybrid vehicles, and from industrial robotics to server and data center hardware.

Broadly diversified business focused on high value customers and end markets. Given the breadth of our customer relationships worldwide, our net sales are diversified across automotive and industrial customers, sales channels and geographies. Diversification, particularly geographically and within the automotive industry, has



 

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enabled us to continue to invest across business cycles. We sold to more than 10,000 end customers, directly and through distributors, during each of fiscal year 2019 and 2020. Moreover, we believe no end customer, including those served through our distributors, exceeded 10% of our net sales during either fiscal year.

In addition, our customer diversity and long-standing track record with key customers, particularly in the automotive market, provides us with a deep channel into which we can introduce new products. Unlike the consumer market, automotive and industrial markets are characterized by long design cycles and rigorous quality, reliability and safety testing. For many of our customers, we are among a limited number of suppliers qualified to compete for next generation product designs, and in many of our design wins, we are the sole supplier to the customer.

Fabless, asset-lite, scalable operations with flexible, advanced manufacturing infrastructure. Over the course of our multi-year strategic transformation, including our completion of the PSL Divestiture in March 2020, we became a fabless semiconductor company. This has contributed to improving our historical gross margins over the last four years from the 40% range to the 50% range today. Becoming a fabless semiconductor company will also allow us to develop advanced proprietary processes through partnerships with strategic contract semiconductor wafer fabrication plants (“fabs”). Wafers using our proprietary fabrication processes are typically manufactured at multiple wafer foundries, sometimes on dedicated custom tools. We believe this strategy will provide us with enhanced wafer supply security.

Well-positioned to access the Japan markets. According to World Semiconductor Trade Statistics (“WSTS”), the Japan analog semiconductor market is forecasted to be $4.3 billion in 2020 and is expected to grow to $5.0 billion in 2023. Japan remains a very important geographic market for automotive and industrial suppliers and has historically been difficult to penetrate for companies headquartered outside of Japan. Through our Japan business development and technical center, we have developed direct end customer relationships with market leading tier one suppliers and now have an extensive sales, distribution, technical and quality support network in Japan. During fiscal years 2019 and 2020, approximately 19.4% and 20.5% of our net sales, excluding wafer foundry sales, were derived from end customers in Japan, respectively. Relationships with leading Japanese customers are particularly valuable since the solutions created for these customers are often quickly adopted by other manufacturers outside of Japan.

Experienced and established management team. Our executive management team averages over 20 years of semiconductor industry experience. We believe our team has a proven track record of operating in fast-paced, innovation-driven and values-based cultures. Our management team is committed to innovating with purpose, supporting sustainability and managing with transparency. After over 30 years with Allegro, Ravi Vig became our President and Chief Executive Officer in 2016. Under Mr. Vig’s leadership, we have undertaken a strategic transformation that includes initiatives to streamline operations, improve sales effectiveness and focus our research and development efforts with the ultimate goal of profitably accelerating growth.

Company Strategy

Our strategy is to provide complete IC solutions for our customers, innovate with purpose to build on leadership in our key markets and expand our presence to become a global leader in semiconductor power and sensing solutions for motion control and energy efficient systems in automotive and industrial applications.

Invest in research and development that is market-aligned and focused on targeted portfolio expansion. In both the automotive and industrial markets, major technology shifts driven by disruptive technologies are creating high-growth opportunities in areas such as xEVs, ADAS, Industry 4.0, data centers and green energy applications. We believe the convergence of requirements for intelligence and energy efficiency within these emerging markets is directly aligned with our core competencies. By aligning our research and development investments with disruptive



 

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technology trends while undergoing a rigorous return on investment (“ROI”) review, we believe we can deliver an attractive combination of growth and profitability.

Emphasize our automotive “first” philosophy to align our product development with the most rigorous applications and safety standards. We are a leading supplier of magnetic sensor ICs for the automotive market because we have been intentional about incorporating support for the stringent automotive operating voltages, temperature ranges and safety and reliability standards into every part of our operations, from design to manufacturing. We believe our focus on meeting or exceeding industry standards as the baseline for product development increases our opportunity in the automotive market as customers look for trusted suppliers to deliver highly reliable solutions for rapidly growing emerging markets. Additionally, in our experience, demand for solutions that meet or exceed stringent safety and reliability specifications supports higher ASPs and lower ASP declines over time than are typical for our industry.

Invest to lead in chosen markets and apply our intellectual property and technology to pursue adjacent growth markets. We intend to continue to invest in technology advancements and our intellectual property portfolio to maintain the number one market share position in magnetic sensor ICs and achieve leadership positions in power ICs within our target markets. We believe we can maximize our investments by utilizing our proven technology and existing research and development, sales and support efforts to take advantage of synergistic opportunities in new, adjacent growth markets. For example:

 

   

We target our patented sensor IC, photonics, and power-related intellectual property to address the increasing electronics content in automotive applications, specifically electric powertrain and ADAS systems.

 

   

Additionally, we recently acquired Voxtel, Inc., whose eye-safe photonics and 3D sensing devices address the LiDAR market.

 

   

We are investing in advanced current sensor ICs and sensor-less motor control technologies to target industrial solar and data center applications.

 

   

And finally, we are aligning our application domain knowledge, sensor IC design skills and power management and motor control algorithm expertise to capitalize on the trend towards increasing automation inherent in the Industry 4.0 transformation.

We believe our strategy of leveraging our known capabilities to target adjacent growth markets will enable us to achieve higher returns on our research and development investments.

Expand our sales channels and enhance our sales operations and customer relationships. We sell our products globally through our direct sales force, distributors and independent sales representatives. Our global sales infrastructure is optimized to support customers through a combination of key account managers and regional technical and support centers near customer locations. These centers enable us to act as an extension of our customers’ design teams, providing us with key insights into product requirements and accelerating the adoption and ramp up of our products in customer designs. We believe we will be able to further penetrate the industrial market and efficiently scale our business to accelerate growth by enabling our channel to become an extension of our demand generation and customer support efforts.

Continue to improve our gross margins through product innovation and cost optimization. We strive to improve our profitability by both rapidly introducing new products with value-added features and reducing our manufacturing costs through our fabless, asset-lite manufacturing model. Over the last four years, we have improved our gross margin from the 40% range historically to the 50% range. We expect to continue to improve our product mix by developing new products for growth markets where we believe we can generate higher ASPs and/or higher gross margins. We also intend to further our relationships with key foundry suppliers to apply our



 

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product and applications knowledge to develop differentiated and cost-efficient wafer processes and packages. We believe the forthcoming AMTC Facility closure as part of our manufacturing footprint optimization strategy will further enhance our gross margins in both the near term and in future periods.

Pursue selective acquisitions and other strategic transactions. We evaluate and pursue selective acquisitions and transactions to facilitate our entrance into new applications, add to our intellectual property portfolio and design resources, and accelerate our growth. From time to time, we acquire companies, technologies or assets and participate in joint ventures when we believe they will cost effectively and rapidly improve our product development or manufacturing capabilities or complement our existing product offerings. For example, our August 2020 acquisition of Voxtel, Inc. and its affiliate LadarSystems, Inc. brings together Voxtel’s laser and imaging expertise and our automotive leadership and scale to enable what we believe will be the next generation of ADAS sensing solutions.

Maintain commitment to sustainability. We intend to continue to innovate with purpose, addressing critical global challenges related to energy efficiency, vehicle emissions and clean and renewable energy with our sensing and power management product portfolio. In addition, we strive to operate our business in a socially responsible and environmentally sustainable manner, and we strive to maintain a commitment to social responsibility in our supply chain and disclosure of the environmental impact of our business operations.

Company Products and Solutions

Our magnetic sensor IC, power IC and photonics solutions address the three main electronic system functions – sense, regulate and drive. Our product portfolio includes over 1,000 products across a range of high-performance analog mixed-signal semiconductors and photonic components.

 

   

Magnetic Sensor ICs: We offer what we believe to be the industry’s leading portfolio of integrated magnetic sensor ICs. Our solutions are based on our monolithic Hall-effect and xMR technology that allows customers to develop contactless sensor solutions that reduce mechanical wear and provide greater measurement accuracy and system control.

 

   

Power ICs: Our power IC portfolio is comprised of high-temperature and high-voltage capable motor driver ICs, regulator power management ICs and LED driver ICs, which allow our customers to design safer, smaller and more power-efficient systems. We employ embedded algorithms that simplify system-level design, reduce audible noise, and increase start-up reliability in BLDC motors and fans.

 

   

Photonic and 3D Sensing Components: Through our recent acquisition of Voxtel, we provide photonic and advanced 3D imaging components for use in eye-safe, long-range LiDAR applications. Our suite of industry leading, eye-safe technologies form the photonic backbone of long-range automotive scanned LiDAR (object detection up to 200 meters or more) or medium-range LiDAR systems.



 

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Examples of our IC products and their applications in end markets are set forth in the following table.

 

    

Automotive Market IC Solutions

  

Industrial Market IC Solutions

  

Other Market IC Solutions

PRODUCTS   

•  Current sensors

•  Position sensors

•  Speed sensors

•  LED drivers

•  Motor drivers

•  Regulator and PMICs

•  Photonics and 3D sensing ICs

  

•  Current sensors

•  Position sensors

•  Speed sensors

•  LED drivers

•  Motor drivers

•  Regulators

•  Photonics and 3D sensing ICs

  

•  Current sensors

•  Position sensors

•  Motor drivers

•  Regulators

APPLICATIONS   

•  Engine management and transmission systems

•  Electric motor powertrain and charging systems for xEV

•  ADAS, active safety, including steering and braking systems

•  Automotive LiDAR

•  Comfort and convenience including in-cabin motors, HVAC, infotainment, LED lighting

•  Passive safety including seatbelt switches, wipers, door/window sensors, seat position, suspension

  

•  Industry 4.0/Factory automation equipment

•  Industrial motors

•  Smart home/IoT

•  Cloud computing/data center

•  Wireless infrastructure

•  Personal mobility

•  Green energy applications

•  Industrial LiDAR / Rangefinders

  

•  Gaming

•  PC printers and peripherals

•  Personal electronics

•  Energy Star household appliances including white goods

For more detailed description of our products, see “Business—Company Products and Solutions.”

The Divestiture Transactions

Through the end of fiscal year 2020, we held a 100% ownership interest in Polar Semiconductor, LLC (“PSL”), a semiconductor wafer fabricator engaged in the manufacturing and testing of wafers. PSL accounted for 9.9% and 11.1% of our net sales and supplied 56.9% and 44.2% of our wafer requirements in fiscal years 2019 and 2020, respectively.

In addition, through the end of fiscal year 2020, we acted as a distributor of products for Sanken, our majority stockholder (which will continue to own approximately     % of our outstanding common stock following the closing of this offering (or approximately     % of our outstanding common stock if the underwriters’ option to purchase additional shares of our common stock is exercised in full)), in North America, South America and Europe pursuant to a distribution agreement, dated as of July 5, 2007, between Allegro MicroSystems, LLC, our wholly owned subsidiary (“AML”), and Sanken (as amended, the “Sanken Products Distribution Agreement”). Our net sales from the distribution of Sanken products in fiscal years 2019 and 2020 were $37.9 million and $35.4 million, respectively.



 

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On March 28, 2020, in order to further our strategy for developing a flexible and efficient manufacturing model that minimizes capital requirements, lowers operating costs, enhances reliability of supply and supports our growth going forward, we, AML, Sanken and PSL entered into a series of divestiture transactions pursuant to which:

 

   

We divested a majority of our ownership interest in PSL to Sanken (the “PSL Divestiture”), in connection with which:

 

   

Our equity interests in PSL were recapitalized in exchange for (i) the contribution by us to PSL of $15.0 million of intercompany debt, representing a portion of the aggregate principal amount of debt owed by PSL to us under certain intercompany loan agreements (the “Existing Allegro Loans”), (ii) the assumption by us of $42.7 million in aggregate principal amount of debt owed by PSL to Sanken under certain intercompany loan and line-of-credit agreements (the “PSL-Sanken Loans”) that was subsequently forgiven in exchange for our transfer to Sanken of 70% of the issued and outstanding equity interests in PSL, and (iii) the termination of the Existing Allegro Loans and the issuance, pursuant to a consolidated and restructured loan agreement (the “Consolidated Loan Agreement”), of a note payable to us in an aggregate principal amount of $51.4 million (representing the aggregate principal amount of debt outstanding under the Existing Allegro Loans prior to their termination); and

 

   

In exchange for the extinguishment of all outstanding indebtedness owed by us to Sanken under the PSL-Sanken Loans, we (i) divested 70% of the issued and outstanding equity interests in PSL to Sanken, as a result of which Sanken holds a 70% majority share in PSL and we hold a 30% interest, and (ii) amended and restated the existing limited liability company agreement of PSL to admit Sanken as a member, reflect the recapitalization of our equity interests and otherwise reflect the rights and obligations of us and Sanken thereunder (such agreement, as so amended and restated, the “PSL LLC Agreement”);

 

   

AML entered into an amendment to a wafer foundry agreement, dated as of April 12, 2013, between AML and PSL (as amended, the “Wafer Foundry Agreement”), pursuant to which AML agreed, among other things, to a minimum wafer purchase obligation by us to PSL during the initial three-year term of the agreement;

 

   

AML entered into a letter agreement with PSL pursuant to which AML agreed, among other things, to make a one-time price support payment to PSL of approximately $5.9 million prior to the end of PSL’s current fiscal year in cash or, at AML’s option, as a reduction of PSL’s existing debt obligations under the Consolidated Loan Agreement (such letter agreement, the “Price Support Agreement”);

 

   

AML entered into a letter agreement with Sanken providing for, among other things, the termination of AML’s services under the Sanken Products Distribution Agreement (such letter agreement, the “Sanken Products Distribution Termination Letter”);

 

   

Sanken and PSL entered into a new distribution agreement providing for, among other things, PSL to serve as a distributor of Sanken products in North America, South America and Europe;

 

   

We entered into a transition services agreement with PSL and Sanken pursuant to which we agreed, among other things, to provide certain human resources, legal and distribution support services to PSL during the initial transition period following the consummation of the Divestiture Transactions on the terms set forth therein (such agreement, the “Transition Services Agreement”);

 

   

We entered into an amended and restated transfer pricing agreement with AML, Sanken and PSL pursuant to which, among other things, we are no longer required to make payments to PSL in respect of transfer pricing adjustments (the “A&R Transfer Pricing Agreement”); and



 

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We entered into certain other agreements with Sanken and PSL as described elsewhere in this prospectus under “Certain Relationships and Related Party Transactions—The Divestiture Transactions.”

For ease of reference, we sometimes collectively refer to the transactions summarized above as the “Divestiture Transactions.” See “Certain Relationships and Related Party Transactions—The Divestiture Transactions” for additional details regarding the agreements and transactions described above.

Recent Developments

Senior Secured Credit Facilities and Recapitalization

On September 30, 2020, we entered into a term loan credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $325.0 million senior secured term loan facility (the “Term Loan Facility”). We used the net proceeds from the Term Loan Facility, together with cash on hand, to pay an aggregate cash dividend of $                million to holders of our Class A common stock. We refer to these transactions collectively as the “Recapitalization.”

On September 30, 2020, we also entered into a revolving credit facility agreement with Mizuho Bank, Ltd., as administrative agent and collateral agent, and the other agents, arrangers and lenders party thereto, providing for a $50.0 million senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”). In connection with entering into our new Revolving Credit Facility, we used cash on hand to repay all amounts outstanding under the AML Revolver and AML Line of Credit (each as defined under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”) and terminated all commitments thereunder. We refer to the transactions described in this paragraph collectively as the “Refinancing.”

See “Description of Certain Indebtedness—Senior Secured Credit Facilities” for more information regarding the Senior Secured Credit Facilities.

Common Stock Repurchases

In October 2020, we entered into repurchase agreements with certain of our executive officers and other employees that provide for our repurchase from each such holder of a number of shares of common stock sufficient to generate proceeds to satisfy certain tax obligations triggered by the vesting of the shares of Class A common stock or a portion of the Class L common stock held by such holder that will occur on the pricing date of this offering (as a consequence of the automatic conversion of all outstanding shares of our Class A common stock and Class L common stock into shares of common stock immediately following the pricing of this offering), after reducing the amount of such tax obligations by an amount equal to the net after-tax value of any dividend proceeds retained by us on behalf of such holder in connection with the Recapitalization, in each case, in accordance with the terms of the applicable repurchase agreement. The purchase price per share for each share of common stock will be equal to the initial public offering price per share for the shares of common stock to be sold in this offering, less an amount equal to the underwriting discount. We refer to these transactions collectively as the “Common Stock Repurchases.”

We intend to fund the Common Stock Repurchases with cash on hand prior to this offering. Based on an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, after a reduction in an amount equal to the estimated underwriting discount, and assuming a                 , 2020 pricing date of this offering, we expect the aggregate purchase price for the Common



 

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Stock Repurchases will be $                 million. A $1.00 increase (decrease) in the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the aggregate purchase price for the shares of common stock subject to such Common Stock Repurchases by approximately $                . For each day prior to or following the assumed pricing date of                 , 2020 that this offering actually prices, the aggregate purchase price for the shares of common stock subject to such Common Stock Repurchases will increase or decrease by an amount equal to approximately $                 . The closing of the Common Stock Repurchases will be effective as of the pricing date of this offering, immediately following the conversion of the Class A common stock into common stock, subject to and conditioned upon the closing of this offering. The closing of this offering is not conditioned upon the closing of the Common Stock Repurchases.

See “Certain Relationships and Related Party Transactions—Common Stock Repurchases” for more information regarding the Common Stock Repurchases.

Voxtel Acquisition

On November 22, 2019, we entered into an agreement for the purchase of Voxtel, Inc., a privately-held technology company located in Beaverton, Oregon that specializes in components for eye-safe LiDAR for use in ADAS, fully autonomous vehicles, and industrial automation. The total purchase price of the acquisition is approximately $40 million, which includes certain earn-outs that have the potential payout of $15 million. The transaction closed in August 2020. We intend to utilize this technology to develop LiDAR solutions for ADAS applications in the automotive market. Voxtel is uniquely positioned in the LiDAR market providing a vertically integrated solutions stack of lasers, photodetectors, and silicon ICs. Voxtel’s proprietary laser technology has applications in front facing, long-range, scanned, and mechanically moved lasers in LiDAR systems that enable long-range collision avoidance at highway speeds. In addition, Voxtel’s flash-capable lasers for corner and side applications eliminate the mechanical spinning requirement of LiDAR systems. This technology enables images to be obtained over a long-distance and wide field of view using an eye-safe laser. Voxtel’s eye-safe technology offers solutions for all LiDAR applications in automotive vehicles and is currently one of the only solutions in the market that can meet the long-range requirements of leading automotive OEMs.

Risks Associated with Our Business

There are a number of risks that you should understand before making an investment decision regarding this offering. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary. If any of these risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, the trading price of our common stock would likely decline, and you may lose all or part of your investment. These risks include, but are not limited to:

 

   

Downturns or volatility in general economic conditions, including as a result of the current COVID-19 pandemic or any other outbreak of an infectious disease, could have a material adverse effect on our business, financial condition, results of operations and liquidity;

 

   

We face intense competition and may not be able to compete effectively, which could reduce our market share and decrease our net sales and profitability;

 

   

Decreases in average selling prices of our products may reduce our gross margins;

 

   

The cyclical nature of the analog semiconductor industry may limit our ability to maintain or improve our net sales and profitability;

 

   

Substantial portions of our sales are made to automotive industry suppliers. Any downturn in the automotive market could significantly harm our financial results;



 

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If we encounter sustained yield problems or other delays at our third-party wafer fabrication facilities or in the final assembly and test of our products, we may lose sales and damage our customer relationships;

 

   

We have in the past and may in the future implement initiatives designed to improve our competitiveness, growth and profitability. We may fail to realize the full benefits of, and could incur significant costs relating to, any such initiatives, which could materially and adversely affect our business, financial condition and results of operations;

 

   

Our quarterly net sales and operating results are difficult to predict accurately and may fluctuate significantly from period to period. As a result, we may fail to meet the expectations of investors, which could cause our stock price to decline;

 

   

Failure to adjust our supply chain volume due to changing market conditions or failure to estimate our customers’ demand could adversely affect our net sales and could result in additional charges for obsolete or excess inventories or non-cancelable purchase commitments;

 

   

Our dependence on our manufacturing operations in the Philippines exposes us to certain risks that may harm our business;

 

   

Our business, financial condition, results of operations, liquidity and prospects have been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic;

 

   

Changes in government trade policies, including the imposition of tariffs and export restrictions, could limit our ability to sell our products to certain customers or demand from certain customers, which may materially and adversely affect our sales and results of operations;

 

   

If we are unable to protect our proprietary technology and inventions through patents or trade secrets, our ability to compete successfully and our financial results could be adversely impacted; and

 

   

Our principal stockholders Sanken and OEP will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control, and otherwise affect the prevailing market price of our common stock.

Before you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.”

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

   

we are permitted to include only two years of audited consolidated financial statements in this prospectus in addition to any required interim financial statements, and correspondingly required to provide only reduced disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

 

   

we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);

 

   

we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s



 

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report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

   

we may take advantage of extended transition periods for complying with new or revised accounting standards;

 

   

we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes”; and

 

   

we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to our median employee compensation.

We have elected to take advantage of certain of these reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of some or all of these reduced reporting and other requirements in the future. As a result, the information we provide to our stockholders may be different than the information you might receive from other public companies in which you hold equity interests.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period, provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for adopting new or revised accounting standards. As a result, we will be permitted to delay the adoption of new or revised accounting standards until such time as those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period for complying with new or revised accounting standards until the earlier of the date we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of this extended transition period. As a result, our consolidated financial statements and the reported results of operations contained therein may not be directly comparable to those of other public companies.

We may take advantage of the foregoing provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iii) the date on which we are deemed to be a “large accelerated filer,” which will occur as of the end of any fiscal year in which we (x) have an aggregate market value of our common stock held by non-affiliates of  $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) have been required to file annual and quarterly reports under the Exchange Act, for a period of at least 12 months and (z) have filed at least one annual report pursuant to the Exchange Act.

For risks related to our status as an emerging growth company, see “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—We are an ‘emerging growth company,’ and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.”

Corporate Information

We were incorporated in the State of Delaware in March 2013 under the name Sanken North America, Inc. and, in April 2018, changed our name to Allegro MicroSystems, Inc. Our principal executive offices are located at 955 Perimeter Road, Manchester, New Hampshire 03103. Our telephone number is (603) 626-2300, and our website address is www.allegromicro.com/en. The information contained on, or that can be accessed through, our



 

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website is not incorporated by reference in this prospectus and does not form a part of this prospectus. You should not consider information contained on our website to be part of this prospectus in deciding whether to purchase shares of our common stock.

Sanken and One Equity Partners

Sanken was established as the Toho Sanken Electric Co., Ltd. in 1946 as the successor to an industrial technology research institute that began operating in the 1930s.

One Equity Partners (“OEP”) is a private equity firm established in 2001 that manages over $5.0 billion of proprietary investments focused on transformative combinations within the industrial, healthcare and technology sectors in North America and Europe. Since 2001, OEP has invested approximately $13.5 billion to acquire over 106 companies in a variety of industries.

For information regarding Sanken and OEP’s ownership in us after this offering, see “Principal and Selling Stockholders.”



 

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THE OFFERING

 

Common stock offered by us

                shares.

 

Common stock offered by the selling stockholders

                shares.

 

Underwriters’ option to purchase additional shares of common stock

The underwriters have a 30-day option to purchase up to                 additional shares of common stock from the selling stockholders at the public offering price less the underwriting discount, as described under the heading “Underwriting.”

 

Common stock to be outstanding after this offering

                shares.

 

Use of proceeds

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $         million, based upon the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

  We intend to use approximately $          million of the net proceeds received by us from this offering to repay borrowings under our Term Loan Facility, and the remaining net proceeds for working capital and other general corporate purposes, which may include additional debt repayments. We will not receive any proceeds from the sale of any shares of our common stock by the selling stockholders in this offering. See “Use of Proceeds.”

 

Dividend policy

We do not expect to pay any dividends on our common stock for the foreseeable future. See “Dividend Policy.”

 

Listing

We have applied to list our common stock on the Nasdaq Global Select Market under the symbol “ALGM.”

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 26 and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

The number of shares of our common stock to be outstanding after this offering is based on an assumed                  shares of common stock outstanding as of June 26, 2020 (including                  shares of restricted common stock issued in respect of the Remaining Restricted Class L Shares (as defined below)), after giving effect to:

 

   

our repurchase, in October 2020, of an aggregate of 2,050 shares of our Class L common stock from certain of our directors and one of our non-executive employees for an initial aggregate purchase price of approximately $0.4 million (subject to increase as described elsewhere in this prospectus under



 

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“Certain Relationships and Related Party Transactions—Repurchase of Class L Shares”) in connection with, (i) in the case of such directors, the settlement of certain outstanding promissory notes issued to such directors that were required to be settled prior to the public filing of the registration statement of which this prospectus forms a part (as described elsewhere in this prospectus under “Certain Relationships and Related Party Transactions—Director and Executive Officer Promissory Notes”), and (ii) in the case of such non-executive employee, to satisfy certain withholding tax obligations triggered by the vesting of such shares in accordance with the terms of the applicable award agreement (the “Class L Share Repurchases”);

 

   

the automatic conversion, immediately following the pricing of this offering, of all outstanding shares of our Class A common stock and Class L common stock (including                 shares of Class L common stock held by certain of our directors, executive officers and other employees as of June 26, 2020 that will not automatically vest prior to the closing of this offering (the “Remaining Restricted Class L Shares”), but excluding the shares of our Class L common stock purchased in the Class L Share Repurchases) into an aggregate of                  shares of our common stock (the “Common Stock Conversion”)); and

 

   

the consummation of the Common Stock Repurchases which, after giving effect to the Common Stock Conversion, will result in the repurchase by us of an aggregate of                 shares of common stock from certain of our executive officers and other employees as described elsewhere in this prospectus under “—Recent Developments—Common Stock Repurchases,” at an assumed repurchase price of $                 per share (which is based on an assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a                 , 2020 pricing date of this offering;

and excludes:

 

   

                 shares of common stock reserved for future issuance under our 2020 Omnibus Incentive Compensation Plan (the “2020 Plan”), which will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, as more fully described in “Executive and Director Compensation—Equity Compensation—2020 Omnibus Incentive Compensation Plan” (which number includes shares of our common stock issuable upon the vesting and settlement of restricted stock units (“RSUs”) to be granted under our 2020 Plan in connection with this offering as IPO Grants or LTCIP/TRIP Conversion Grants (each, as hereinafter defined)), as well as shares of common stock that may be issued pursuant to provisions in the 2020 Plan that automatically increase the common stock reserve under such plan; and

 

   

                shares of common stock reserved for future issuance under our 2020 Employee Stock Purchase Plan (the “2020 ESPP”), which will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, as more fully described in “Executive and Director Compensation—Equity Compensation—2020 Employee Stock Purchase Plan,” as well as shares of common stock that may be issued pursuant to provisions in the 2020 ESPP that automatically increase the common stock reserve under such plan.

Unless otherwise indicated or the context otherwise requires, all information contained in this prospectus assumes:

 

   

the consummation of the Class L Share Repurchases in October 2020;

 

   

the consummation of the Common Stock Conversion immediately following the pricing of this offering, based on an assumed pricing date of                 , 2020;



 

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our repurchase of                  shares of common stock pursuant to the Common Stock Repurchases prior to the closing of this offering, at an assumed repurchase price of $             per share (which is based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a pricing date of                 , 2020 (a $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the number of shares subject to such Common Stock Repurchases by                 ; for each day prior to (following) the assumed pricing date of                 , 2020 that this offering actually prices, the number of shares subject to such Common Stock Repurchases would increase (decrease) by [                ] shares);

 

   

the filing and effectiveness of our amended and restated certificate of incorporation (the “Post-IPO Certificate of Incorporation”) and the adoption of our amended and restated bylaws (the “Post-IPO Bylaws”), each of which will occur immediately prior to the closing of this offering;

 

   

no forfeiture of any shares of unvested Class A common             stock or unvested Class L common stock after June 26, 2020; and

 

   

no exercise of the underwriters’ option to purchase additional shares of our common stock from the selling stockholders.



 

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Summary Historical and Pro Forma Consolidated Financial and Other Data

The following tables summarize our historical and pro forma consolidated financial and other data for the periods ending on and as of the dates indicated. We have derived our summary consolidated statements of income and consolidated cash flow data for each of the fiscal years ended March 29, 2019 and March 27, 2020 and the consolidated balance sheet data as of March 27, 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived our summary consolidated statements of income and consolidated cash flow data for the three-month period ended June 28, 2019 and June 26, 2020 and the consolidated balance sheet data as of June 26, 2020 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial information set forth below on the same basis as our audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations as of the applicable dates and for the applicable periods.

Our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full year. Additionally, our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following summary consolidated financial information together with the information under the sections titled “Capitalization,” “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this prospectus.

The summary unaudited pro forma consolidated financial data presented below have been derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. The summary unaudited pro forma consolidated statements of income data for the fiscal year ended March 27, 2020 and the three-month period ended June 26, 2020 give effect to the PSL Divestiture and the transfer of the Sanken products distribution business, the Refinancing, and our incurrence of $325.0 million of debt under the Term Loan Facility and our use of $                 of the net proceeds of this offering to repay borrowings thereunder as if each had occurred on March 30, 2019 (the first day of our fiscal year ended March 27, 2020). The unaudited pro forma consolidated balance sheet as of June 26, 2020 gives effect to this offering and the Offering-Related Transactions (as defined elsewhere in this prospectus under “Unaudited Pro Forma Consolidated Financial

Data”) as if they had occurred on June 26, 2020. The unaudited pro forma consolidated financial statements are intended for illustrative purposes only and are not indicative of what our operations would have been had such transactions taken place on the date indicated, or that may be expected to occur in the future. See “Unaudited Pro Forma Consolidated Financial Data” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial data.

 

     Fiscal Year Ended(1)      Three-Month Period Ended(2)  
     March 29,
2019
     March 27,
2020
     Pro Forma
March 27,
2020
     June 28,
2019
     June 26,
2020
     Pro Forma
June 26, 2020
 
     (amounts in thousands, except share and per share data)  

Consolidated Statements of Income:

              

Total net sales(3)

   $ 724,311      $ 650,089      $ 542,297      $ 152,443      $ 115,001      $ 115,001  

Cost of goods sold

     404,491        388,813        278,726        93,056        59,300        55,917  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     319,820        261,276        263,571        59,387        55,701        59,084  

Operating expenses:

                 

Research and development

     107,585        102,052        98,773        26,128        24,380        24,380  

Selling, general and administrative

     112,236        106,396        98,293        25,528        26,789        26,789  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     219,821        208,448        197,066        51,656        51,169        51,169  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


 

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     Fiscal Year Ended(1)     Three-Month Period Ended(2)  
     March 29,
2019
    March 27,
2020
    Pro Forma
March 27,
2020
    June 28,
2019
    June 26,
2020
     Pro Forma
June 26, 2020
 
     (amounts in thousands, except share and per share data)  

Income from operations

     99,999       52,828       66,505       7,731       4,532        7,915  

Other (expense) income:

             

Interest (expense) income, net

     (1,211     (110     1,327       (5     313        313  

Foreign currency transaction (loss) gain

     (906     1,391       1,389       2,751       132        132  

Loss from equity investee

     —         —         (2,875     —         212        212  

Other, net

     1,560       (831     (548     93       193        193  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total other (expense) income, net

     (557     450       (707     2,839       850        850  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before provision for income taxes

     99,442       53,278       65,798       10,570       5,382        8,765  

Provision for income taxes

     14,600       16,173       12,732       7,335       528        1,286  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income

     84,841       37,105       53,066       3,235       4,854        7,479  

Net income attributable to non-controlling interests

     117       134       134       51       34        34  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income attributable to Allegro MicroSystems, Inc.

   $ 84,724     $ 36,971     $ 52,932     $ 3,184     $ 4,820      $ 7,445  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income per share attributable to common stockholders(4):

             

Basic and diluted

   $ 8.47     $ 3.70     $ 5.29     $ 0.32     $ 0.48      $ 0.74  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Weighted average shares used to compute net income per share attributable to common stockholders(4)

             

Basic and diluted

     10,000,000       10,000,000       10,000,000       10,000,000       10,000,000        10,000,000  

Pro-Forma net income per share attributable to common stockholders (unaudited)(4)

             

Basic and diluted

     $       $         $        $    
    

 

 

   

 

 

     

 

 

    

 

 

 

Weighted-average shares used to compute pro forma net income per share attributable to common stockholders (unaudited)(4)

             

Basic and diluted

             
    

 

 

   

 

 

     

 

 

    

 

 

 


 

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Table of Contents
     Fiscal Year Ended(1)     Three-Month Period Ended(2)  
     March 29,
2019
    March 27,
2020
    Pro Forma
March 27,
2020
    June 28,
2019
    June 26,
2020
    Pro Forma
June 26,
2020
 
     (amounts in thousands, except share and per share data)  

Consolidated Statements of Cash Flows Data:

            

Net cash provided by operating activities

   $ 121,088     $ 81,419       $ 409     $ 25,666    

Net cash used in investing activities

     (97,522     (41,679       (6,945     (24,309  

Net cash (used in) provided by financing activities

     (39,743     82,500         30,000       —      

Other Data:

            

Gross margin(5)

     44.2     40.2     48.6     39.0     48.4     51.4

Adjusted Gross Profit(6)

   $ 320,006     $ 261,448     $ 263,743     $ 59,432     $ 59,656     $ 59,656  

Adjusted Gross Margin(6)

     44.2     40.2     48.6     39.0     51.9     51.9

Adjusted EBITDA(7)

   $ 166,811     $ 132,201     $ 125,490     $ 24,047     $ 26,112     $ 26,112  

Adjusted EBITDA margin(7)

     23.0     20.3     23.1     15.8     22.7     22.7

 

     As of June 26, 2020  
     Actual      Pro Forma(8)  
     (in thousands)  

Consolidated Balance Sheet Data:

     

Cash and cash equivalents

   $  215,576      $                

Working capital(10)

     298,254     

Total assets

     749,494     

Total debt(11)

     33,000     

Total liabilities

     125,559     

Additional paid-in capital

     439,679     

Total stockholders’ equity

     623,935     

 

(1)

We operate on a 52- or 53-week fiscal year ending on the last Friday of March. All fiscal years presented herein consist of 52 weeks.

(2)

Our first quarter three-month period is a 13-week period ending on a Friday in June.

(3)

Our historical and pro forma total net sales for the periods presented above include related party net sales generated through our distribution agreement with Sanken. Our historical total net sales for the fiscal years ended March 29, 2019 and March 27, 2020 and for the three-month period ended June 28, 2019 also include related party net sales related to the sale of wafer foundry products to Sanken by PSL and net sales related to our distribution of Sanken products in North America, South America and Europe which, in each case, we did not recognize during the three-month period ended June 26, 2020 and will not recognize in any future period due to our consummation of the Divestiture Transactions. See our consolidated financial statements and the related notes thereto included elsewhere in this prospectus and the information set forth under “Unaudited Pro Forma Consolidated Financial Data” for additional information regarding our historical and pro forma total and related party net sales.

(4)

See Notes 2 and 16 to our audited consolidated financial statements and Notes 2 and 16 to our unaudited consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate our historical and pro forma basic and diluted net income per share attributable to common stockholders.

(5)

Gross margin is calculated as gross profit divided by total net sales.



 

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Table of Contents
(6)

Adjusted Gross Profit is defined as GAAP gross profit, as adjusted as shown in the table below. Adjusted Gross Margin is defined as Adjusted Gross Profit divided by total net sales.

The following tables present a reconciliation of our total net sales to Adjusted Gross Profit and the related Adjusted Gross Margin for the periods presented:

 

     Fiscal Year Ended     Pro Forma     Three-Month Period
Ended
    Pro Forma  
     March 29,
2019
    March 27,
2020
    March 27,
2020
    June 28,
2019
    June 26,
2020
    June 26,
2020
 
           (dollars in thousands)        

Total net sales

   $  724,311     $  650,089     $  542,297     $  152,443     $  115,001     $  115,001  

Cost of goods sold

     404,491       388,813       278,726       93,056       59,300       55,917  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $  319,820     $  261,276       263,571     $ 59,387     $  55,701       59,084  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PSL and Sanken Distribution Agreement(a)

                                         3,383           

Stock-based compensation(b)

     186       172       172       45       28       28  

AMTC facility consolidation one-time costs(c)

                                         544       544  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross profit(*)

   $  320,006     $  261,448       263,743     $  59,432     $  59,656       59,656  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross margin(*)

     44.2     40.2 %      48.6 %      39.0 %      51.9 %      51.9

 

  (*)

Adjusted Gross Profit, and the corresponding calculation of Adjusted Gross Margin, do not include adjustments for an additional $10,037 and $3,074 for the pro forma year ended March 27, 2020 and the pro forma three-month period ended June 26, 2020 respectively, consisting of:

   

Additional AMTC related costs of $9,361 and $3,074 for the pro forma year ended March 27, 2020 and the pro forma three-month period ended June 26, 2020 respectively relating to the closing of our AMTC Facility and the transitioning of test and assembly functions to our AMPI Facility in fiscal year 2020 consisting of the net savings resulting from the movement of work to our AMPI Facility, which facility had duplicative capacity based on our buildouts of the AMPI Facility in our fiscal years 2019 and 2018. The elimination of these costs is not expected to reduce our production capacity and therefore did not have direct effects on our ability to generate revenue. The closure and transition of the AMTC Facility is expected to be substantially complete by the end of March 2021.

   

Labor savings costs $676 and $0 for the pro forma year ended March 27, 2020 and the pro forma three month period ended June 26, 2020 respectively related to employees whose positions were eliminated through voluntary separation programs or other reductions in force (not associated with the closure of the AMTC Facility or any other plant or facility) and a restructuring of overhead positions from high-cost to low-cost jurisdictions undertaken during fiscal year 2020 and the three-month period ended June 26, 2020, net of costs for newly hired employees in connection with such restructuring.

  (a)

Represents the removal of inventory cost amortization and Foundry service payment related to one-time costs incurred in connection with the disposition of PSL in the Company’s fiscal year 2021. These costs were all incurred by the Company during the fiscal quarter ended June 26, 2020.

  (b)

Represents non-cash expenses arising from the grant of stock awards to employees.

  (c)

Represents one-time costs incurred in connection with closing of the AMTC Facility and transitioning of test and assembly functions to AMPI Facility announced and initiated in fiscal year 2020. These costs consist of moving equipment between facilities, contract terminations and other non-recurring charges. This closure and transition is expected to be substantially complete by end of March 2021. These costs are in addition to, and not duplicative of, the adjustments noted in note (*) above.



 

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(7)

Adjusted EBITDA is defined as GAAP net income, as adjusted as shown in the table below. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total net sales.

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of our performance, are not defined by or presented in accordance with GAAP, and should not be considered in isolation or as an alternative to net income or any other performance measure prepared in accordance with GAAP. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are presented because we believe that they provide useful supplemental information to investors, analysts and rating agencies regarding our operating performance and our capacity to incur and service debt and fund capital expenditures and are frequently used by these parties in evaluating companies in our industry. By presenting EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, we provide a basis for comparison of our business operations between periods by excluding items that we do not believe are indicative of our core operating performance. We believe that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as they provide a reasonable basis for comparing our ongoing results of operations. Additionally, our management uses EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our performance because they assist us in comparing the operating performance of our business on a consistent basis between periods, as described above.

Although we use EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as described above, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin have significant limitations as analytical tools. Some of these limitations include:

 

   

such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

 

   

such measures exclude certain costs which are important in analyzing our GAAP results;

 

   

such measures do not reflect changes in, or cash requirements for, our working capital needs;

 

   

such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

 

   

such measures do not reflect our tax expense or the cash requirements to pay our taxes;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and

 

   

other companies in our industry may calculate such measures differently than we do, thereby further limiting their usefulness as comparative measures.

Due to these limitations, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments for, among other things, foreign currency transaction gain (loss) and stock-based compensation. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results between periods and with the operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. Nevertheless, because of the limitations described above, management does not view EBITDA, Adjusted EBITDA or Adjusted EBITDA margin in isolation and also uses other measures, such as total net sales, operating income and net income, to measure operating performance.



 

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The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income:

 

     Fiscal Year Ended     Three-Month Period Ended  
     March 29,
2019
    March 27,
2020
    Pro Forma(a)
March 27,
2020
    June 28,
2019
    June 26,
2020
    Pro Forma(a)
June 26,
2020
 
     (dollars in thousands)        

Net Income

   $ 84,841     $ 37,105     $ 53,066     $ 3,235     $ 4,854     $ 7,479  

Interest expense (income), net

     1,211       110       (1,327     5       (313     (313

Income tax provision

     14,600       16,173       12,732       7,335       528       1,286  

Depreciation and amortization

     59,886       64,048       44,673       15,489       11,539       11,539  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     160,538       117,436       109,144       26,064       16,608       19,991  

Non-core (gain) loss on sale of equipment(b)

     (1,042     1,284       1,001       (6     (139     (139

Foreign currency transaction loss (gain)(c)

     906       (1,391     (1,389     (2,751     (132     (132

Loss (gain) from equity method investment(d)

     —         —         2,875       —         (212     (212

Stock-based compensation(e)

     1,441       1,435       1,389       374       445       445  

Transaction fees(f)

     4,081       6,335       5,368       366       117       117  

Severance(g)

     887       6,415       6,415       —         29       29  

COVID-19-related expenses(h)

     —         581       581       —         4,000       4,000  

AMTC Facility consolidation one-time costs(i)

     —         106       106      
—  
 
    1,705       1,705  

Inventory cost amortization(j)

     —         —         —         —         1,583       —    

Foundry service payment(k)

     —         —         —         —         1,800       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA()

   $ 166,811     $ 132,201     $ 125,490     $ 24,047     $ 26,112     $ 26,112  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin()

     23.0     20.3     23.1     15.8     22.7     22.7

 

  (†)

Adjusted EBITDA, and the corresponding calculation of Adjusted EBITDA margin, do not include adjustments for the following components of our net income, each of which is permitted adjustment to Adjusted EBITDA pursuant to our Term Loan Facility:

 

     Fiscal Year Ended      Three-Month Period Ended  
     March 27,
2020
     Pro Forma
March 27,
2020
     June 28,
2019
     June 26,
2020
     Pro Forma
June 26,
2020
 

Additional AMTC related costs

   $ 11,224      $ 11,224      $ 2,773      $ 3,398      $ 3,398  

Labor savings

   $ 6,173      $ 6,173      $ 2,399      $ 109      $ 109  

Total

   $ 17,397      $ 17,397      $ 5,172      $ 3,507      $ 3,507  

Additional AMTC related costs are costs in excess of the AMTC Facility consolidation one-time costs set forth in the above table relating to the transitioning of test and assembly functions to our AMPI Facility in fiscal year 2020 consisting of the net savings resulting from the movement of work to our AMPI Facility, which facility had duplicative capacity based on our buildouts of the AMPI Facility in our fiscal years 2019 and 2018. The elimination of these costs is not expected to reduce our production capacity and therefore did not have direct effects on our ability to generate revenue. The closure and transition of the AMTC facility is expected to be substantially complete by the end of March 2021.

Labor savings relate to salary and benefit costs incurred associated with employees whose positions were eliminated through voluntary separation programs or other reductions in force (not associated with the closure of the AMTC Facility or any other plant or facility) and a restructuring of overhead positions from high-cost to low-cost jurisdictions undertaken during fiscal year 2020 and the three-month period ended June 26, 2020, net of costs for newly hired employees in connection with such restructuring.



 

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Table of Contents
  (a)

The information set forth in this column gives effect to the PSL Divestiture and the transfer of the Sanken products distribution business to PSL and the Refinancing, and our incurrence of $325.0 million of debt under the Term Loan Facility and our use of $             of the net proceeds of this offering to repay borrowings thereunder as if each had occurred on March 30, 2019 (the first day of our fiscal year ended March 27, 2020). See “Unaudited Pro Forma Consolidated Financial Data” for a complete description of the adjustments and assumptions underlying the pro forma consolidated financial data.

  (b)

Represents non-core miscellaneous losses on the sale of equipment.

  (c)

Represents gains and losses resulting from the remeasurement and settlement of intercompany debt and operational transactions, as well as transactions with external customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded.

  (d)

Represents our equity method investment in PSL. The loss of $2,875 in fiscal year 2020 represents the pro forma calculated loss. The $212 of income in the three-month period ended June 26, 2020 represents the actual amounts reported.

  (e)

Represents non-cash expenses arising from the grant of stock awards to employees.

  (f)

Represents transaction-related legal and consulting fees incurred primarily in connection with (i) the unsuccessful acquisition of a competitor in fiscal year 2019, (ii) the acquisition of Voxtel, Inc. in fiscal year 2020, and (iii) the PSL Divestiture and the transfer of the Sanken products distribution business to PSL in fiscal year 2020.

  (g)

Represents severance costs recorded in the applicable period. The amounts include $3,226 in fiscal year 2020 and $29 in the three-month period ended June 26, 2020 associated with labor savings initiatives to manage overall compensation expense as a result of the declining sales volume. These initiatives included a voluntary separation incentive payment plan for employees near retirement and a reduction in force. In addition, the amounts include $3,189 in severance costs recorded in fiscal year 2020 and $308 in the three-month period ended June 26, 2020 associated with the closing of the AMTC Facility and the transitioning of test and assembly functions to the AMPI Facility announced and initiated in fiscal year 2020.

  (h)

Represents expenses attributable to the COVID-19 pandemic. These costs primarily related to increased purchases of masks, gloves and other protective materials, and overtime premium compensation paid for maintaining 24-hour service at the AMPI Facility.

  (i)

Represents one-time costs incurred in connection with closing of the AMTC facility and transitioning of test and assembly functions to AMPI facility announced and initiated in fiscal year 2020. These costs consist of moving equipment between facilities, contract terminations and other non-recurring charges. This closure and transition is expected to be substantially complete by end of March 2021. These costs are in addition to, and not duplicative of, the adjustments noted in note (†) above.

  (j)

Represents $1.6 million of intercompany inventory transactions incurred from purchases made from PSL in fiscal year 2020. Such costs are one-time incurred expenses impacting our operating results during fiscal year 2021 following the PSL Divestiture. Such costs are not expected to have a continuing impact on our operating results after our second fiscal quarter of fiscal year 2021.

  (k)

Represents $1.8 million of foundry service payments incurred under the Price Support Agreement in respect to the guaranteed capacity at PSL to support our production forecast during the three-month period ended June 26, 2020 and are one-time costs incurred impacting our operating results during fiscal year 2021 following the PSL Divestiture. Such costs are not expected to have a continuing impact on our operating results after fiscal year 2021.

 

(8)

Reflects our consolidated balance sheet as of June 26, 2020, after giving effect to the Offering-Related Transactions (as defined elsewhere in this prospectus under “Unaudited Pro Forma Consolidated Financial Data”) as if each had occurred on June 26, 2020.

(9)

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the



 

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  amount of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $        , assuming the shares of our common stock offered by this prospectus are sold at the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and will be adjusted based on the actual initial public offering price, the number of shares we sell and other terms of this offering that will be determined at pricing.
(10)

We define working capital as total current assets minus total current liabilities.

(11)

Total debt as of June 26, 2020 consisted of $33.0 million in aggregate principal amount of debt outstanding, which included $25.0 million in aggregate principal amount of debt outstanding under the AML Revolver and $8.0 million in aggregate principal amount of debt outstanding under the AML Line of Credit. On September 30, 2020, we (i) incurred $325.0 million of additional debt under the Term Loan Facility in connection with the Recapitalization, (ii) obtained $50.0 million of revolving commitments under the Revolving Credit Facility, and (iii) used cash on hand to repay all amounts outstanding under the AML Revolver and the AML Line of Credit and terminated all commitments thereunder. We intend to use approximately $         million of the net proceeds from this offering to repay borrowings under our Term Loan Facility, reducing total borrowings under our Term Loan Facility to $         million. See “Use of Proceeds” for additional information. For a discussion of our debt obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt Obligations” and “Description of Certain Indebtedness.”



 

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RISK FACTORS

An investment in our common stock involves risks. You should consider these risks carefully, as well as the other information contained in this prospectus. If any of these risks actually occurs, our business, financial condition and results of operations could be harmed materially. In that event, the trading price of our common stock might decline, and you might lose all or part of your investment. You should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes. Additional risks and uncertainties not presently known to us or not believed by us to be material may also negatively impact us.

Risks Related to Our Business and Industry

Downturns or volatility in general economic conditions, including as a result of the current COVID-19 pandemic or any other outbreak of an infectious disease, could have a material adverse effect on our business, financial condition, results of operations and liquidity.

Our net sales, gross margin, and profitability depend significantly on general economic conditions and the demand for products in the markets in which our customers compete. Weaknesses in the global economy and financial markets, including the current weaknesses resulting from the ongoing COVID-19 pandemic, have led to, and any adverse changes in general domestic and global economic conditions that may occur in the future, including any recession, economic slowdown or disruption of credit markets, may also lead to, lower demand for products that incorporate our solutions, particularly in the automotive and industrial markets. A decline in end-user demand can affect our customers’ demand for our products, the ability of our customers to obtain credit and otherwise meet their payment obligations and the likelihood of customers canceling or deferring existing orders. Our net sales, financial condition and results of operations could be negatively affected by such actions.

Volatile and/or uncertain economic conditions can adversely impact sales, gross margin and profitability and make it difficult for us to accurately forecast and plan our future business activities. To the extent we incorrectly plan for favorable economic conditions that do not materialize or take longer to materialize than expected, we may face oversupply of our products relative to customer demand. Conversely, if we underestimate customer demand, we may manufacture products that we may not be able to sell. As a result, we would have excess inventory, which could result in losses. To the extent that our sales, profitability and strategies are negatively affected by downturns or volatility in general economic conditions, our business, financial condition and results of operations may be materially and adversely affected.

In addition, any disruption in the credit markets, including as a result of the current COVID-19 pandemic, could impede our access to capital, which could be further adversely affected if we are unable to obtain or maintain favorable credit ratings. If we have limited access to additional financing sources, we may be required to defer capital expenditures or seek other sources of liquidity, which may not be available to us on acceptable terms or at all. Similarly, if our suppliers face challenges in obtaining credit or other financial difficulties, they may be unable to provide the materials we need to manufacture our products. All of these factors related to global economic conditions, which are beyond our control, could adversely impact our business, financial condition, results of operations and liquidity. For a more detailed discussion of the COVID-19 pandemic and its recent and potential impact on our business, financial condition, results of operations and liquidity, see “—Our business, financial condition, results of operations, liquidity and prospects have been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic.”

We face intense competition and may not be able to compete effectively, which could reduce our market share and decrease our net sales and profitability.

We are engaged in an intensely competitive segment of the global semiconductor industry. Our competitive landscape includes rapid technological change in product design and manufacturing, continuous declines in

 

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ASPs, and customers that make purchase decisions based on a mix of factors of varying importance. The most important competitive factors that we face are time to market, system and application expertise and product quality and reliability. The relative importance placed on each of these factors varies from customer-to-customer and from market-to-market. Our ability to compete in this environment depends on many factors, including our ability to identify emerging markets and technology trends in an accurate and timely manner, introduce new and innovative products, implement new manufacturing technologies at a sustainable pace, maintain the performance and quality of our products, and manufacture our products in a cost-effective manner, as well as our competitors’ performance and general economic and industry market conditions.

Often, we compete against larger companies that possess substantial financial, technical, development, engineering, manufacturing and marketing resources. Varying combinations of these resources provide advantages to these competitors that enable them to influence industry trends and the pace at which they adapt to these trends. A strong competitive response from one or more of our competitors to our marketplace efforts, or a shift in customer preferences to competitors’ products, could result in increased pressure to lower our prices more rapidly than anticipated, increased sales and marketing expense, and/or market share loss. To the extent our profitability is negatively impacted by competitive pressures and reduced pricing, our business, financial condition, results of operations and growth prospects may be materially and adversely affected.

Decreases in average selling prices of our products may reduce our gross margins.

The market for our products is generally characterized by declining ASPs resulting from factors such as increased competition, overcapacity, the introduction of new products and increased unit volumes. We have in the past experienced, and in the future may experience, substantial period-to-period fluctuations in operating results due to declining ASPs. We anticipate that ASPs may decrease in the future in response to the introduction of new products by us or our competitors, or due to other factors, including pricing pressures from our customers. We typically conduct annual pricing negotiations for our existing products with some of our largest customers. In order to sustain profitable operations, we must continually reduce costs for our existing products and also develop and introduce new products with enhanced features on a timely basis that can be sold initially at higher ASPs. Failure to do so could cause our net sales and gross margins to decline, which would negatively affect our financial condition and results of operations and could significantly harm our business.

We may be unable to reduce the cost of our products sufficiently to enable us to compete with others. Our cost reduction efforts may not allow us to keep pace with competitive pricing pressures and could adversely affect our gross margins. We maintain an infrastructure of facilities and human resources in several locations around the world and, as a result, have limited ability to reduce our operating costs. Accordingly, in order to remain competitive, we must continually reduce the cost of manufacturing our products through design and engineering changes. We cannot assure you that we will be successful in redesigning our products and bringing redesigned products to the market in a timely manner, or that any redesign will result in sufficient cost reductions to allow us to reduce the price of our products to remain competitive or maintain or improve our gross margins. To the extent we are unable to reduce the prices of our products and remain competitive, our net sales will likely decline, resulting in further pressure on our gross margins, which could have a material adverse effect on our business, financial condition and results of operations and our ability to grow our business.

The cyclical nature of the analog semiconductor industry may limit our ability to maintain or improve our net sales and profitability.

The semiconductor industry, including the analog segment of the industry in which we compete, is highly cyclical and is prone to significant downturns from time to time. Cyclical downturns can result from a variety of market forces including constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand, all of which can result in significant declines in analog semiconductor demand. We have experienced downturns in the past and may experience such downturns in the future. For example, the industry experienced a significant downtown

 

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in connection with the most recent global recession in 2008, and further experienced a downturn in 2019, which may be prolonged as a result of the economic impact of the COVID-19 pandemic. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. Recently, downturns in the semiconductor industry have been attributed to a variety of factors, including the current COVID-19 pandemic, ongoing trade disputes among the United States and China, weakness in demand and pricing for semiconductors across applications and excess inventory. Recent downturns have directly impacted our business, as has been the case with many other companies, suppliers, distributors and customers in the semiconductor industry and other industries around the world, and any prolonged or significant future downturns in the semiconductor industry could have a material adverse effect on our business, financial condition and results of operations. Conversely, significant upturns can cause us to be unable to satisfy demand in a timely and cost-efficient manner and could result in increased competition for access to third-party foundry and assembly capacity. In the event of such an upturn, we may not be able to expand our workforce and operations in a sufficiently timely manner, procure adequate resources and raw materials, or locate suitable third-party suppliers or other third-party subcontractors to respond effectively to changes in demand for our existing products or to the demand for new products requested by our customers, and our business, financial condition and results of operations could be materially and adversely affected.

Substantial portions of our sales are made to automotive industry suppliers. Any downturn in the automotive market could significantly harm our financial results.

Our customers that supply various systems and components to automotive OEMs accounted for approximately 61.4% and 60.8% of our total net sales in fiscal years 2019 and 2020, respectively, and approximately 72.3% and 72.9% of our total net sales in such fiscal years after excluding net sales from our wafer foundry products and our distribution of Sanken products which, in each case, we will not recognize in periods following fiscal year 2020 due to our consummation of the Divestiture Transactions. Our net sales to such customers accounted for approximately 60.6% of our total net sales during the three-month period ended June 28, 2019 (or approximately 72.9% of our total net sales in such period after excluding net sales from our wafer foundry products and our distribution of Sanken products) and approximately 66.4% of our total net sales during the three-month period ended June 26, 2020. This concentration of sales exposes us to the risks associated with the automotive market. For example, our anticipated future growth is highly dependent on the adoption of autonomous driving technologies, which are expected to have increased sensor and power product content. A downturn in the automotive market could delay automakers’ plans to introduce new vehicles with these features, which would negatively impact the demand for our products and our ability to grow our business.

The automotive industry is also undergoing consolidation and reorganization and, in some cases, suppliers to the automotive industry have entered bankruptcy. Although we have not experienced any lost business or material bad debt write-offs as a result of this, further such changes in the automotive market could have a material adverse effect on our business, financial condition and results of operations.

Moreover, as a result of the COVID-19 pandemic and the associated responses by governments of various countries to prevent its spread, the automotive industry, including manufacturers, dealers, distributors and third-party suppliers has been adversely impacted. For example, many automotive manufacturers were forced to suspend manufacturing operations and have only recently resumed production. In addition, government-imposed restrictions on businesses, operations and travel and the related economic uncertainty have impacted demand in many global markets. While demand in the automotive industry is dependent on a number of factors, automotive manufacturers expect the impact of COVID-19 to be highly dependent on its duration and severity. The foregoing impacts and other adverse effects on the automotive industry could have a material adverse effect on our business, financial condition and results of operations, as well as our ability to execute our growth strategy.

Shifts in our product mix or customer mix may result in declines in gross margin.

Gross margins on individual products fluctuate over the product’s life cycle. Our overall gross margins have fluctuated from period to period as a result of shifts in product mix, customer mix, the introduction of new

 

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products, decreases in ASPs for older products and our ability to reduce product costs. These fluctuations are expected to continue in the future.

If we encounter sustained yield problems or other delays at our third-party wafer fabrication facilities or in the final assembly and test of our products, we may lose sales and damage our customer relationships.

The manufacture of our products, including the fabrication of semiconductor wafers, and the assembly and testing of our products, involve highly complex processes. For example, minute levels of contaminants in the manufacturing environment, difficulties in the wafer fabrication process or other factors can cause a substantial portion of the components on a wafer to be nonfunctional. These problems may be difficult to detect at an early stage of the manufacturing process and often are time-consuming and expensive to correct. From time to time, we have experienced problems achieving acceptable yields at our third-party wafer fabrication partners, resulting in delays in the availability of components. Moreover, an increase in the rejection rate of products during the quality control process before, during or after manufacture and/or shipping of such products, results in lower yields and margins. In addition, changes in manufacturing processes required as a result of changes in product specifications, changing customer needs and the introduction of new product lines have historically significantly reduced our manufacturing yields, resulting in low or negative margins on those products. Poor manufacturing yields over a prolonged period of time could adversely affect our ability to deliver our products on a timely basis and harm our relationships with customers, which could materially and adversely affect our business, financial condition and results of operations.

In the event of a disruption at one of our primary third-party wafer fabrication facilities, we may be required to transition our manufacturing capabilities to another facility, which could impact production efficiency and our ability to meet our customers’ needs.

Our reliance on a limited number of third-party wafer fabrication facilities, primarily PSL, United Microelectronics Corporation (“UMC”) and Taiwan Semiconductor Manufacturing Company (“TSMC”), for the fabrication of semiconductor wafers used in the manufacture of our IC products means that any disruption in their supply of wafers (including ceasing or suspending operations entirely), may require us to transfer manufacturing processes to a new location or facility. Significant disruptions in our third-party wafer fabrication facilities could occur as a result of a number of events, including, for example, the recent COVID-19 pandemic and certain natural disasters, such as earthquakes, which are commonplace in Taiwan (where both UMC and TSMC are located). Converting or transferring such fabrication processes from one of our primary facilities to an alternative or backup facility due to a disruption would likely be expensive and could take substantial time, given our highly complex manufacturing and fabrication processes, which incorporate our proprietary technologies. During such a transition, we may attempt to meet customer demand through our existing inventories, or may attempt to modify partially finished goods to meet the required fabrication specifications. Given the rapid obsolescence timeline to which our products are typically subject, however, we generally do not maintain significant levels of excess inventory and, as a result, it is unlikely that our existing inventory will be sufficient to meet customer demand during such a transition. In addition, any attempt to modify partially finished goods to meet the required fabrication specifications may not be successful and will require us to incur unanticipated costs. As a result, we may not be able to meet our customers’ needs during such a transition, which would negatively impact our net sales, potentially damage our customer relationships and our reputation and may have a material adverse effect on our business, financial condition and results of operations.

We have in the past and may in the future implement initiatives designed to improve our competitiveness, growth and profitability. We may fail to realize the full benefits of, and could incur significant costs relating to, any such initiatives, which could materially and adversely affect our business, financial condition and results of operations.

Beginning in 2016, we began a multi-year strategic transition to extend our market leadership through targeted product portfolio expansion; to improve our operating model through a more nimble, fabless and asset-

 

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lite manufacturing strategy; to increase our IC design footprint and capacity; and to accelerate growth through enhanced sales operations. In connection with this transition, we have recently implemented a number of initiatives designed to improve our operating results. For example, subsequent to the end of fiscal year 2020, in order to further our strategy for developing a flexible and efficient manufacturing model that minimizes capital requirements, lowers operating costs, enhances reliability of supply and supports our growth going forward, we consummated the PSL Divestiture, transferred our Sanken products distribution business to PSL, and entered into certain other agreements and transactions with PSL, in each case, as more fully described elsewhere in this prospectus under “Prospectus Summary—The Divestiture Transactions,” In addition, in February 2020, we announced that we would consolidate our assembly and test facilities into a single site located at the AMPI Facility.

We continue to evaluate opportunities to reduce our manufacturing cost and may implement additional initiatives designed to improve our gross margin and operating results and may perform future restructurings. We cannot assure you that we will realize the cost savings and productivity improvements we expect as a result of these or any future restructuring and cost improvement initiatives. These efforts involve a significant investment of financial and human resources and significant changes to our operating processes. Future initiatives to transfer or consolidate manufacturing operations could also involve significant start-up or qualification costs for new or repurposed facilities. The failure to realize the full benefits of, or the incurrence of significant costs relating to, these or other restructuring initiatives could materially and adversely affect our business, financial condition and results of operations.

Our quarterly net sales and operating results are difficult to predict accurately and may fluctuate significantly from period to period. As a result, we may fail to meet the expectations of investors, which could cause our stock price to decline.

We operate in a highly dynamic industry and our future operating results could be subject to significant fluctuations, particularly on a quarterly basis. Our quarterly net sales and operating results have fluctuated significantly in the past and may continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. Although some of our customers, for example those in the automotive industry, provide us with forecasts of their future requirements for our products, a significant percentage of our net sales in each fiscal quarter is dependent on sales that are booked and shipped during that fiscal quarter, and are typically attributable to a large number of orders from diverse customers and markets. As a result, accurately forecasting our operating results in any fiscal quarter is difficult. If our operating results do not meet the expectations of securities analysts and investors, our stock price may decline. Additional factors that can contribute to fluctuations in our operating results include:

 

   

the rescheduling, increase, reduction or cancellation of significant customer orders;

 

   

the timing of customer qualification of our products and commencement of volume sales by our customers of systems that include our products;

 

   

the timing and amount of research and development and sales and marketing expenditures;

 

   

the rate at which our present and future customers and end users adopt our technologies in our target end markets;

 

   

the timing and success of the introduction of new products and technologies by us and our competitors, and the acceptance of our new products by our customers;

 

   

our ability to anticipate changing customer product requirements;

 

   

our gain or loss of one or more key customers;

 

   

the availability, cost and quality of materials and components that we purchase from third- party vendors and any problems or delays in the fabrication, assembly, testing or delivery of our products;

 

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the availability of production capacity at our third-party wafer fabrication facilities or other third-party subcontractors and other interruptions in the supply chain, including as a result of materials shortages, bankruptcies or other causes;

 

   

supply constraints for and changes in the cost of the other components incorporated into our customers’ products

 

   

the utilization of our internal manufacturing operations;

 

   

our ability to reduce the manufacturing costs of our products;

 

   

fluctuations in manufacturing yields;

 

   

the changes in our product mix or customer mix;

 

   

competitive pressures resulting in lower than expected ASPs;

 

   

the timing of expenses related to the acquisition of technologies or businesses;

 

   

product rates of return or price concessions in excess of those expected or forecasted;

 

   

the emergence of new industry standards;

 

   

product obsolescence;

 

   

unexpected inventory write-downs or write-offs;

 

   

costs associated with litigation over intellectual property rights and other litigation;

 

   

the length and unpredictability of the purchasing and budgeting cycles of our customers;

 

   

loss of key personnel or the inability to attract qualified engineers;

 

   

the quality of our products and any remediation costs;

 

   

adverse changes in economic conditions in various geographic areas where we or our customers do business;

 

   

the general industry conditions and seasonal patterns in our target end markets, particularly the automotive market;

 

   

other conditions affecting the timing of customer orders or our ability to fill orders of customers subject to export control or U.S. economic sanctions; and

 

   

geopolitical events, such as war, threat of war or terrorist actions, or the occurrence of pandemics, epidemics or other outbreaks of disease, including the current COVID-19 pandemic, or natural disasters, and the impact of these events on the factors set forth above.

We may experience a delay in generating or recognizing revenues for a number of reasons. Open orders at the beginning of each quarter are typically lower than expected net sales for that quarter and are generally cancelable or reschedulable with minimal notice. Accordingly, we depend on obtaining orders during each quarter for shipment in that quarter to achieve our net sales objectives and failure to fulfill such orders by the end of a quarter may adversely affect our operating results. Furthermore, our customer agreements typically provide that the customer may delay scheduled delivery dates and cancel orders within specified timeframes without significant penalty. In addition, we maintain an infrastructure of facilities and human resources in several locations around the world and have a limited ability to reduce the expenses required to maintain such infrastructure. Because we base our operating expenses on anticipated revenue trends and a high percentage of our expenses are fixed in the short term, any delay in generating or recognizing forecasted net sales or changes in levels of our customers’ forecasted demand could materially and adversely impact our business, financial condition and results of operations. Due to our limited ability to reduce expenses, in the event our revenues decline or our forecasted net sales do not meet our expectations, it is likely that in some future quarters our

 

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operating results will decrease from the previous quarter or fall below the expectations of securities analysts and investors. As a result of these factors, our operating results may vary significantly from quarter to quarter. Accordingly, we believe that period-to-period comparisons of our results of operations should not solely be relied upon as indications of future performance. Any shortfall in net sales or net income from a previous quarter or from levels expected by the investment community could cause a decline in the trading price of our stock.

Failure to adjust our supply chain volume due to changing market conditions or failure to estimate our customers’ demand could adversely affect our net sales and could result in additional charges for obsolete or excess inventories or non-cancelable purchase commitments.

We make significant decisions, including determining the levels of business that we will seek and accept, production schedules, levels of reliance on outsourced contract manufacturing, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-term nature of the commitments by many of our customers and the possibility of rapid changes in demand for their products reduces our ability to accurately estimate future requirements of our customers. On occasion, our customers may require rapid increases in production, which can challenge our resources. We may not have sufficient capacity at any given time to meet our customers’ demands. Conversely, downturns in the semiconductor industry have in the past caused and may in the future cause our customers to significantly reduce the amount of products ordered from us. Because many of our sales, research and development, and manufacturing expenses are relatively fixed, a reduction in customer demand may decrease our gross margins and operating income.

In addition, we base many of our operating decisions, and enter into purchase commitments, on the basis of anticipated net sales trends which are highly unpredictable. Some of our purchase commitments are not cancelable, and in some cases we are required to recognize a charge representing the amount of material or capital equipment purchased or ordered which exceeds our actual requirements. For example, we have non-cancelable purchase commitments with vendors and “take-or-pay” agreements with certain of our third-party wafer fabrication partners, under which we are required to purchase a minimum number of wafers per year or face financial penalties. These types of commitments and agreements could reduce our ability to adjust our inventory to address declining market demands. If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges. If net sales in future periods fall substantially below our expectations, or if we fail to accurately forecast changes in demand mix, we could again be required to record substantial charges for obsolete or excess inventories or non-cancelable purchase commitments.

Moreover, during a market upturn, we may not be able to purchase sufficient supplies or components to meet increasing product demand, which could prevent us from taking advantage of opportunities and reduce our net sales. In addition, a supplier could discontinue a component necessary for our design, extend lead times, limit supply or increase prices due to capacity constraints or other factors. Our failure to adjust our supply chain volume or estimate our customers’ demands could have a material adverse effect on our net sales, business, financial condition and results of operations.

We rely on a limited number of third-party wafer fabrication facilities for the fabrication of semiconductor wafers and on a limited number of suppliers of other materials, and the failure of any of these suppliers or additional suppliers to continue to produce wafers or other materials on a timely basis could harm our business and our financial results.

We currently rely on a limited number of third-party wafer fabrication facilities for the fabrication of semiconductor wafers used in the manufacture of our IC products and we purchase a number of key materials and components used in the manufacture of our products from single or limited sources. We depend on these foundries and other sources to meet our production needs. Moreover, we depend on the quality of the wafers and other components and materials that they supply to us, over which we have limited control. Any one or more of our other suppliers may become financially unstable as the result of global market conditions. Moreover, our

 

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suppliers’ abilities to meet our requirements could be impaired or interrupted by factors beyond their control, such as natural disasters or other disruptions. In addition, from time to time we have encountered shortages and delays in obtaining wafers and other components and materials, and we may encounter additional shortages and delays in the future. If we cannot supply our products due to a lack of components or are unable to source materials from other suppliers or to redesign products with other components in a timely manner, our business will be significantly harmed. We do not have long-term contracts with some of our suppliers and third-party manufacturers. As a result, any such supplier or third-party manufacturer can discontinue supplying components or materials to us at any time and without penalty. In the event that any one or more of our suppliers is unable or unwilling to deliver us products and we are unable to identify alternative sources of supply for such materials or components on a timely basis, our operations may be adversely affected. In addition, even if we identify any such alternative sources of supply, we could experience delays in testing, evaluating and validating materials or products of potential alternative suppliers or products we obtain through outsourcing. Qualifying new contract manufacturers, and specifically semiconductor foundries, is time consuming and might result in unforeseen manufacturing and operations problems. Furthermore, financial or other difficulties faced by our suppliers, or significant changes in demand for the components or materials they use in the products they supply to us, could limit the availability of those products, components or materials to us. We are also subject to potential delays in the development by our suppliers of key components which may affect our ability to introduce new products. Any of these problems or delays could damage our relationships with our customers, adversely affect our reputation and adversely affect our business, financial condition, results of operations and our ability to grow our business.

Our dependence on our manufacturing operations in the Philippines exposes us to certain risks that may harm our business.

We rely heavily on the manufacturing operations of the AMPI Facility, which operates as our primary internal assembly and testing facility. We depend primarily on the AMPI Facility for our sensor and power products and, if this facility suspends operations, our ability to assemble and test our products could be materially impaired. Furthermore, any disruption in operations at the AMPI Facility could adversely affect our ability to meet customer demand in a timely manner, or at all, which would to lead to a reduction in our net sales and may adversely affect our reputation and customer relationships, potentially resulting in longer-term harm to our business. In addition, an earthquake, fire, flood or other natural or manmade disaster, as well as a pandemic, epidemic or other outbreak of infectious disease, including the current COVID-19 pandemic, strikes, political or civil unrest, or any number of other factors beyond our control could also disable such facility, causing catastrophic losses. Although we supplement the assembly capabilities at the AMPI Facility with the operations of AMTC Facility and several other external or independent assembly subcontractors throughout Asia, if our manufacturing operations at the AMPI Facility are obstructed or hampered, it could take a considerable length of time, at an increased cost, for us to resume manufacturing at another location, which could materially harm our manufacturing efficiency and capacity, delay production and shipments and result in costly expenditures to repair or replace this facility. Moreover, while we currently maintain manufacturing operations at the AMTC Facility, we have commenced the closure of such facility, with the intention to sell such facility by the end of March 2021 as part of our manufacturing footprint optimization strategy, which will heighten our dependence on the AMPI Facility in the future. As a result, any such losses could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.

To ensure continued product manufacturing (including assembly and testing of our products), we may be required to establish or invest in alternative manufacturing facilities. Any attempt to establish or invest in alternative manufacturing facilities, however, could increase our costs, negatively affect our profitability, and limit our ability to maintain competitive prices for our products, which would negatively impact our competitive position. While we rely on the AMPI Facility as our primary manufacturing facility for our select sensor and power products, we are aware that only a few alternative manufacturing facilities have the capability to assemble and test our most advanced and complex products and if we are forced to engage such alternative manufacturing facilities, we may encounter difficulties and incur additional costs.

 

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Accordingly, we cannot guarantee that we will be able to manage the risks and challenges associated with our dependence on the AMPI Facility, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our net sales are generated through distributors, which subjects us to certain risks.

We sell our products worldwide through multiple sales channels, including through our direct sales force, distributors and independent sales representatives, which resell our products to numerous end customers. A significant portion of our net sales are made to distributors, accounting for approximately 27.4% and 25.2% of our net sales in fiscal years 2019 and 2020, respectively, and approximately 23.4% and 40.1% of our net sales in the three-month periods ended June 28, 2019 and June 26, 2020, respectively, excluding our distribution relationship with Sanken in Japan, which represented approximately 16.8% and 17.3% of our net sales in fiscal years 2019 and 2020 and approximately 17.9% and 20.5% of our net sales in the three-month periods ended June 28, 2019 and June 26, 2020. The impairment or termination of our relationships with our distributors, or the failure of these parties to diligently sell our products and comply with applicable laws and regulations, could materially and adversely affect our ability to generate revenue and profits. Because our distributors control the relationships with end customers, if our relationship with any distributor ends, we could also lose our relationships with their customers. Furthermore, our success is partially dependent on the willingness and ability of the sales representatives and other employees of our distributors to diligently sell our products. However, we cannot guarantee that they will be successful in marketing our products. In addition, because our distributors do not sell our products exclusively, they may focus their sales efforts and resources on other products that produce better margins or greater commissions for them or are incorporated into a broader strategic relationship with one of their other suppliers. Because we do not control the sales representatives and other employees of our distributors, we cannot guarantee that our sales processes, regulatory compliance and other priorities will be consistently communicated and executed. In addition, we may not have staff in one or more of the locations covered by our distributors, which makes it particularly difficult for us to monitor their performance. While we may take steps to mitigate the risks associated with noncompliance by our distributors, there remains a risk that they will not comply with regulatory requirements or our requirements and policies. Actions by the sales representatives and other employees of our distributors that are beyond our control could result in flat or declining sales in a given geographic area, harm to the reputation of our company or our products, or legal liability, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition to the risk of losing customers, the operation of local laws and our agreements with our distributors could make it difficult for us to replace a distributor we feel is underperforming. In addition, as discussed above, our distribution relationship with Sanken in Japan has historically accounted for a significant portion of our total net sales. Though we believe we would be able to establish relationships with new distributors or otherwise increase the business we do with our existing distributors if our distribution relationship with Sanken were to become impaired, we cannot guarantee we would be able to do so on a timely basis or at all, or that we would be able to realize a similar level of net sales as under our current arrangements.

Events beyond our control could have an adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to make, transport and sell products in coordination with our suppliers, customers (including OEMs), distributors and third-party manufacturers or other subcontractors is critical to our success. Damage or disruption to our supply, manufacturing or distribution capabilities resulting from weather, freight carrier availability, any potential effects of climate change, natural disaster, disease, fire, explosion, cyber-attacks, terrorism, pandemics, epidemics or other outbreaks of infectious disease, strikes, civil unrest, repairs or enhancements at facilities manufacturing or distribution of our products or other reasons could impair our ability to manufacture, sell our products, and to deliver products to our customers on a timely basis or at all.

Similarly, disruptions in the operations of our key suppliers or in the services provided by our third-party wafer fabrication partners or other contract manufacturers, including disruptions due to natural disasters or other

 

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disruptions, or by the transition by us to other suppliers or third-party manufacturers could lead also to supply chain problems and otherwise impair or delay our ability to deliver products to our customers on a timely basis or at all.

Other companies in our industry may be affected differently by natural disasters or other disruptions depending on the location of their suppliers, operations and customers. In addition, many of our competitors are larger companies with more substantial financial and other resources and, as a result, may be better able to plan for, withstand or otherwise mitigate the effects of any such disruption. While we may take steps to plan for or address the occurrence of any such event, we cannot guarantee that we will be successful. If we fail to take adequate steps to reduce the likelihood or mitigate the potential impact of such events, or to effectively manage such events if they occur, particularly when an wafer or packaging component is sourced from a limited number of locations or suppliers, could adversely affect our business, financial condition, results of operations and cash flows and/or require additional resources to restore our supply chain.

Our business, financial condition, results of operations, liquidity and prospects have been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic.

Public health threats, such as COVID-19, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate could adversely impact our operations, as well as the operations of our customers, end users of our products, and our and their respective vendors, suppliers and other business partners. Any of these public health threats and related consequences could adversely affect our financial results.

COVID-19, a potentially deadly respiratory tract infection caused by the SARS-CoV-2 virus, has spread rapidly and enveloped most of the world, causing a global public health crisis. On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The pandemic has resulted in national and local governments in affected countries around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines and other emergency public health measures and have implemented substantial lockdown measures, and additional countries and local governments may enact similar policies. In addition, the federal government and all of the states in the United States, have declared a state of emergency or similar disaster declaration, and many states and other jurisdictions where we have operations have implemented “shelter in place” and “stay-at-home” orders, workplace closures, business curtailments and other similar measures. The measures implemented by various authorities in response to the COVID-19 pandemic have caused us to change our business practices, including those related to where employees work, the distance between employees in the our facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations and to attend trade shows, investor conferences and other events. These restrictions have had, and future prevention and mitigation measures are also likely to have, an adverse impact on global economic conditions, which could further affect our operations. The considerable uncertainty regarding the economic impact of the COVID-19 pandemic are likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows.

These current and potential future measures that could restrict access to our facilities, limit manufacturing and support operations and place restrictions on our workforce, suppliers and other business partners have impacted and may further impact our workforce and operations, the operations of our customers and end users of our products, and those of our respective vendors, suppliers and other business partners. The disruptions to our operations caused by the COVID-19 pandemic may result in inefficiencies, delays and additional costs in our product development, sales, marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. In addition, the severe global economic disruption, including recession, depression or other sustained adverse market impact caused by the COVID-19 pandemic, may cause our customers and end-users of our products to suffer significant economic hardship and potentially even go out of

 

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business, which could result in decreased demand for our products and materially and adversely affect our business, results of operations, financial condition, including liquidity and prospects. To the extent that the COVID-19 pandemic adversely affects our business, financial condition, results of operations or liquidity, it may also heighten many of the other risks discussed in this prospectus. For instance, if the business impacts of COVID-19 continue for an extended period, this could cause us to recognize impairments for goodwill and certain long-lived assets including amortizable intangible assets.

The impact of the COVID-19 pandemic continues to evolve and its duration and ultimate disruption to our business and the businesses of our customers and end-users, the overall demand for our products, our supply chain, and the related financial impact to us, as well as any similar disruptions that may result from any future pandemic, epidemic or other outbreak of infectious disease, will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the effectiveness of actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume, among others. The longer any such disruption continues, however, the more severe and adverse we would expect the effect to be on our business, financial condition, results of operations and liquidity. Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business, financial condition and results of operations as a result of its global economic impact. As new information regarding COVID-19 continues to emerge, it is difficult to predict the full extent to which the disease adversely impacts our financial performance. Additionally, weaker economic conditions generally could result in impairment in value of our tangible or intangible assets and our ability to raise additional capital, if needed.

Our indebtedness may limit our flexibility to operate our business and adversely affect our financial health and competitive position.

As of June 26, 2020, we had $33.0 million in aggregate principal amount of debt outstanding, which consisted of $25.0 million of debt outstanding under the AML Revolver and $8.0 million of debt outstanding under the AML Line of Credit. After giving effect to our entry into the Senior Secured Credit Facilities, our incurrence of $325.0 million in aggregate principal amount of debt under the Term Loan Facility in connection with the Recapitalization, and the consummation of the Refinancing, we would have had $325.0 million in aggregate principal amount of debt outstanding as of such date, and $50.0 million of additional borrowings available under the Revolving Credit Facility. Following the consummation of this offering, after giving effect to our use approximately $             million of the net proceeds to be received by us from this offering to repay borrowings under the Term Loan Facility, we expect the amount of debt outstanding under the Term Loan Facility will be $             million. In order to service this indebtedness, and any additional indebtedness or other long-term obligations we may incur in the future, we need to generate sufficient levels of cash from our operating activities. Our ability to generate cash is subject, in part, to our ability to successfully execute our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control. We cannot assure you that our business will be able to generate sufficient levels of cash from operations or that future borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs. To the extent we are required to use cash from operations or the proceeds of any future financing to service our indebtedness instead of funding working capital, capital expenditures or other general corporate purposes, we will be less able to plan for, or react to, changes in our business, industry and in the economy generally. This will place us at a competitive disadvantage compared to our competitors that have less indebtedness.

In addition, the agreements governing the Senior Secured Credit Facilities contain, and any agreements evidencing or governing other future indebtedness may also contain, certain covenants that limit our and our restricted subsidiaries’ ability to engage in certain transactions that may be in our long-term best interests. Subject to certain limited exceptions, these covenants limit our and our restricted subsidiaries’ ability to, among other things:

 

   

incur additional indebtedness, or issue equity interests that have features similar to indebtedness;

 

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incur liens;

 

   

make investments, including acquisitions and investments in joint ventures;

 

   

merge, consolidate, amalgamate, divide, dissolve or liquidate;

 

   

pay dividends or make other distributions to their equityholders, or redeem, repurchase or retire equity interests;

 

   

prepay indebtedness that ranks junior in right of payment to the Senior Secured Credit Facilities;

 

   

amend the documents governing such junior indebtedness;

 

   

sell our assets outside the ordinary course of business;

 

   

engage in transactions with affiliates;

 

   

agree to negative pledge clauses that conflict with the obligation to secure the Senior Secured Credit Facilities, or agree to restrictions on the ability of subsidiaries make distributions to the loan parties;

 

   

amend our organizational documents in a manner materially adverse to the interest of the lenders;

 

   

change our line of business from that conducted as the date of such agreements; and

 

   

change our fiscal year or method of determining fiscal quarters or fiscal months.

Our ability to comply with these covenants may be affected by events and factors beyond our control. In the event that we breach one or more covenants, our lenders may choose to declare an event of default and require that we immediately repay all amounts outstanding, terminate any commitment to extend further credit and foreclose on any collateral granted to them to secure such indebtedness. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may be able to incur significant additional indebtedness in the future. While the agreements governing our Senior Secured Credit Facilities generally restrict our and our restricted subsidiaries’ ability to incur additional indebtedness, these restrictions are subject to important and significant exceptions and limitations. Also, these agreements generally do not prohibit us from incurring obligations that do not constitute indebtedness as defined therein. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our indebtedness described above will increase.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations.

The London Inter-bank Offered Rate (“LIBOR”) and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, there may be adverse impacts on the financial markets generally and interest rates on borrowings under our Senior Secured Credit Facilities may be adversely affected.

We depend on growth in the end markets that use our products. Any slowdown in the growth of these end markets could adversely affect our financial results.

Our continued success will depend in large part on general economic growth and growth within our target markets in the automotive and industrial sectors. Factors affecting these markets could seriously harm our customers and, as a result, harm us, including:

 

   

reduced sales of our customers’ products;

 

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the effects of catastrophic and other disruptive events at our customers’ offices or facilities including, but not limited to, natural disasters, telecommunications failures, cyber-attacks, terrorist attacks, pandemics, epidemics or other outbreaks of infectious disease, including the current COVID-19 pandemic, breaches of security or loss of critical data;

 

   

increased costs associated with potential disruptions to our customers’ supply chain and other manufacturing and production operations;

 

   

the deterioration of our customers’ financial condition;

 

   

delays and project cancellations as a result of design flaws in the products developed by our customers;

 

   

the inability of customers to dedicate the resources necessary to promote and commercialize their products;

 

   

the inability of our customers to adapt to changing technological demands resulting in their products becoming obsolete; and

 

   

the failure of our customers’ products to achieve market success and gain broad market acceptance.

Any slowdown in the growth of these end markets could adversely affect our financial results. For example, a significant element of our growth strategy depends on the increasing adoption of mild hybrid, hybrid and electric vehicles, which are expected to have higher sensor and power product content. If anticipated demand in the end market for these vehicles does not materialize, it would adversely affect demand for our products from customers and impact our ability to execute our growth strategy.

The loss of one or more significant end customers could have a material adverse effect on our business and results of operations.

We believe no end customer, including those served through our distributors, exceeded 10% of our net sales during either fiscal year. However, the loss of or a significant reduction in business with a significant end customer, particularly in the automotive market, could have a material adverse effect on our net sales and, in turn, on our overall business, financial condition and results of operations.

If we fail in a timely and cost-effective manner to develop new product features or new products that address customer preferences and achieve market acceptance, our operating results could be adversely affected.

Our customers are constantly seeking new products with more features and functionality at a lower cost, and our success relies heavily on our ability to continue to develop and market to our customers new and innovative products and improvements of existing products. In order to respond to new and evolving customer demands, achieve strong market share and keep pace with new technological, processing and other developments, we must constantly introduce new and innovative products into the market. Although we strive to respond to customer preferences and industry expectations in the development of our products, we may not be successful in developing, introducing or commercializing any new or enhanced products on a timely basis or at all. Further, if initial sales volumes for new or enhanced products do not reach anticipated levels within the time periods we expect, we may be required to engage in additional marketing efforts to promote such products and the costs of developing and commercializing such products may be higher than we predict. Moreover, new and enhanced products may not perform as expected. We may also encounter lower manufacturing yields and longer delivery schedules in commencing volume production of new products that we introduce, which could increase our costs and disrupt our supply of such products.

A fundamental shift in technologies, the regulatory climate or demand patterns and preferences in our existing product markets or the product markets of our customers or end-users could make our current products obsolete, prevent or delay the introduction of new products or enhancements to our existing products or render our products irrelevant to our customers’ needs. If our new product development efforts fail to align with the

 

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needs of our customers, including due to circumstances outside of our control like a fundamental shift in the product markets of our customers and end users or regulatory changes, our business, financial condition and results of operations could be materially and adversely affected.

Our competitive position could be adversely affected if we are unable to meet customers’ quality requirements.

Semiconductor IC suppliers must meet increasingly stringent quality standards of certain OEMs and customers, particularly for automotive applications. While our quality performance to date has generally met these requirements, we may experience problems in achieving acceptable quality results in the manufacture of our products, particularly in connection with the production of new products or adoption of a new manufacturing process. Our failure to achieve acceptable quality levels could adversely affect our business results.

The nature of the design win process requires us to incur expenses without any guarantee that research and development efforts will generate net sales, which could adversely affect our financial results.

We focus on winning competitive bid selection processes, called “design wins,” to develop products for use in our customers’ products. These lengthy selection processes may require us to incur significant expenditures and dedicate valued engineering resources to the development of new products without any assurance that we will achieve design wins. If we incur such expenditures and fail to be selected in the bid selection process, our operating results may be adversely affected. Further, because of the significant costs associated with qualifying new suppliers, customers are likely to use the same or an enhanced version of semiconductor products from existing suppliers across a number of similar and successor products for a lengthy period of time. As a result, if we fail to secure an initial design win for any of our products to any particular customer, we may lose the opportunity to make future sales of those products to that customer for a significant period of time or at all and experience an associated decline in net sales relating to those products. This phenomenon is typical in the automotive market. Failure to achieve initial design wins may also weaken our position in future competitive selection processes because we may not be perceived as an industry leader.

Even if we succeed in securing design wins for our products, we may not generate timely or sufficient net sales or margins from those wins and our financial results could suffer.

After incurring significant design and development expenditures and dedicating engineering resources to achieve a single initial design win for a product, a substantial period of time generally elapses before we generate meaningful net sales relating to such product, if at all. The reasons for this delay include, among other things, the following:

 

   

changing customer requirements, resulting in an extended development cycle for the product;

 

   

delay in the ramp-up of volume production of the customer’s products into which our solutions are designed;

 

   

delay or cancellation of the customer’s product development plans;

 

   

competitive pressures to reduce our selling price for the product;

 

   

the discovery of design flaws, defects, errors or bugs in the products;

 

   

lower than expected customer acceptance of the solutions designed for the customer’s products;

 

   

lower than expected acceptance of our customers’ products; and

 

   

higher manufacturing costs than anticipated.

If we do not continue to achieve design wins in the short term, then we may not be able to achieve expected net sales levels associated with these design wins. If we experience delays in achieving such sales levels, our operating results could be adversely affected. Moreover, even if a customer selects our product, we cannot guarantee that this will result in any sales of our products, as the customer may ultimately change or cancel its product plans, or our customer’s efforts to market and sell its product may not be successful.

 

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Changes in government trade policies, including the imposition of tariffs and export restrictions, could limit our ability to sell our products to certain customers or demand from certain customers, which may materially and adversely affect our sales and results of operations.

The current U.S. President, members of his administration, and other public officials, including members of the current U.S. Congress, have made public statements indicating possible significant changes in U.S. trade policy and have taken certain actions that may impact U.S. trade policy, including imposing new or increased tariffs on certain goods imported into the United States. Since we manufacture our products outside the United States, such changes, if adopted, could have a disproportionate impact on our business and make our products more expensive and less competitive in domestic markets. Furthermore, changes in U.S. trade policy could trigger retaliatory actions by affected countries, which could impose restrictions on our ability to do business in or with affected countries or prohibit, reduce or discourage purchases of our products by foreign customers, leading to increased costs of components contained in our products, increased costs of manufacturing our products, and higher prices for our products in foreign markets. For example, there are risks that the Chinese government may, among other things, require the use of local suppliers in place of non-Chinese suppliers like us, compel companies that do business in China to partner with local companies to conduct business and provide incentives to government-backed local customers to buy from local suppliers. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to decline, which could materially and adversely impact our business, financial condition and results of operations.

The U.S. or foreign governments may take administrative, legislative or regulatory action that could materially interfere with our ability to sell products in certain countries and/or to certain customers, particularly in China. For example, the United States and China have imposed a number of tariffs and other restrictions on items imported or exported between the United States and China, and have proposed to impose a number of additional tariffs. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and China or other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. The institution of trade tariffs both globally and between the United States and China specifically carries the risk of negatively impacting China’s overall economic condition, which could have negative repercussions for our business.

Warranty claims, product liability claims and product recalls could harm our business, results of operations and financial condition.

We face an inherent business risk of exposure to warranty and product liability claims if products fail to perform as expected or is alleged to result in bodily injury, death, and/or property damage. In addition, if any of our designed products are alleged to be defective, we may be required to participate in their recall. Some OEMs expect suppliers to warrant their products for longer periods of time and are increasingly looking to them for contribution when faced with product liability claims or recalls. For example, some of our products are used in automotive safety systems, the failure of which could lead to injury or death. We carry various commercial liability policies, including umbrella/excess policies which provide some protection against product liability exposure. However, a successful warranty or product liability claim against us in excess of our available insurance coverage and established reserves, or a requirement that we participate in a product recall, could have adverse effects on our business results. Further, in the future it is possible that we will not be able to obtain insurance coverage in the amounts and for the risks we seek at policy costs and terms we desire.

Additionally, in the event that our products fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could materially and adversely affect our business, results of operations and financial condition.

 

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If we are unable to protect our proprietary technology and inventions through patents, our ability to compete successfully and our financial results could be adversely impacted.

We seek to protect our proprietary technology and inventions, particularly those relating to the design of our products, through the use of patents. As of August 31, 2020, we owned 1,019 patents, including 542 active U.S. patents (with expiration dates between 2020 and 2039), with an additional 414 pending patent applications, including 171 U.S. patent applications. Maintenance of patent portfolios, particularly outside of the U.S., is expensive, and the process of seeking patent protection is lengthy and costly. While we intend to maintain our current portfolio of patents and to continue to prosecute our currently pending patent applications and file future patent applications when appropriate, the value of these actions may not exceed their expense. Existing patents and those that may be issued from any pending or future applications may be subject to challenges, invalidation or circumvention, and the rights granted under our patents may not provide us with meaningful protection or any commercial advantage. In addition, the protection afforded under the patent laws of one country may not be the same as that in other countries. This means, for example, that our right to exclusively commercialize a product in those countries where we have patent rights for that product can vary on a country-by-country basis. We also may not have the same scope of patent protection in every country where we do business.

Additionally, it is difficult and costly to monitor the use of our intellectual property. It may be the case that our intellectual property is already being infringed and infringement may occur in the future without our knowledge. The difficulty and failure to identify any violations of our intellectual property rights could materially and adversely affect our business, financial condition and result of operations and hurt our competitive advantage.

If we are unable to protect our proprietary technology and inventions through trade secrets, our competitive position and financial results could be adversely affected.

We seek to protect our proprietary technology and inventions, particularly those relating to our manufacturing processes, as trade secrets. In the United States, trade secrets are protected under the federal Economic Espionage Act of 1996 and the Defend Trade Secrets Act of 2016 (the “Defend Trade Secrets Act”), and under state law, with many states having adopted the Uniform Trade Secrets Act (the “UTSA”) and several of which that have not. In addition to these federal and state laws inside the United States, under the World Trade Organization’s Trade Related-Aspects of Intellectual Property Rights Agreement, trade secrets are to be protected by World Trade Organization member states as “confidential information.” Under the UTSA and other trade secret laws, protection of our proprietary information as trade secrets requires us to take steps to prevent unauthorized disclosure to third parties or misappropriation by third parties. In addition, the full benefit of the remedies available under the Defend Trade Secrets Act requires specific language and notice requirements present in the relevant agreements, which may not be present in all of our agreements. While we require our officers, employees, consultants, distributors, and existing and prospective customers and collaborators to sign confidentiality agreements and take various security measures to protect unauthorized disclosure and misappropriation of our trade secrets, we cannot assure or predict that these measures will be sufficient. The semiconductor industry is generally subject to high turnover of employees, so the risk of trade secret misappropriation may be amplified. If any of our trade secrets are subject to unauthorized disclosure or are otherwise misappropriated by third parties, our competitive position may be materially and adversely affected.

Our ability to compete successfully depends in part on our ability to commercialize our products without infringing the patent, trade secret or other intellectual property rights of others.

To the same extent that we seek to protect our technology and inventions with patents and trade secrets, our competitors and other third parties do the same for their technology and inventions. We have no means of knowing the content of patent applications filed by third parties until they are published. It is also difficult and costly to continuously monitor the intellectual property portfolios of our competitors to ensure our technologies do not violate the intellectual property rights of any third parties.

 

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The semiconductor industry is ripe with patent assertion entities and is characterized by frequent litigation regarding patent and other intellectual property rights. From time to time, we receive communications from third parties that allege that our products or technologies infringe their patent or other intellectual property rights. As a public company with an increased profile and visibility, we may receive similar communications in the future. Lawsuits or other proceedings resulting from allegations of infringement could subject us to significant liability for damages, invalidate our proprietary rights and adversely affect our business. In the event that any third-party succeeds in asserting a valid claim against us or any of our customers, we could be forced to do one or more of the following:

 

   

discontinue selling, importing or using certain technologies that contain the allegedly infringing intellectual property which could cause us to stop manufacturing certain products;

 

   

seek to develop non-infringing technologies, which may not be feasible;

 

   

incur significant legal expenses;

 

   

pay substantial monetary damages to the party whose intellectual property rights we may be found to be infringing; and/or

 

   

we or our customers could be required to seek licenses to the infringed technology that may not be available on commercially reasonable terms, if at all.

If a third-party causes us to discontinue the use of any of our technologies, we could be required to design around those technologies. This could be costly and time consuming and could have an adverse effect on our financial results. Any significant impairments of our intellectual property rights from any litigation we face could materially and adversely impact our business, financial condition, results of operations and our ability to compete in our industry.

We may be subject to disruptions or breaches of our information technology systems that could irreparably damage our reputation and our business, expose us to liability and materially and adversely affect our results of operations.

We are subject to a number of legal requirements, contractual obligations and industry standards regarding security, data protection and privacy and any failure to comply with these requirements, obligations or standards could have an adverse effect on our reputation, business, financial condition and operating results.

In conducting our business, we routinely collect and store sensitive data, including proprietary technology and information about our business and our customers, suppliers and business partners, including proprietary technology and information owned by our customers. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We may be subject to disruptions or breaches of our secured network caused by computer viruses, illegal hacking, criminal fraud or impersonation, acts of vandalism or terrorism or employee error. Our security measures, those of our third-party service providers, or our customers may not detect or prevent such security breaches. The costs to us to reduce the risk of or alleviate cyber security breaches and vulnerabilities could be significant. Any type of security breach, attack or misuse of data, whether experienced by us or an associated third party, could harm our reputation or deter existing or prospective customers from using our products and applications, increase our operating expenses in order to contain and remediate the incident, expose us to unbudgeted or uninsured liability, disrupt our operations, divert management focus away from other priorities, increase our risk of regulatory scrutiny, result in the imposition of penalties and fines under state, federal and foreign laws or by payment networks and adversely affect our continued payment network registration and financial institution sponsorship. Moreover, any such compromise of our information security could result in the misappropriation or unauthorized publication of our confidential business or proprietary information or that of other parties with which we do business, an interruption in our operations, the unauthorized transfer of cash or other of our assets, the unauthorized release of customer or employee data or a violation of privacy or other laws. In addition, computer programmers and hackers also may

 

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be able to develop and deploy viruses, worms and other malicious software programs that attack our products, or that otherwise exploit any security vulnerabilities, and any such attack, if successful, could expose us to liability to customer claims. Any of the foregoing could irreparably damage our reputation and business, which could have a material adverse effect on our results of operations.

We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and consumer protection laws across different markets where we conduct our business. Our actual or perceived failure to comply with such obligations could harm our business.

In the United States and other jurisdictions in which we operate, we are subject to various consumer protection laws and related regulations. If we are found to have breached any consumer protection laws or regulations in any such jurisdiction, we may be subject to enforcement actions that require us to change our business practices in a manner which may negatively impact our revenue, as well as expose us to litigation, fines, civil and/or criminal penalties and adverse publicity that could cause our customers to lose trust in us, negatively impacting our reputation and business in a manner that harms our financial position.

As part of our business, we collect information about individuals, also referred to as personal data, and other potentially sensitive and/or regulated data from our customers. Laws and regulations in the United States and around the world restrict how personal information is collected, processed, stored, used and disclosed, as well as set standards for its security, implement notice requirements regarding privacy practices, and provide individuals with certain rights regarding the use, disclosure and sale of their protected personal information.

In the United States, both the federal and various state governments have adopted or are considering, laws, guidelines or rules for the collection, distribution, use and storage of information collected from or about consumers or their devices. For example, California enacted the California Consumer Privacy Act requires, among other things, new disclosures to California consumers, imposes new rules for collecting or using information about minors, and afford consumers new abilities to opt out of certain disclosures of personal information.

Several foreign jurisdictions, including the European Union (“EU”), have laws and regulations which are more restrictive in certain respects than those in the United States. For example, the EU General Data Protection Regulation (“GDPR”) implemented stringent operational requirements for the use of personal data. The European regulatory regime also includes laws which, among other things, require EU member states to regulate marketing by electronic means and the use of web cookies. Each EU member state has transposed the requirements of these laws into its own national data privacy regime, and therefore the laws may differ between jurisdictions.

The GDPR introduced more stringent requirements (which will continue to be interpreted through guidance and decisions over the coming years) and require organizations to erase an individual’s information upon request, implement mandatory data breach notification requirements and additional new obligations on data processors. If our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data or our marketing practices. For example, under the GDPR we may be subject to fines of up to €20 million or up to 4% of the total worldwide annual group turnover of the preceding financial year (whichever is higher). We may also be subject to other liabilities, as well as negative publicity and a potential loss of business.

Restrictions on the collection, use, sharing or disclosure of personal information or additional requirements and liability for security and data integrity could require us to modify our solutions and features, possibly in a material manner, could limit our ability to develop new products and features and could subject us to increased compliance obligations and regulatory scrutiny.

 

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Our dependence on international customers and operations also subjects us to a range of other additional regulatory, operational, financial and political risks that could adversely affect our financial results.

For fiscal years 2019 and 2020, approximately 80.5% and 81.7%, respectively, of our net sales were to customers outside of the United States, and for the three-month periods ended June 28, 2019 and June 26, 2020, approximately 81.2% and 88.7%, respectively, of our net sales were to customers outside of the United States. In addition, a substantial majority of our products are assembled and tested at facilities outside of the United States. Our principal assembly and test facilities are located in the Philippines at our AMPI Facility and in Thailand at our AMTC Facility. We also rely on several other wafer fabrication manufacturing partners located throughout Asia. Any conflict or uncertainty in this region, including public health or safety concerns or natural disasters, could have a material adverse effect on our business, financial condition and results of operations. Moreover, conducting business outside the United States subjects us to a number of additional risks and challenges, including:

 

   

changes in a specific country’s or region’s political, regulatory or economic conditions;

 

   

a pandemic, epidemic or other outbreak of an infectious disease, including the current COVID-19 pandemic, which may cause us or our distributors, vendors and/or customers to temporarily suspend our or their respective operations in the affected city or country;

 

   

compliance with a wide variety of domestic and foreign laws and regulations (including those of municipalities or provinces where we have operations) and unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes, social insurance contributions and other payroll taxes and fees to governmental entities, tariffs, quotas, export controls, export licenses and other trade barriers;

 

   

unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action, unfavorable foreign exchange controls and currency exchange rates;

 

   

potential for substantial penalties and litigation related to violations of a wide variety of laws, treaties and regulations, including labor regulations and anti-corruption regulations (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act);

 

   

difficulties and costs of staffing and managing international operations across different geographic areas and cultures;

 

   

potential political, legal and economic instability, armed conflict, and civil unrest in the countries in which we and our customers, suppliers and contract manufacturers are located;

 

   

difficulty and costs of maintaining effective data security;

 

   

inadequate protection of intellectual property;

 

   

transportation and other supply chain delays and disruptions;

 

   

nationalization and expropriation;

 

   

restrictions on the transfer of funds to and from foreign countries, including withholding taxes and other potentially negative tax consequences;

 

   

unfavorable and/or changing foreign tax treaties and policies; and

 

   

increased exposure to general market and economic conditions outside of the U.S.

These factors, individually or in combination, could impair our ability to effectively operate one or more of our foreign facilities or deliver our products, result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries or regions. Our failure to manage the risks and challenges associated with our international business and operations could have a material adverse effect on our business.

 

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End-user demand for certain HEVs, EVs and green energy products often depends on the availability of rebates, tax credits and other financial incentives. The reduction, modification, expiration or elimination of such government economic incentives could reduce end-user demand and thus affect our customers’ demand for our products.

The U.S. federal government, some state and local governments, as well as foreign governments provide certain incentives to end-users and purchasers of certain HEVs, EVs and green energy products in the form of rebates, tax credits and other financial incentives. End-users often rely on these governmental rebates, tax credits and other financial incentives to significantly lower the purchase price of these products. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy. Any slowdown in end-user demand for our products as a result of such changes to these incentives could adversely affect our business, financial condition and results of operations.

We will lose sales if we are unable to obtain government authorization to export certain of our products, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations.

Exports of certain of our products and other products, including Voxtel products, are subject, or could be subject in the future, to export controls imposed by the U.S. government and administered by the U.S. Departments of State and Commerce and a small number of our products are subject to export controls imposed by the International Traffic in Arms Regulations (“ITAR”), administered by Department of State’s Directorate of Defense Trade Controls. In certain instances, these regulations may require pre-shipment authorization from the administering department. For products subject to the Export Administration Regulations (“EAR”), administered by the Department of Commerce’s Bureau of Industry and Security, the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply. Virtually all exports of products subject to the ITAR require a license. Certain of our products are subject to EAR and some products, including certain products developed with government funding, which are subject to ITAR. Products developed and manufactured in our foreign locations are subject to export controls of the applicable foreign nation. Obtaining export licenses can be difficult, costly and time-consuming and we may not always be successful in obtaining necessary export licenses, and our failure to obtain required import or export approval for our products or limitations on our ability to export or sell our products imposed by these laws may harm our international and domestic revenues. Noncompliance with these laws could have negative consequences, including government investigations, penalties and reputational harm. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position.

Failure to obtain export licenses for our products or having one or more of our customers be restricted from receiving exports from us could significantly reduce our net sales and materially and adversely affect our business, financial condition and results of operations.

Changing currency exchange rates may adversely affect our business, financial condition, results of operations and cash flows.

We have operations and assets in the U.S. as well as foreign jurisdictions and we prepare our consolidated financial statements in U.S. dollars, but a portion of our earnings and expenditures are denominated in other currencies. We therefore must translate our foreign assets, liabilities, revenue and expenses into U.S. dollars at applicable exchange rates. Consequently, fluctuations in the value of foreign currencies relative to the U.S. dollar may negatively affect the value of these items in our financial statements. In addition, since many of our sales in foreign jurisdictions are denominated in U.S. dollars, fluctuations in the value of foreign currencies relative to the U.S. dollar may effectively increase the price of our products in the currency of the jurisdiction in which the sale took place and may result in our products becoming too expensive for non-U.S. customers who do not conduct their business in U.S. dollars. Furthermore, currency exchange rates have been especially volatile in the recent

 

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past, and these currency fluctuations may make it difficult for us to predict our results of operations. To the extent we fail to manage our foreign currency exposure adequately, we may suffer losses in the value of our net foreign currency investment, and our business, financial condition, results of operations and cash flows may be negatively affected.

We have and expect to continue to pursue acquisitions of and investments in new businesses, products or technologies, joint ventures and other strategic transactions that involve numerous risks and could disrupt our business and harm our financial condition and results of operations.

As part of our business strategy, we make acquisitions of and investments in new businesses, products and technologies and enter into joint ventures and other strategic relationships in the ordinary course. Our ability to grow our revenues, earnings and cash flow at or above our historic rates depends in part upon our ability to identify and successfully acquire and integrate businesses at acceptable prices, realize anticipated synergies and make appropriate investments that support our long-term strategy. We may not be able to consummate acquisitions at rates similar to the past, which could adversely impact our growth rate and the trading price of our common stock. Promising acquisitions and investments are difficult to identify and complete for a number of reasons, including high valuations, competition among prospective buyers, the availability of affordable funding in the capital markets and the need to satisfy applicable closing conditions and obtain applicable antitrust and other regulatory approvals on a timely basis and on acceptable terms. In addition, competition for acquisitions and investment may result in higher purchase prices. Changes in accounting or regulatory requirements or instability in the credit markets could also adversely impact our ability to consummate acquisitions and investments on acceptable terms or at all.

In addition, even if we are able to consummate acquisitions and enter into joint ventures and other strategic relationships, these transactions and relationships present a number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs, negatively affect our growth rate and the trading price of our common stock, and may have a material adverse effect on our business, financial condition and results of operations. In addition, any acquisition, investment, joint venture or other strategic transaction we may enter into in the future, involve a number of additional financial, accounting, managerial, operational, legal, regulatory and other risks, which may include, among others:

 

   

Any business, technology, service or product that we acquire or invest in could under-perform relative to our expectations and the price that we paid or not perform in accordance with our anticipated timetable, or we could fail to operate any such business profitably.

 

   

We may incur or assume significant debt in connection with our acquisitions, joint ventures and other strategic relationships, which could also cause a deterioration of our credit ratings, result in increased borrowing costs and interest expense and diminish our future access to the capital markets. Alternatively, we may issue additional equity securities, which could dilute your ownership and voting power.

 

   

Acquisitions, joint ventures and other strategic relationships could cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term challenges associated with integrating employees from the acquired company into our organization.

 

   

Pre-closing and post-closing earnings charges could adversely impact operating results in any given period, and the impact may be substantially different from period to period.

 

   

Acquisitions, joint ventures and other strategic relationships could create demands on our management, operational resources and financial and internal control systems that we are unable to effectively address.

 

   

We could experience difficulty in integrating personnel, operations and financial and other controls and systems and retaining key employees and customers.

 

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We may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition, joint venture or other strategic relationship.

 

   

We may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities and the realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position and/or cause us to fail to meet our public financial reporting obligations.

 

   

In connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results.

 

   

As a result of our acquisitions, we have recorded significant goodwill and other assets on our balance sheet and if we are not able to realize the value of these assets, or if the fair value of our investments declines, we may be required to incur impairment charges.

 

   

We may have interests that diverge from those of our joint venture partners or other strategic partners and we may not be able to direct the management and operations of the joint venture or other strategic relationship in the manner we believe is most appropriate, exposing us to additional risk.

 

   

Investing in or making loans to early-stage companies often entails a high degree of risk, and we may not achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.

Furthermore, potential acquisitions, investments, joint ventures and other strategic transactions, whether or not consummated, may divert our management’s attention and require considerable cash outlays at the expense of our existing operations. This, and any of the risks set forth above, could materially and adversely affect our business, financial condition, results of operations and profitability.

Our ability to raise capital in the future may be limited and could prevent us from executing our growth strategy.

Our ability to operate and expand our business depends on the availability of adequate capital, which in turn depends on cash flow generated by our business and the availability of borrowings under our credit facilities and other debt, equity or other applicable financing arrangements. We believe that our existing cash resources, together with the anticipated net proceeds of this offering and our access to the capital markets, will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for at least the next 12 months. However, we have based this estimate on our current operating plans and expectations, which are subject to change, and cannot assure you that that our existing resources will be sufficient to meet our future liquidity needs. We may require additional capital to respond to business opportunities, challenges, acquisitions or other strategic transactions and/or unforeseen circumstances. The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including:

 

   

market acceptance of our products;

 

   

the need to adapt to changing technologies and technical requirements;

 

   

the existence of opportunities for expansion; and

 

   

access to and availability of sufficient management, technical, marketing and financial personnel.

If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or debt securities or obtain debt financing. The sale of additional equity securities or convertible

 

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debt securities would result in additional dilution to our stockholders. Additional debt would result in increased expenses and could result in covenants that would restrict our operations and our ability to incur additional debt or engage in other capital-raising activities. We have not made arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow and support our business and respond to business opportunities and challenges could be significantly limited.

We may not be able to effectively manage our growth, and we may need to incur significant expenditures to address the additional operational and control requirements of our growth, either of which could harm our business and operating results.

To continue to grow, we must continue to expand our operational, engineering, accounting and financial systems, procedures, controls and other internal management systems. This may require substantial managerial and financial resources, and our efforts in this regard may not be successful. Our current systems, procedures and controls may not be adequate to support our future operations. Unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our operating margins and profitability will be adversely affected. If we fail to adequately manage our growth, improve our operational, financial and management information systems, or effectively motivate and manage our new and future employees, it could adversely affect our business, financial condition and results of operations.

We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and market our products could be harmed, which in turn could adversely affect our financial results.

Our success depends to a large extent upon the continued services of our executive officers, managers and skilled personnel, including our development engineers. In particular, we are highly dependent on the services of Ravi Vig, our Chief Executive Officer, who, after over 30 years of service with our company, has been critical in the development and growth of our business and strategic direction. From time to time, there may be changes in our executive management team or other key personnel, which could disrupt our business. Generally, our employees are not bound by obligations that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. Moreover, our employees are generally not subject to non-competition agreements. Given these limitations, we may not be able to continue to attract, retain and motivate qualified personnel necessary for our business. In addition, we recruit from a limited pool of engineers with expertise in analog mixed-signal semiconductor design and the competition for such personnel can be intense. The loss of one or more of our executive officers, particularly Ravi Vig, our Chief Executive Officer, or other key personnel or our inability to locate suitable or qualified replacements could be significantly detrimental to our product development efforts and could have a material adverse effect on our business, financial condition and results of operation. In addition, we must attract and retain highly qualified personnel, including certain foreign nationals who are not U.S. citizens or permanent residents, many of whom are highly skilled and constitute an important part of our U.S. workforce, particularly in the areas of engineering and product development. Our ability to hire and retain these employees and their ability to remain and work in the U.S. are impacted by laws and regulations, as well as by procedures and enforcement practices of various government agencies. Changes in immigration laws, regulations or procedures, including those that may be enacted by the current U.S. presidential administration, may adversely affect our ability to hire or retain such workers, increase our operating expenses and negatively impact our ability to deliver our products and services, any of which would adversely affect our business, financial condition and results of operations.

Our failure to comply with the large body of laws and regulations to which we are subject could have a material adverse effect on our business and operations.

We are subject to regulation by various governmental agencies in the United States and other jurisdictions in which we operate. These laws and regulations (and the government agency responsible for their enforcement in

 

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the United States) cover: radio frequency emission regulatory activities (Federal Communications Commission); anti-trust regulatory activities (Federal Trade Commission and Department of Justice); consumer protection laws (Federal Trade Commission); import/export regulatory activities (Department of Commerce); product safety regulatory activities (Consumer Products Safety Commission); worker safety (Occupational Safety and Health Administration and similar state and local agencies); environmental protection (Environmental Protection Agency and similar state and local agencies); employment matters (Equal Employment Opportunity Commission); and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business. In certain jurisdictions, regulatory requirements in one or more of these areas may be more stringent than in the United States.

In the area of employment matters, we are subject to a variety of federal, state and foreign employment and labor laws and regulations, including the Americans with Disabilities Act, the Federal Fair Labor Standards Act, the WARN Act and other regulations related to working conditions, wage and hour pay, overtime pay, employee benefits, anti-discrimination, and termination of employment. Noncompliance with any of these applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, fines, damages, penalties, or injunctions. In certain instances, former employees have brought claims against us and we expect that we will encounter similar actions against us in the future. An adverse outcome in any such litigation could require us to pay damages, attorneys’ fees and costs. These enforcement actions could harm our reputation, business, financial condition and results of operations. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be materially and adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.

Our failure to comply with the Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences.

We have extensive international operations and a substantial portion of our business, particular with respect to our manufacturing processes, is conducted outside of the United States. Our operations are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), as well as the anti-corruption and anti-bribery laws in the countries where we do business. The FCPA prohibits covered parties from offering, promising, authorizing or giving anything of value, directly or indirectly, to a “foreign government official” with the intent of improperly influencing the official’s act or decision, inducing the official to act or refrain from acting in violation of lawful duty, or obtaining or retaining an improper business advantage. The FCPA also requires publicly traded companies to maintain records that accurately and fairly represent their transactions, and to have an adequate system of internal accounting controls. In addition, other applicable anti-corruption laws prohibit bribery of domestic government officials, and some laws that may apply to our operations prohibit commercial bribery, including giving or receiving improper payments to or from non-government parties, as well as so-called “facilitation” payments. In addition, we are subject to U.S. and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S. Treasury, Office of Foreign Assets Control.

Though we maintain policies, internal controls and other measures reasonably designed to promote compliance with applicable anticorruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with U.S. trade control laws, our employees or agents may nevertheless engage in improper conduct for which we might be held responsible. Any violations of these anti-corruption or trade controls laws, or even allegations of such violations, can lead to an investigation and/or enforcement action, which could disrupt our operations, involve significant management distraction, and lead to significant costs and expenses, including legal fees. If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business, delisting from securities exchanges and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our reputation, our net sales or our stock price could be adversely affected if we

 

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become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations.

In order to comply with environmental and occupational health and safety laws and regulations, we may need to modify our activities or incur substantial costs, and such laws and regulations, including any failure to comply with such laws and regulations, could subject us to substantial costs, liabilities, obligations and fines, or require us to have our suppliers alter their processes.

The semiconductor industry is subject to a variety of international, federal, state, local and non-U.S. laws and regulations governing pollution, environmental protection and occupational health and safety, including those relating to the release, storage, use, discharge, handling, generation, transportation, disposal, product composition and labeling of, and human exposure to, hazardous and toxic materials, and the investigation and cleanup of contaminated sites, including sites we currently or formerly owned or operated, due to the release of hazardous materials, regardless of whether we caused such release. In addition, we may be liable for joint and several costs associated with investigation and remediation of sites at which we have arranged for the disposal of hazardous wastes if such sites become contaminated, even if we fully comply with applicable environmental laws and regulations. Failure to comply with such laws and regulations could subject us to civil or criminal costs, obligations, sanctions or property damage or personal injury claims, or suspension of our facilities’ operating permits. Compliance with current or future environmental and occupational health and safety laws and regulations could restrict our ability to expand our business or require us to modify processes or incur other substantial expenses which could harm our business. In the event of an incident involving hazardous materials, we could be liable for damages and such liability could exceed the amount of our liability insurance coverage and the resources of our business. In addition, in the event of the discovery of contaminants or the imposition of clean up obligations for which we are responsible, we may be required to take remedial or other measures which could have a material adverse effect on our business, financial condition and results of operations. In response to environmental concerns, some customers and government agencies impose requirements for the elimination and/or labeling of hazardous substances, such as lead (which is widely used in soldering connections in the process of semiconductor packaging and assembly), in electronic equipment, as well as requirements related to the take-back of products discarded by customers. For example, the EU adopted its Restriction of Hazardous Substance Directive (“RoHS”) which prohibits, with specified exceptions, the sale in the EU market of electrical and electronic equipment containing more than agreed levels of lead or other hazardous materials and China has enacted similar regulations. Environmental and occupational health and safety laws and regulations have tended to become more stringent over time, causing a need to redesign technologies, imposing greater compliance costs and increasing risks and penalties associated with violations, which could seriously harm our business.

The issuance of new accounting standards or future interpretations of existing accounting standards could adversely affect our operating results.

We prepare our financial statements in accordance with GAAP. A change in those principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. GAAP is issued and subject to interpretation by the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”) and various other bodies formed to promulgate and interpret accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. The issuance of new accounting standards or future interpretations of existing accounting standards, or changes in our business practices or estimates, could result in future changes in our revenue recognition or other accounting policies that could have a material adverse effect on our business, financial condition and results of operations.

 

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We could be subject to changes in tax rates or the adoption of new tax legislation, whether in or out of the United States, or could otherwise have exposure to additional tax liabilities, which could adversely affect our results of operations or financial condition.

As a multinational business, we are subject to income and other taxes in both the United States and various foreign jurisdictions. Changes to tax laws or regulations in the jurisdictions in which we operate, or in the interpretation of such laws or regulations, could, significantly increase our effective tax rate and reduce our cash flow from operating activities, and otherwise have a material adverse effect on our financial condition. In addition, other factors or events, including business combinations and investment transactions, changes in the valuation of our deferred tax assets and liabilities, adjustments to taxes upon finalization of various tax returns or as a result of deficiencies asserted by taxing authorities, increases in expenses not deductible for tax purposes, changes in available tax credits, changes in transfer pricing methodologies, other changes in the apportionment of our income and other activities among tax jurisdictions, and changes in tax rates, could also increase our effective tax rate.

Our tax filings are subject to review or audit by the U.S. Internal Revenue Service (the “IRS”) and state, local and foreign taxing authorities. For example, we recently settled a tax audit relating to fiscal years 2016, 2017 and 2018. We exercise significant judgment in determining our worldwide provision for taxes and, in the ordinary course of our business, there may be transactions and calculations where the proper tax treatment is uncertain. We may also be liable for taxes in connection with businesses we acquire. Our determinations are not binding on the IRS or any other taxing authorities, and accordingly the final determination in an audit or other proceeding may be materially different than the treatment reflected in our tax provisions, accruals and returns. An assessment of additional taxes because of an audit could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Further changes in the tax laws of foreign jurisdictions could arise, in particular, as a result of the base erosion and profit shifting project that was undertaken by the Organization for Economic Co-operation and Development (the “OECD”). The OECD, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles. These changes, if adopted, could increase tax uncertainty and may adversely affect our provision for income taxes and increase our tax liabilities.

Litigation, including securities class action litigation, may impair our reputation and lead us to incur significant costs.

From time to time, we have been, and in the future anticipate will be, party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, third-party manufacturers or subcontractors, intellectual property, employment matters, environmental matters or other aspects of our business. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against companies that experienced such volatility. Litigation, if instituted against us, whether or not valid and regardless of outcome, could result in substantial costs, reputational harm and a diversion of our management’s attention and resources. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. The outcome of litigation is often difficult to predict, and any litigation may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Although we have various insurance policies in place, the potential liabilities associated with litigation matters now or that could arise in the future, could be excluded from coverage or, if covered, could exceed the coverage provided by such policies. In addition, insurance carriers may seek to rescind or deny coverage with respect to any claim or lawsuit. If we do not have sufficient coverage under our policies, or if coverage is denied, we may be required to make material payments to settle litigation or satisfy any judgment. Any of these

 

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consequences could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The estimates of market opportunity and growth forecasts included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts are inherently uncertain. Our estimates regarding the expected growth in our served available markets are based on our experience, as well as internal research and industry forecasts, which are subject to a number of estimates and assumptions. While we believe our assumptions and the data underlying our estimates to be reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our estimates regarding the size and expected growth rates of our served available markets may prove to be incorrect. If our served available markets are smaller than we have estimated, our sales growth and/or market share may fail to reach the levels implied by these estimates.

Risks Related to this Offering and Ownership of Our Common Stock

We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we could remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the closing of this offering. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to:

 

   

not being required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

   

not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden-parachutes”; and

 

   

not being required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, as an emerging growth company, we are only permitted to provide two years of audited financial statements and two years of selected financial data (in addition to any required interim financial statements and selected financial data) in this prospectus, and to present correspondingly reduced disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We have elected to take advantage of this reduced disclosure obligation and certain of the other exemptions described above in the registration statement of which this prospectus is a part and may elect to take advantage of these and other reduced reporting requirements in the future. As a result, the information that we provide to our stockholders may be different than the information you might receive from other public reporting companies in which you hold equity interests. In addition, the JOBS Act permits emerging growth companies to delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards until the

 

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earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements and the reported results of operations contained therein may not be directly comparable to those of other public companies. We cannot predict whether investors will find our common stock less attractive because of our reliance on these exemptions. If some investors do find our common stock less attractive, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile.

We will remain an emerging growth company, and will be able to take advantage of the foregoing exemptions, until the last day of our fiscal year following the fifth anniversary of the closing of this offering or such earlier time that we otherwise cease to be an emerging growth company, which will occur upon the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which will occur as of the end of any fiscal year in which we (x) the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) we have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (z) have filed at least one annual report pursuant to the Exchange Act.

Our principal stockholders Sanken and OEP will continue to have substantial control over us after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control, and otherwise affect the prevailing market price of our common stock.

After this offering, our principal stockholders Sanken and OEP will beneficially own, in the aggregate, approximately     % of our outstanding common stock, and approximately     % of our outstanding common stock if the underwriters’ option to purchase additional shares of common stock in this offering is exercised in full. See “Principal and Selling Stockholders.” In addition, as described in more detail under “Certain Relationships and Related Party Transactions—Stockholders’ Agreements,” the New Stockholders’ Agreement, which will become effective prior to the closing of this offering, gives each of Sanken and the OEP Investor (in each case, for so long such party beneficially owns at least 5% of our common stock) certain rights with respect to the composition of our board of directors, including certain rights to designate members of our board of directors. As a result, these stockholders and their affiliates will have significant influence over the management and affairs of our company, as well as the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and the approval of significant corporate transactions, including any merger, consolidation or sale of all or substantially all of our assets and the issuance or redemption of equity interests in certain circumstances. The interests of these stockholders may not always coincide with, and in some cases may conflict with, our interests and the interests of our other stockholders. For instance, these stockholders could attempt to delay or prevent a change in control of our company, even if such change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock. This concentration of ownership may also affect the prevailing market price of our common stock due to investors’ perceptions that conflicts of interest may exist or arise. As a result, this concentration of ownership may not be in your best interests.

Our Post-IPO Certificate of Incorporation will provide that the doctrine of “corporate opportunity” will not apply with respect to any director or stockholder who is not employed by us or our subsidiaries.

The doctrine of corporate opportunity generally provides that a corporate fiduciary may not develop an opportunity using corporate resources, acquire an interest adverse to that of the corporation or acquire property that is reasonably incident to the present or prospective business of the corporation or in which the corporation has a present or expectancy interest, unless that opportunity is first presented to the corporation and the corporation chooses not to pursue that opportunity. The doctrine of corporate opportunity is intended to preclude officers, directors and other fiduciaries from personally benefiting from opportunities that belong to the corporation. Our Post-IPO Certificate of Incorporation, which will become effective upon the closing of this

 

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offering, will provide that the doctrine of “corporate opportunity” will not apply with respect to the OEP Investor or its affiliates (other than us and our subsidiaries) any of its or their respective principals, members, directors, partners, stockholders, officers, employees or other representatives (other than any such person who is also an employee of ours or our subsidiaries) or to any director or stockholder who is not employed by us or our subsidiaries (collectively, “Exempted Persons”). The Exempted Persons will therefore have no duty to communicate or present corporate opportunities to us, and will have the right to either hold any corporate opportunity for their own account and benefit or to recommend, assign or otherwise transfer such corporate opportunity to persons other than us, including to any other director or stockholder who is not employed by us or our subsidiaries.

As a result, the Exempted Persons will generally not be prohibited from operating or investing in competing businesses. We therefore may find ourselves in competition with any one or more of these parties, and we may not have knowledge of, or be able to pursue, transactions that could potentially be beneficial to us. To the extent we find ourselves in competition with Exempted Persons, we may lose a corporate opportunity or suffer competitive harm, which could negatively impact our business, financial condition, results of operations or prospects.

There has been no prior public market for our common stock, and an active trading market may never develop or be sustained.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for the shares was determined by negotiations between us, the selling stockholders and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market following the closing of this offering. Although we have applied to list our common stock on the Nasdaq Global Select Market, an active trading market for our common stock may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for our common stock, or at all. An inactive trading market may also impair our ability to raise capital by selling shares of our common stock and enter into strategic partnerships or acquire other complementary products, technologies or businesses by using shares of our common stock as consideration. Furthermore, although we have applied to list our common stock on the Nasdaq Global Select Market, even if listed, there can be no guarantee that we will continue to satisfy the continued listing standards of the Nasdaq Global Select Market. If we fail to satisfy the continued listing standards, we could be de-listed, which would negatively impact the value and liquidity of your investment.

Our stock price may be volatile, and investors in our common stock may not be able to resell shares of our common stock at or above the price paid, or at all.

The trading price of our common stock following this offering could be volatile and subject to wide fluctuations in response to various factors, many of which are beyond our control, including, but not limited to:

 

   

variations in our actual or anticipated annual or quarterly operating results or those of others in our industry;

 

   

results of operations that otherwise fail to meet the expectations of securities analysts and investors;

 

   

changes in earnings estimates or recommendations by securities analysts, or other changes in investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;

 

   

market conditions in the semiconductor industry;

 

   

publications, reports or other media exposure of our products or those of others in our industry, or of our industry generally;

 

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announcements by us or others in our industry, or by our or their respective suppliers, distributors or other business partners, regarding, among other things, significant contracts, price reductions, capital commitments or other business developments, the entry into or termination of strategic transactions or relationships, securities offerings or other financing initiatives, and public reaction thereto;

 

   

additions or departures of key management personnel;

 

   

regulatory actions involving us or others in our industry, or actual or anticipated changes in applicable government regulations or enforcement thereof;

 

   

the development and sustainability of an active trading market for our common stock;

 

   

sales, or anticipated sales, of large blocks of our common stock;

 

   

general economic and securities market conditions; and

 

   

other factors discussed in this “Risk Factors” section and elsewhere in this prospectus.

Furthermore, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies. Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our common stock shortly following the closing of this offering. These and other factors may cause the market price and demand for our common stock to fluctuate significantly, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our core business operations.

If equity research analysts or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock, should one develop, will be influenced by the research and reports that industry or equity research analysts publish about us or our business. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with us, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. If no or few securities or industry analysts commence coverage of us, the trading price for our common stock will be negatively impacted. In the event we do obtain industry or equity research analyst coverage, we will not have any control over the analysts’ content and opinions included in their reports. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, financial performance, stock price or otherwise, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline and result in the loss of all or a part of your investment in us.

New investors in our common stock will experience immediate and substantial dilution in book value after this offering.

The initial public offering price is expected to be substantially higher than the pro forma as adjusted net tangible book value per share of our common stock. If you purchase common stock in this offering, you will incur immediate dilution of $         per share, representing the difference between the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, and the pro forma as adjusted net tangible book value per share of our common stock as of June 26, 2020. For additional information on the dilution you may experience as a result of investing in this offering, see “Dilution.”

 

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Future sales of shares by our stockholders could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that such sales may occur, could reduce the market price of our common stock. Immediately after this offering, we will have outstanding                 shares of common stock, based on the number of shares of our common stock outstanding as of June 26, 2020, after giving effect to (i) the Class L Share Repurchases, (ii) the Common Stock Conversion, and (iii) the consummation of the Common Stock Repurchases at an assumed repurchase price of $         per share (which is based on an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a             , 2020 pricing date of this offering. This includes the shares we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares,                 shares are currently restricted as a result of securities laws or lock-up agreements (which may be waived, in whole or in part, with or without notice, by                 ) but will become eligible to be sold at various times beginning 180 days after the date of this prospectus, unless held by one of our affiliates, in which case the resale of those securities will be subject to volume limitations under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). Moreover, after this offering, holders of an aggregate of                 shares of our common stock will have rights, subject to certain conditions and limitations, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders, until such rights terminate pursuant to the terms of our Registration Rights Agreement, as described elsewhere in this prospectus under the heading “Description of Capital Stock—Registration Rights.” We also intend to register all shares of common stock that we may issue under equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus. As these restrictions on resale end, the market price of our common stock could drop significantly if the holders of those shares sell them or are perceived by the market as intending to sell them. These declines in our stock price could occur even if our business is otherwise doing well and, as a result, you may lose all or a part of your investment.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise could dilute the ownership and voting power of our other stockholders.

After this offering, we will have                shares of common stock authorized but unissued, based on the number of shares of our common stock outstanding as of June 26, 2020, after giving effect to (i) the Class L Share Repurchases, (ii) the Common Stock Conversion, and (iii) the consummation of the Common Stock Repurchases at an assumed repurchase price of $         per share (which is based on an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a             , 2020 pricing date of this offering, including                  shares of common stock reserved for future issuance under our 2020 Plan and shares of common stock reserved for future issuance under our 2020 ESPP. In addition, our Post-IPO Certificate of Incorporation will authorize us to issue up to 20,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Our Post-IPO Certificate of Incorporation will authorize us to issue shares of common stock or other securities convertible into or exercisable or exchangeable for shares of our common stock from time to time, for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with a financing, an acquisition, an investment, our stock incentive plans or otherwise. Such additional shares of our common stock or such other securities may be issued at a discount to the market price of our common stock at the time of issuance. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. As discussed below, the potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our common stock. Any issuance of such securities could result in substantial dilution to our existing stockholders and cause the market price of shares of our common stock to decline.

 

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We do not expect to declare or pay any dividends on our common stock for the foreseeable future.

We do not intend to pay cash dividends on our common stock for the foreseeable future. Consequently, investors must rely on sales of their shares of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking dividends should not purchase shares of our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and subject to, among other things, our compliance with applicable law, and depending on, among other things, our business prospects, financial condition, results of operations, cash requirements and availability, debt repayment obligations, capital expenditure needs, the terms of any preferred equity securities we may issue in the future, covenants in the agreements governing our current and future indebtedness, other contractual restrictions, industry trends, the provisions of the Delaware General Corporation Law (the “DGCL”) affecting the payment of dividends and distributions to stockholders and any other factors or considerations our board of directors may regard as relevant. Furthermore, because we are a holding company, our ability to pay dividends on our common stock will depend on our receipt of cash distributions and dividends from our direct and indirect wholly owned subsidiaries, which may be similarly impacted by, among other things, the terms of any preferred equity securities these subsidiaries may issue in the future, debt agreements, other contractual restrictions and provisions of applicable law. See “Dividend Policy.”

Our management will have broad discretion in the application of the net proceeds from this offering designated for general corporate purposes and may apply such net proceeds to uses that do not increase our market value or improve our operating results.

We intend to use approximately $         million of the net proceeds received by us from this offering to repay borrowings under our Term Loan Facility, and the remaining net proceeds for working capital and other general corporate purposes, which may include additional debt repayments, as set forth under “Use of Proceeds.” We may also use a portion of our net proceeds to acquire or invest in complementary businesses, products, services or technologies, though we do not have any agreements or commitments for any significant acquisitions or investments at this time. Other than as described above, we have not reserved or allocated our net proceeds for any specific purpose, and we cannot state with certainty how our management will use the net proceeds from this offering designated for general corporate purposes. Accordingly, our management will have considerable discretion in applying such net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether we are using such net proceeds appropriately. We may use our net proceeds for purposes that do not result in any improvement in our results of operations or increase the market value of our common stock. The failure by our management to apply the net proceeds from this offering effectively could impair our growth prospects and result in financial losses that could have a material adverse effect on our business, financial condition and results of operations and cause the price of our common stock to decline. Until the net proceeds from this offering designated for general corporate purposes are used, they may be placed in investments that do not produce income or that lose value.

Provisions in our Post-IPO Certificate of Incorporation and Post-IPO Bylaws and under the DGCL contain antitakeover provisions that could prevent or discourage a takeover.

Provisions in our Post-IPO Certificate of Incorporation and our Post-IPO Bylaws, which will become effective upon the closing of this offering, may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:

 

   

a classified board of directors with three-year staggered terms, which may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control of us or our management;

 

 

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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by, among other things, the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;

 

   

the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

 

   

the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to amend or repeal our bylaws or amend the provisions of our Post-IPO Certificate of Incorporation regarding the election and removal of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take action, including the removal of directors; and

 

   

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at an annual meeting or special meeting of stockholders, which may discourage or delay a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us until the next stockholder meeting or at all.

In addition, we have opted out of Section 203 of the DGCL but our Post-IPO Certificate of Incorporation will provide that engaging in any of a broad range of business combinations with any “interested” stockholder (any stockholder with 15% or more of our voting stock (subject to certain exceptions, including OEP and its affiliates)) for a period of three years following the date on which the stockholder became an “interested” stockholder is prohibited, subject to certain exceptions.

Our Post-IPO Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Post-IPO Certificate of Incorporation that will become effective upon the closing of this offering provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery”) will be the exclusive forum for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or stockholders to us or our stockholders; (3) any action asserting a claim against us, any director or our officers and employees arising pursuant to any provision of the DGCL, our Post-IPO Certificate of Incorporation or our Post-IPO Bylaws, or as to which the DGCL confers exclusive jurisdiction on the Delaware Court of Chancery; or (4) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act, the rules and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Delaware Court of Chancery dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the

 

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State of Delaware. Our Post-IPO Certificate of Incorporation further provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Post-IPO Certificate of Incorporation described above.

We believe these provisions benefits us by providing increased consistency in the application of the DGCL by chancellors particularly experienced in resolving corporate disputes and in the application of the Securities Act by federal judges, as applicable, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees or agents, which may discourage such lawsuits against us and our directors, officers and other employees and agents. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Post-IPO Certificate of Incorporation to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our Post-IPO Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

The requirements of being a public company require significant resources and management attention and affect our ability to attract and retain executive management and qualified board members.

As a public company following this offering, we will incur significant legal, accounting and other expenses that we did not previously incur as a private company. We will be subject to the Exchange Act, including the reporting requirements thereunder, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq rules and other applicable securities rules and regulations. These rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives, which will divert their attention away from our core business operations and revenue-producing activities. Moreover, compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an ‘‘emerging growth company.’’ Further, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which in turn could require us to incur substantially higher costs to obtain the same or similar coverage or accept reduced policy limits and coverage, which, if we accept such reduced policy limits and coverage, could make it more difficult for us to attract and retain qualified individuals to serve on our board of directors and as our executive officers. In addition, prior to this offering, we have not been required to comply with SEC requirements to have our financial statements completed and reviewed or audited within a specified time and, as such, we may experience difficulty in meeting the applicable reporting requirements under the Exchange Act. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our common stock.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. In addition, if we fail to comply with these rules and regulations, we could be subject to a number of penalties, including the delisting of our common stock, fines, sanctions or other regulatory action or civil litigation.

 

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Failure to comply with requirements to design, implement and maintain effective internal control over financial reporting could have a material adverse effect on our business and stock price.

As a private company, we have not been required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404.

As a public company, we will have significant requirements for enhanced financial reporting and internal controls. The process of designing, implementing and maintaining effective internal controls is a continuous effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing whether such controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and adversely affect our operating results. In addition, we will be required, pursuant to Section 404, to furnish a report by our management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the closing of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation and testing. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. In addition, pursuant to Section 404, once we are no longer an emerging growth company, provided we then qualify as an “accelerated filer” as defined in Rule 12b-2 under the Exchange Act, we will be required to include in the annual reports that we file with the SEC an attestation report on our internal control over financial reporting issued by our independent registered public accounting firm. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the costs and burdens of complying with Section 404 will significantly increase.

Furthermore, as a public company following the closing of this offering, we may, during the course of our testing of our internal controls over financial reporting, or during the subsequent testing by our independent registered public accounting firm, identify deficiencies which would have to be remediated to satisfy the SEC rules for certification of our internal controls over financial reporting. As a consequence, we may have to disclose in periodic reports we file with the SEC significant deficiencies or material weaknesses in our system of internal controls. The existence of a material weakness would preclude management from concluding that our internal controls over financial reporting are effective, and would preclude our independent auditors from issuing an unqualified opinion that our internal controls over financial reporting are effective. In addition, disclosures of this type in our SEC reports could cause investors to lose confidence in the accuracy and completeness of our financial reporting and may negatively affect the trading price of our common stock, and we could be subject to sanctions or investigations by regulatory authorities. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal controls over financial reporting, it could negatively impact our business, results of operations and reputation.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We have designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods

 

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specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Actions of stockholders could cause us to incur substantial costs, divert management’s attention and resources and have an adverse effect on our business.

As a public company, we may, from time to time, be subject to proposals and other requests from stockholders urging us to take certain corporate actions, including proposals seeking to influence our corporate policies or effect a change in our management. In the event of such stockholder proposals, particularly with respect to matters which our management and board of directors, in exercising their fiduciary duties, disagree with or have determined not to pursue, our business could be adversely affected because responding to actions and requests of stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Additionally, perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners and customers.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the offering, liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.

The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the factors set forth under “Risk Factors.” Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

These forward-looking statements speak only as of the date of this prospectus. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this prospectus after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $        million, based upon the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us. We will not receive any proceeds from the sale of common stock by the selling stockholders in this offering.

We intend to use the net proceeds received by us from this offering as follows:

 

   

approximately $         million to repay borrowings under our Term Loan Facility; and

 

   

the remaining net proceeds for working capital and other general corporate purposes, which may include additional debt repayments.

We may also use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies; however, we do not have any agreements or commitments for any significant acquisitions or investments at this time. The principal purposes of this offering are to increase our financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders.

Other than as set forth above, as of the date of this prospectus, we cannot estimate with certainty the amount of net proceeds to be used for any of the purposes described in the foregoing paragraphs. We will have broad discretion in the application of the net proceeds from this offering designated for general corporate purposes. Pending any use of the net proceeds from this offering as described above, we intend to invest such proceeds in short-term, interest-bearing, investment-grade securities. We cannot predict whether the proceeds invested will yield a favorable return for us.

On                 , 2020, proceeds from borrowings under our Term Loan Facility were used, together with cash on hand, to pay an aggregate cash dividend of $         million to holders of our Class A common stock. The Term Loan Facility has a maturity date of September 30, 2027 and, as of                     , 2020, bears interest at a rate of         % per year. See “Description of Certain Indebtedness—Senior Secured Credit Facilities.” Certain of the underwriters or their affiliates are lenders or act in other capacities under our Term Loan Facility and, as a result, will receive a portion of the net proceeds from this offering.

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the net proceeds to us from this offering by approximately $        million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) the net cash proceeds that we receive from this offering by approximately $        million, assuming the shares of our common stock offered by this prospectus are sold at the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 26, 2020, as follows:

 

   

on an actual basis; and

 

   

on a pro forma basis to give effect to (i) this offering and the Offering-Related Transactions (as defined elsewhere in this prospectus under “Unaudited Pro Forma Consolidated Financial Data”), and (ii) the filing and effectiveness of our Post-IPO Certificate of Incorporation which will occur immediately prior to the closing of this offering, as if each such event had occurred on June 26, 2020.

 

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The pro forma information set forth in the table below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus, as well as the “Use of Proceeds,” “Selected Consolidated Financial and Other Data,” “Unaudited Pro Forma Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

 

     As of June 26, 2020  
     Actual     Pro forma(1)  
           (unaudited)  
     (in thousands, except
share and per share
amounts)
 

Cash and cash equivalents

   $ 215,576     $                
  

 

 

   

 

 

 

Debt:

    

Existing credit facilities(2)(4)

   $ 33,000     $    

Term Loan Facility(4)

     —      

Revolving Credit Facility(3)

     —      

Total debt(4)

   $ 33,000     $    

Stockholders’ Equity:

    

Preferred stock, par value $0.01 per share; no shares authorized, issued and outstanding, actual; 20,000,000 shares authorized, no shares issued and outstanding pro forma

     —      

Class A common stock, par value $0.01 per share; 12,500,000 shares authorized, 10,000,000 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma

     100    

Class L common stock, par value $0.01 per share; 1,000,000 shares authorized, 638,298 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma

     6    

Common stock, par value $0.01 per share; no shares authorized, issued and outstanding, actual;1,000,000,000 shares authorized,              shares issued and outstanding pro forma;

     —      

Additional paid-in capital

     439,679    

Retained earnings

     199,175    

Accumulated other comprehensive loss

     (16,002  
  

 

 

   

 

 

 

Equity attributable to Allegro MicroSystems, Inc.

     622,958    

Non-controlling interests

     977    
  

 

 

   

Total stockholders’ equity

     623,935    
  

 

 

   

 

 

 

Total capitalization

   $  749,949     $                
  

 

 

   

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares offered by us at the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma amount of each of cash and cash equivalents, additional paid-in capital, total equity and total capitalization by approximately $        million, assuming the shares of our common stock offered by this prospectus are sold at the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

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(2)

Consists of $25.0 million in aggregate principal amount of debt outstanding under the AML Revolver and $8.0 million in aggregate principal amount of debt outstanding under the AML Line of Credit.

(3)

On a pro forma basis as of June 26, 2020, we had $50.0 million of borrowings available under the Revolving Credit Facility.

(4)

For a discussion of our debt obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt Obligations” and “Description of Certain Indebtedness.” Also see our unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus, which reflect all liabilities.

The table above does not include:

 

   

                shares of common stock reserved for future issuance under the 2020 Plan, which will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, as more fully described in “Executive and Director Compensation—Equity Compensation—2020 Omnibus Incentive Compensation Plan” (which number includes shares of our common stock issuable upon the vesting and settlement of RSUs to be granted under our 2020 Plan in connection with this offering as IPO Grants or LTCIP/TRIP Conversion Grants (each, as hereinafter defined)), as well as shares of common stock that may be issued pursuant to provisions in the 2020 Plan that automatically increase the common stock reserve under such plan; and

 

   

                shares of common stock reserved for future issuance under our 2020 ESPP, which will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, as more fully described in “Executive and Director Compensation—Equity Compensation—2020 Employee Stock Purchase Plan,” as well as shares of common stock that may be issued pursuant to provisions in the 2020 ESPP that automatically increase the common stock reserve under such plan.

 

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DIVIDEND POLICY

On             , 2020, we paid a cash dividend in the aggregate amount of $         million to holders of our Class A common stock in connection with the Recapitalization. See “Prospectus Summary—Recent Developments—Senior Secured Credit Facilities and the Recapitalization.” We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and the repayment of outstanding debt and, therefore, we do not anticipate declaring or paying any additional cash dividends on our common stock in the foreseeable future. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our business prospects, results of operations, financial condition, cash requirements and availability, debt repayment obligations, capital expenditure needs, the terms of any preferred equity securities we may issue in the future, covenants in the agreements governing our current and future indebtedness, other contractual restrictions, industry trends, the provisions of the DGCL affecting the payment of dividends and distributions to stockholders and any other factors or considerations our board of directors may regard as relevant. Furthermore, because we are a holding company, our ability to pay dividends on our common stock will depend on our receipt of cash distributions and dividends from our direct and indirect wholly owned subsidiaries, which may be similarly impacted by, among other things, the terms of any preferred equity securities these subsidiaries may issue in the future, debt agreements, other contractual restrictions and provisions of applicable law.

Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them. See “Risk Factors—Risks Relating to this Offering and Ownership of Our Common Stock—We do not expect to declare or pay dividends on our common stock for the foreseeable future.”

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our pro forma net tangible book value as of June 26, 2020 was $        million, or $        per share. Pro forma net tangible book value per share is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock outstanding as of June 26, 2020, after giving effect to (i) the Recapitalization, (ii) our repurchase, in October 2020, of an aggregate of 2,050 shares of our Class L common stock from certain of our directors and one of our non-executive employees for an initial aggregate purchase price of approximately $0.4 million (subject to increase as described elsewhere in this prospectus under “Certain Relationships and Related Party Transactions—Repurchase of Class L Shares”) in connection with, (a) in the case of such directors, the settlement of certain outstanding promissory notes issued to such directors that were required to be settled prior to the public filing of the registration statement of which this prospectus forms a part (as described elsewhere in this prospectus under “Certain Relationships and Related Party Transactions—Director and Executive Officer Promissory Notes”), and (b) in the case of such non-executive employee, to satisfy certain withholding tax obligations triggered by the vesting of such shares in accordance with the terms of the applicable award agreement (the “Class L Share Repurchases”), (iii) the automatic conversion, immediately following the pricing of this offering, of all outstanding shares of our Class A common stock and Class L common stock (including shares of Class L common stock held by certain of our directors, executive officers and other employees as of June 26, 2020 that will not automatically vest prior to the closing of this offering, but excluding the shares of our Class L common stock purchased in the Class L Share Repurchases) into an aggregate of              shares of our common stock (the “Common Stock Conversion”), and (iv) the consummation of the Common Stock Repurchases at an assumed repurchase price of $             per share (which is based on an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a             , 2020 pricing date of this offering, as if such events had occurred on June 26, 2020.

After giving further effect to our issuance and sale of                shares of common stock in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 26, 2020 would have been approximately $        million, or $        per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $        per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $        per share to new investors purchasing shares of our common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the estimated offering price that a new investor will pay for a share of common stock. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $              

Pro forma net tangible book value per share as of June 26, 2020 before this offering

   $                 
  

 

 

    

Increase in pro forma as adjusted net tangible book value per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

      $    
     

 

 

 

Dilution per share to new investors in this offering

      $    
     

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $        , and dilution per

 

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share to new investors by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $        , and the dilution per share to new investors by approximately $        , assuming that the assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

The following table summarizes, as of June 26, 2020, on the pro forma as adjusted basis described above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors. The calculation below is based on an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average price per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                                $                    %     $                

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100     $                    100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price, the number of shares we sell and other terms of this offering that will be determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the total consideration paid by new investors and the average price per share paid by new investors by $        million and $         per share, respectively. An increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) the total consideration paid by new investors and the average price per share paid by new investors by $        million and $        per share, respectively.

If the underwriters exercise their option to purchase additional shares of our common stock in full:

 

   

the percentage of shares of our common stock held by existing stockholders will decrease to approximately    % of the total number of shares of our common stock outstanding after this offering; and

 

   

the number of shares held by new investors will increase to approximately    % of the total number of shares of our common stock outstanding after this offering.

Except as otherwise indicated, the discussion and the tables above are based on the number of shares outstanding as of June 26, 2020, after giving effect to the adjustments described above, and excludes:

 

   

                 shares of common stock reserved for future issuance under the 2020 Plan, which will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, as more fully described in “Executive and Director Compensation—Equity Compensation—2020 Omnibus Incentive Compensation Plan” (which number includes shares of our common stock issuable upon the vesting and settlement of RSUs to be granted under our 2020 Plan in connection with this offering as IPO Grants or LTCIP/TRIP Conversion Grants (each, as hereinafter defined)), as well as shares of common stock that may be issued pursuant to provisions in the 2020 Plan that automatically increase the common stock reserve under such plan; and

 

   

                shares of common stock reserved for future issuance under our 2020 ESPP, which will become effective upon the effectiveness of the registration statement of which this prospectus forms a part, as more fully described in “Executive and Director Compensation—Equity Compensation—2020

 

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Employee Stock Purchase Plan,” as well as shares of common stock that may be issued pursuant to provisions in the 2020 ESPP that automatically increase the common stock reserve under such plan.

To the extent we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to new investors.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present our selected consolidated financial and other data for the periods ending on and as of the dates indicated. We have derived the selected consolidated statements of income and consolidated cash flows for the fiscal years ended March 29, 2019 and March 27, 2020 and the consolidated balance sheet data as of March 27, 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived our summary consolidated statements of income and consolidated cash flow data for the three-month periods ended June 28, 2019 and June 26, 2020 and the consolidated balance sheet data as of June 26, 2020 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial information set forth below on the same basis as our audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations as of the applicable dates and for the applicable periods. Our results of operations for any interim period are not necessarily indicative of the results that may be expected for a full year. Additionally, our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected consolidated financial and other data together with the information under the sections titled “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Fiscal Year Ended(1)     Three-Month Period Ended(2)  
     March 29,
2019
    March 27,
2020
    June 28,
2019
    June 26,
2020
 
     (amounts in thousands except share and per share data)  

Consolidated Statements of Income:

        

Total net sales(3)

   $ 724,311     $ 650,089     $ 152,443     $ 115,001  

Cost of goods sold

     404,491       388,813       93,056       59,300  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     319,820       261,276       59,387       55,701  

Operating expenses:

        

Research and development

     107,585       102,052       26,128       24,380  

Selling, general and administrative

     112,236       106,396       25,528       26,789  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     219,821       208,448       51,656       51,169  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     99,999       52,828       7,731       4,532  

Other (expense) income:

        

Interest (expense) income, net

     (1,211     (110     (5     313  

Foreign currency transaction (loss) gain

     (906     1,391       2,751       132  

Income in earnings of equity investment

     —         —         —         212  

Other income (expense), net

     1,560       (831     93       193  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other (expense) income, net

     (557     450       2,839       850  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     99,442       53,278       10,570       5,382  

Provision for income taxes

     14,600       16,173       7,335       528  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     84,841     37,105       3,235       4,854  

Net income attributable to non-controlling interests

     117       134       51       34  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Allegro MicroSystems, Inc.

   $ 84,724     $ 36,971     $ 3,184     $ 4,820  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders(4):

        

Basic and diluted

   $ 8.47     $ 3.70     $ 0.32     $ 0.48  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Fiscal Year Ended(1)     Three-Month Period Ended(2)  
     March 29,
2019
    March 27,
2020
    June 28,
2019
    June 26,
2020
 
     (amounts in thousands except share and per share data)  

Weighted average shares used to compute net income per share attributable to common stockholders(4):

        

Basic and diluted

     10,000,000       10,000,000       10,000,000       10,000,000  

Pro-forma net income per share attributable to common stockholders (unaudited)(4):

        

Basic and diluted

     $         $    
    

 

 

     

 

 

 

Weighted average shares used to compute pro forma net income per share attributable to common stockholders (unaudited)(4):

        

Basic and diluted

        
    

 

 

     

 

 

 

Consolidated Statements of Cash Flows Data:

        

Net cash provided by operating activities

   $ 121,088     $  81,419     $ 409     $  25,666  

Net cash used in investing activities

     (97,522     (41,679     (6,945     (24,309

Net cash (used in) provided by financing activities

     (39,743     82,500       30,000       —    

 

     As of  
     March 29,
2019
     March 27,
2020
     June 26,
2020
 
     (in thousands)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 99,743      $ 214,491      $ 215,576  

Working capital(5)

     263,186        298,110        298,254  

Total assets

     752,261        817,821        749,494  

Total debt(6)

     42,700        85,700        33,000  

Total liabilities

     162,472        183,689        125,559  

Additional paid-in capital

     447,762        458,697        439,679  

Total stockholders’ equity

     589,789        634,132        623,935  

 

(1)

We operate on a 52- or 53-week fiscal year ending on the last Friday of March. All fiscal years presented herein consist of 52 weeks.

(2)

Our first quarter three-month period is a 13-week period ending on a Friday in June.

(3)

Our total net sales for the periods presented above include related party net sales generated through our distribution agreement with Sanken. Our total net sales for the fiscal years ended March 29, 2019 and March 27, 2020 and for the three-month period ended June 28, 2019 also include related party net sales related to the sale of wafer foundry products to Sanken by PSL and net sales related to our distribution of Sanken products in North America, South America and Europe which, in each case, we did not recognize during the three-month period ended June 26, 2020 and will not recognize in any future period due to our consummation of the Divestiture Transactions. See our consolidated financial statements included elsewhere in this prospectus for additional information regarding our related party net sales.

(4)

See Notes 2 and 16 to our audited consolidated financial statements and Notes 2 and 16 to our unaudited consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate our historical and pro forma basic and diluted net income attributable to Allegro MicroSystems, Inc. per share.

(5)

We define working capital as total current assets minus total current liabilities.

(6)

Total debt as of March 29, 2019 and March 27, 2020 included $42.7 million in aggregate principal amount of related party debt owed to Sanken under the PSL-Sanken Loans, which debt was forgiven in exchange for our transfer to Sanken of 70% of the issued and outstanding equity interests in PSL in connection with the PSL Divestiture. Total debt as of March 27, 2020 also included $43.0 million in aggregate principal amount of debt outstanding under our credit facilities, including $10.0 million outstanding under the PSL Revolver,

 

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  which remained the obligation of PSL following the consummation of the PSL Divestiture and, as a result, is not included in our unaudited consolidated balance sheet as of June 26, 2020. Total debt as of June 26, 2020 consisted of $33.0 million in aggregate principal amount of debt outstanding, which included $25.0 million in aggregate principal amount of debt outstanding under the AML Revolver and $8.0 million in aggregate principal amount of debt outstanding under the AML Line of Credit. On September 30, 2020, we (i) incurred $325.0 million of additional debt under the Term Loan Facility in connection with the Recapitalization, (ii) obtained $50.0 million of revolving commitments under the Revolving Credit Facility, and (iii) used cash on hand to repay all amounts outstanding under the AML Revolver and the AML Line of Credit and terminated all commitments thereunder. We intend to use approximately $             million of the net proceeds from this offering to repay borrowings under our Term Loan Facility, reducing total borrowings under our Term Loan Facility to $             million. See “Use of Proceeds” for additional information. For a discussion of our debt obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt Obligations.”

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated financial information presents our unaudited pro forma consolidated balance sheet at June 26, 2020 and statements of income for the fiscal year ended March 27, 2020 and the three-month period ended June 26, 2020 after giving effect to the transactions described below.

Through the end of fiscal year 2020, we held a 100% ownership interest in PSL, a semiconductor wafer fabricator engaged in the manufacturing and testing of wafers. In addition, through the end of fiscal year 2020, we acted as a distributor of Sanken products in North America, South America and Europe pursuant to a distribution agreement, dated as of July 5, 2007, between AML, our wholly owned subsidiary, and Sanken (as amended, the “Sanken Products Distribution Agreement”). Subsequent to fiscal year 2020, as part of the Divestiture Transactions described elsewhere in this prospectus under “Prospectus Summary—The Divestiture Transactions,” and in order to further our strategy for developing a flexible and efficient manufacturing model that minimizes capital requirements, lowers operating costs, enhances reliability of supply and supports our growth going forward:

 

   

We divested a majority of our ownership interest in PSL to Sanken (the “PSL Divestiture”), in connection with which:

 

   

Our equity interests in PSL were recapitalized in exchange for (i) the contribution by us to PSL of $15.0 million of intercompany debt, representing a portion of the aggregate principal amount of debt owed by PSL to us under certain intercompany loan agreements (the “Existing Allegro Loans”), (ii) the assumption by us of $42.7 million in aggregate principal amount of debt owed by PSL to Sanken under certain intercompany loan and line-of- credit agreements (the “PSL-Sanken Loans”), that was subsequently forgiven in exchange for our transfer to Sanken of 70% of the issued and outstanding equity interests in PSL, and (iii) the termination of the Existing Allegro Loans and the issuance, pursuant to a consolidated and restructured loan agreement (the “Consolidated Loan Agreement”), of a note payable to us in an aggregate principal amount of $51.4 million (representing the aggregate principal amount of debt outstanding under the Existing Allegro Loans prior to their termination); and

 

   

In exchange for the extinguishment of all outstanding indebtedness owed by us to Sanken under the PSL-Sanken Loans, we (i) divested 70% of the issued and outstanding equity interests in PSL to Sanken, as a result of which Sanken holds a 70% majority share in PSL and we hold a 30% interest, and (ii) amended and restated the existing limited liability company agreement of PSL to admit Sanken as a member, reflect the recapitalization of our equity interests and otherwise reflect the rights and obligations of us and Sanken thereunder; and

 

   

AML entered into a letter agreement with Sanken providing for, among other things, the termination of AML’s services under the Sanken Products Distribution Agreement, and Sanken and PSL entered into a new distribution agreement providing for PSL to serve as a distributor of Sanken products in North America, South America and Europe.

In addition, in connection with this offering, we have consummated (or, in certain cases, expect to consummate) a series of transactions (the “Offering-Related Transactions”), including:

 

   

The Recapitalization, pursuant to which we borrowed $325.0 million of debt under the Term Loan Facility, the net proceeds of which were used, together with cash on hand, to pay an aggregate cash dividend of $             million to holders of our Class A common stock;

 

   

The Refinancing, pursuant to which we used cash on hand to repay all amounts outstanding under the AML Revolver and AML Line of Credit and terminated all commitments thereunder, and entered into the Revolving Credit Facility;

 

   

The Class L Share Repurchases, pursuant to which we repurchased an aggregate of 2,050 shares of our Class L common stock from certain of our directors and one of our non-executive employees for an

 

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initial aggregate purchase price of approximately $0.4 million (subject to increase as described elsewhere in this prospectus under “Certain Relationships and Related Party Transactions—Repurchase of Class L Shares”) in connection with, (i) in the case of such directors, the settlement of certain outstanding promissory notes issued to such directors that were required to be settled prior to the public filing of the registration statement of which this prospectus forms a part (as described elsewhere in this prospectus under “Certain Relationships and Related Party Transactions—Director and Executive Officer Promissory Notes”), and (ii) in the case of such non-executive employee, to satisfy certain withholding tax obligations triggered by the vesting of such shares in accordance with the terms of the applicable award agreement;

 

   

The Common Stock Conversion, pursuant to which all outstanding shares of our Class A common stock and Class L common stock (including              shares of Class L common stock held by certain of our directors, executive officers and other employees that will not automatically vest prior to the closing of this offering, but excluding the shares of our Class L common stock purchased in the Class L Share Repurchases) will automatically convert into an aggregate of              shares of our common stock immediately following the pricing of this offering;

 

   

The automatic vesting, following the Common Stock Conversion and immediately prior to the closing of this offering, of (i)              shares of common stock issued to certain of our executive officers and other employees subject to liquidity event-based vesting requirements, and (ii)              shares of common stock held by certain of our directors, executive officers and other employees subject to time-based vesting requirements (which number of shares of common stock is based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming a                 , 2020 pricing date of this offering);

 

   

The Common Stock Repurchases, pursuant to which we expect to repurchase an aggregate of              shares of common stock from certain of our executive officers and other employees as described elsewhere in this prospectus under “—Recent Developments—Common Stock Repurchases,” at an assumed repurchase price of $             per share (which is based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a             , 2020 pricing date of this offering; and

 

   

our use of $              of the net proceeds of this offering to repay borrowings under the Term Loan Facility.

The unaudited pro forma consolidated balance sheet as of June 26, 2020 and the unaudited pro forma consolidated statements of income for the fiscal year ended March 27, 2020 and the three-month period ended June 26, 2020 are based upon the historical financial statements included elsewhere in this prospectus. The unaudited pro forma consolidated statements of income give effect to the PSL Divestiture, the transfer of the Sanken products distribution business to PSL, the Refinancing, and our incurrence of $325.0 million of debt under the Term Loan Facility in connection with the Recapitalization and our use of $             of the net proceeds of this offering to repay borrowings thereunder as if each had occurred on March 30, 2019 (the first day of the fiscal year ended March 27, 2020).

The pro forma consolidated balance sheet as of June 26, 2020 gives effect to this offering and the Offering-Related Transactions as if they had occurred on June 26, 2020. The PSL Divestiture and the termination of the Sanken Products Distribution Agreement were complete as of March 28, 2020 and are therefore already included in our unaudited consolidated balance sheet as of June 26, 2020.

The unaudited pro forma consolidated statements of income are intended for illustrative purposes only and do not necessarily indicate our results of operations that would have been achieved if the continued effects of the PSL Divestiture, the transfer of the Sanken products distribution business, the Refinancing, and our incurrence of $325.0 million of debt under the Term Loan Facility and our use of $             of the net proceeds of this offering

 

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to repay borrowings thereunder had occurred on March 30, 2019 (the first day of the fiscal year ended March 27, 2020), nor are they indicative of future results of operations. The unaudited pro forma consolidated balance sheet is presented for illustrative purposes only and does not necessarily indicate our financial position that would have occurred on June 26, 2020 had this offering and the Offering-Related Transactions occurred on that date. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable under the circumstances. In addition, such adjustments are estimates and may not prove to be accurate.

The unaudited pro forma consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto for the fiscal years ended March 29, 2019 and March 27, 2020 and our unaudited consolidated financial statements and the related notes thereto for the three-month periods ended June 28, 2019 and June 26, 2020 included elsewhere in this prospectus, as well as the information contained elsewhere in this prospectus under “Prospectus Summary—The Divestiture Transactions” and “—Summary Historical and Pro Forma Consolidated Financial and Other Data,” “Capitalization,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

The unaudited pro forma consolidated financial information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this prospectus.

 

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Allegro MicroSystems, Inc.

Unaudited Pro Forma Consolidated Statement of Income

For the Fiscal Year Ended March 27, 2020

(amounts in thousands, except share and per share amounts)

 

          Pro Forma Adjustments      
          (A)     (B)                   (N)  
    As Reported
Allegro
MicroSystems,
Inc.
    Income
statement
balances
related to
PSL
    Termination of
Sanken Products
Distribution
Agreement
    Other
Transaction
Adjustments
   

Offering
Related
Adjustments

 

Ref

  Pro Forma  

Net Sales

  $ 465,532     $ 368     $ 35,421     $ —           $ 429,743  

Net Sales to Related Party

    184,557       72,003       —         —             112,554  
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Total Net Sales

    650,089       72,371       35,421       —             542,297  

Costs of Goods Sold

    (388,813     (78,505     (31,582           (278,726
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Total Costs of Goods Sold

    (388,813     (78,505     (31,582     —             (278,726

Gross Profit/(loss)

    261,276       (6,134     3,839       —             263,571  

Operating Expenses:

             

Research & development

    (102,052     (3,279     —               (98,773

Selling, general and administrative

    (106,396     (5,424     (1,712     (967     (C)     (98,293
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Total Operating Expenses

    (208,448     (8,703     (1,712     (967         (197,066
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Income/(loss) from operations

    52,828       (14,837     2,127       (967         66,505  

Other (expense) income:

             

Foreign currency transaction gain

    1,391       —         2       —             1,389  

Loss from equity method investments

    —         —         —         2,875       (D)     (2,875

Interest (expense) income, net

    (110     (1,437     —         —         (F)     1,327  

Other (expense) income, net

    (831     (303     20       —             (548
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Total other (expense) income, net

    450       (1,740     22       2,875           (707

Income/(loss) before provision for income taxes

    53,278       (16,577     2,149       1,908           65,798  

Provision (benefit) for income taxes

    16,173       (2,958     481       5,918       (G)     12,732  
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net Income/(loss)

    37,105       (13,619     1,668       (4,010         53,066  

Non-Controlling Interest

    134       —         —         —             134  
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net Income/(loss) attributable to Allegro MicroSystems, Inc.

  $ 36,971     $ (13,619   $ 1,668     $ (4,010       $ 52,932  
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net Income Per Share

             

Basic

  $ 3.70             (Q)   $    
 

 

 

             

 

 

 

Diluted

  $ 3.70             (Q)   $    
 

 

 

             

 

 

 

Weighted Average Common Shares Outstanding

             

Basic

    10,000,000             (Q)  
 

 

 

             

 

 

 

Diluted

    10,000,000             (Q)  
 

 

 

             

 

 

 

 

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Allegro MicroSystems, Inc.

Unaudited Pro Forma Consolidated Statement of Income

For the Three-Month Period Ended June 26, 2020

(amounts in thousands, except share and per share amounts)

 

                             (O)  
     As Reported
Allegro
MicroSystems,
Inc.
    Other
Transaction
Adjustments
    Offering
Related
Adjustments
    

Ref

   Pro
Forma
 

Net Sales

   $ 91,381             $ 91,381  

Net Sales to Related Party

     23,620               23,620  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total Net Sales

     115,001       —            115,001  

Costs of Goods Sold

     (59,300     (3,383      (E)      (55,917
  

 

 

   

 

 

   

 

 

       

 

 

 

Total Costs of Goods Sold

     (59,300     (3,383           (55,917

Gross Profit

     55,701       (3,383           59,084  

Operating Expenses:

            

Research & development

     (24,380     —               (24,380

Selling, general and administrative

     (26,789             (26,789
  

 

 

   

 

 

   

 

 

       

 

 

 

Total Operating Expenses

     (51,169     —               (51,169
  

 

 

   

 

 

   

 

 

       

 

 

 

Income from operations

     4,532       (3,383           7,915  

Other income:

            

Interest income, net

     313       —          (F)      313  

Foreign currency transaction gain

     132       —               132  

Income in earnings of equity investment

     212       —               212  

Other, net

     193       —               193  
  

 

 

   

 

 

   

 

 

       

 

 

 

Total other income, net

     850       —               850  

Income before provision for income taxes

     5,382       (3,383           8,765  

Provision for income taxes

     528       (758      (G)      1,286  
  

 

 

   

 

 

   

 

 

       

 

 

 

Net Income

     4,854       (2,625           7,479  

Non-Controlling Interest

     34       —               34  
  

 

 

   

 

 

   

 

 

       

 

 

 

Net Income attributable to Allegro MicroSystems, Inc

   $ 4,820     $ (2,625         $ 7,445  
  

 

 

   

 

 

   

 

 

       

 

 

 

Net Income Per Share

            

Basic

   $ 0.48          (Q)    $    
  

 

 

           

 

 

 

Diluted

   $ 0.48          (Q)    $    
  

 

 

           

 

 

 

Weighted Average Common Shares Outstanding

            

Basic

     10,000,000          (Q)   
  

 

 

           

 

 

 

Diluted

     10,000,000          (Q)   
  

 

 

           

 

 

 

 

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Allegro MicroSystems, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

As of June 26, 2020

(amounts in thousands, except share and per share amounts)

 

                      (P)  
    June 26, 2020
(Unaudited)
    Offering
Related
Adjustments
    Ref     Pro Forma
June 26, 2020
 

Assets

       

Current assets:

       

Cash and cash equivalents

  $ 215,576         (H) (I) (L) (M)     $    

Restricted cash

    4,388        

Trade accounts receivable, net of allowances for doubtful accounts of $288

    47,883        

Trade and other accounts receivable due from related party

    24,544        

Accounts receivable - other

    2,177        

Inventories

    108,384        

Prepaid expenses and other current assets

    7,371         (H)    
 

 

 

   

 

 

     

 

 

 

Total current assets

    410,323       —        

Property, plant and equipment, net

    219,122        

Deferred income tax assets

    12,067        

Goodwill

    1,339        

Intangible assets, net

    20,076        

Related party note receivable

    51,377        

Equity investment in related party

    25,462        

Other assets, net

    9,728        
 

 

 

   

 

 

     

 

 

 

Total assets

  $ 749,494     $ —         $            
 

 

 

       

 

 

 

Liabilities, Non-Controlling Interest and Stockholders’ Equity

       

Current liabilities:

       

Trade accounts payable

  $ 21,167         $    

Amounts due to related party

    1,760        

Accrued expenses and other current liabilities

    56,142        

Current portion of related party debt

    —          

Bank lines-of-credit

    33,000       (33,000     (H)    

Total current liabilities

    112,069       (33,000    

Related party notes payable, less current portion

    —          

Other long-term liabilities

    13,490         (H)    
 

 

 

   

 

 

     

 

 

 

Total liabilities

    125,559       (33,000    

Commitments and contingencies

       

Stockholders’ Equity:

       

Common stock

       

Class A, $.01 par value; 12,500,000 shares authorized; 10,000,000 shares issued and outstanding at June 26, 2020; 0 shares issued and outstanding at Pro Forma June 26, 2020

    100         (J)    

Class L, $.01 par value; 1,000,000 shares authorized; 638,298 shares issued and outstanding at June 26, 2020; 0 shares issued and outstanding at Pro Forma June 26, 2020

    6         (I) (J)    

Common stock, $.01 par value; 0 shares authorized; 0 shares issued and outstanding at June 26, 2020; 1,000,000,000 shares authorized;              shares issued and outstanding at Pro Forma June 26, 2020

    —           (J) (K) (L) (M)    

Additional paid-in capital

    439,679         (K) (M)    

Retained earnings

    199,175         (H) (K)    

Accumulated other comprehensive loss

    (16,002      
 

 

 

   

 

 

     

 

 

 

Equity attributable to Allegro MicroSystems, Inc.

    622,958                   —        

Non-controlling interests

    977        
 

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

    623,935        

Total liabilities, non-controlling interest and stockholders’ equity

  $ 749,494         $                
 

 

 

       

 

 

 

 

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Allegro MicroSystems, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

As of June 26, 2020, and For the Fiscal Year Ended March 27, 2020

And for the Three-Month Period Ended June 26, 2020

The pro forma adjustments are based on estimates and assumptions that management represents are reasonable. The pro forma adjustments to the pro forma consolidated statements of income include those adjustments that are factually supportable, directly attributable to the PSL Divestiture, the transfer of the Sanken products distribution business to PSL, the Refinancing, and our incurrence of $325.0 million of debt under the Term Loan Facility and use of $             of the net proceeds of this offering to repay borrowings thereunder, and have a continuing impact on us, in each case, as described in the notes hereto. The pro forma adjustments to the pro forma consolidated balance sheet include those adjustments that are factually supportable and directly attributable to this offering and the Offering-Related Transactions.

 

1.

Pro Forma Adjustments

Income Statement Balances Related to PSL

 

  (A)

Reflects the removal of income statement balances related to PSL’s historical financial information net of intercompany eliminations in order to present the divestiture of PSL to Sanken at carrying value in exchange for forgiveness of debt, in the form of the PSL-Sanken Loans, of $42.7 million, owed by us to Sanken, and a 30.0% minority shareholder investment, which has been recorded as an equity method investment. See Note (D) below.

Income Statement Balances Related to Sanken Products Distribution Business

 

  (B)

Reflects the removal of income statement balances related to the historical operations associated with our distribution of Sanken products in North America, South America and Europe as a result of the termination of the Sanken Products Distribution Agreement. Includes income tax expense calculated at the statutory rate of 22.4%.

Other Transaction Adjustments

PSL Divestiture Transaction Adjustments

 

  (C)

Reflects the adjustment to the divestiture transaction costs of $0.9 million that were incurred for the fiscal year ended March 27, 2020 during the historical period and are not expected to have a continuing impact on the operating results following the PSL Divestiture.

 

  (D)

Reflects the adjustment to record our loss in equity method investment in PSL of $2.9 million, calculated as 30.0% of PSL’s $9.6 million fiscal year 2020 net loss.

 

  (E)

Reflects the costs associated with intercompany inventory transactions of $1.6 million purchased from PSL that was previously eliminated in consolidation in fiscal 2020 as well as $1.8 million of foundry service payments incurred under the Price Support Agreement in respect to the guaranteed capacity at PSL to support our production forecast during the three-month period ended June 26, 2020 and are not expected to have a continuing impact on our operating results after fiscal year 2021 following the PSL Divestiture. “See Price Support Payment” below for a further description of the $1.8 million.

Interest expense adjustments

 

  (F)

Reflects the interest expense of $             on the portion of the Term Loan Facility we expect will remain outstanding following the closing of this offering, after giving effect to our use of $             of the net proceeds of this offering to repay borrowings thereunder, offset by the elimination of interest related to the repayment of the AML Revolver and AML Line of Credit of $33.0 million, as such transactions occurred on March 30, 2019. For every additional $1 million of Term Loan Facility borrowings we repay, our pro forma interest expense will decline by approximately $            .

 

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Tax effect

 

  (G)

Reflects the adjustment to record a $9.5 million IRS settlement incurred during the fiscal year ended March 27, 2020 that resulted from a transfer pricing agreement we had with PSL, net of $4.0 million of tax expense recorded in prior fiscal years due to an uncertain tax provision related to such matter. Also includes the income tax expense of $0.4 million related to the pro forma adjustments. The pro forma tax adjustment was calculated by applying the statutory tax rate of 22.4% to each of the pre-tax pro forma adjustments.

Offering and Offering-Related Transactions

 

  (H)

Reflects (i) the Recapitalization, which includes our borrowing of $325.0 million of debt, offset by $             of financing cost, under the Term Loan Facility and using the net proceeds therefrom, along with cash on hand, to pay an aggregate cash dividend of $             million to our Class A common stockholders, and (ii) the Refinancing, in connection with which we used cash on hand to repay all amounts outstanding under the AML Revolver and AML Line of Credit and terminated all commitments thereunder.

 

  (I)

Reflects the repurchase of an aggregate of 2,050 shares of our Class L common stock from certain of our directors and one of our non-executive employees for an aggregate initial purchase price of approximately $0.4 million pursuant to the Class L Share Repurchases.

 

  (J)

Reflects the Common Stock Conversion.

 

  (K)

Reflects the automatic vesting, following the Common Stock Conversion and immediately prior to the closing of this offering, of an aggregate of              shares of common stock issued in respect of (a) of $              shares of Class A common stock held by certain of our executive officers and other employees subject to liquidity event-based vesting requirements, and (b)              shares of Class L common stock held by certain of our directors, executive officers and other employees subject to time-based vesting requirements (which number of shares of common stock is based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming a             , 2020 pricing date of this offering), in each case, as of June 26, 2020. Compensation expense of $             associated with the automatic conversion of the Class A and Class L shares described in the preceding sentence is only reflected in retained earnings on the unaudited consolidated pro forma balance sheet and not in the unaudited consolidated pro forma income statement as it will not have a continuing impact on the our results of operations.

 

  (L)

Reflects the repurchase of an aggregate of              shares of our common stock from certain of our executive officers and other employees, at an assumed repurchase price of $             per share (which is based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, less an amount equal to the estimated underwriting discount), and assuming a             , 2020 pricing date of this offering.

 

  (M)

Represents the sale by us of              shares of common stock in this offering at the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by us.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma amount of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $            , assuming the shares of our common stock

 

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offered by this prospectus are sold at the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us. The pro forma financial statements and pro forma information discussed above is illustrative only and will be adjusted based on the actual initial public offering price, the number of shares we sell and other terms of this offering that will be determined at pricing.

Pro Forma

 

  (N)

Pro forma balances are calculated as: historical as reported income statement balances for Allegro MicroSystems, Inc., less income statement balances related to PSL, less income statement balances related to historical operations associated with the distribution of Sanken products, less other transaction adjustments, and less offering and offering related transaction adjustments as described above.

 

  (O)

Pro forma balances are calculated as: historical as reported unaudited income statement balances for Allegro MicroSystems, Inc., less other transaction adjustments, and less offering and offering related transaction adjustments as described above.

 

  (P)

Pro forma balances are calculated as historical as reported unaudited balance sheet balances for Allegro MicroSystems, Inc. adjusted for the proceeds from this offering and the Offering-Related Transactions.

 

  (Q)

Pro forma earnings per share have been calculated based on the pro forma net income and the historical number of shares adjusted for the Offering-Related Transactions, but excluding most of the shares of common stock issued in the offering.

In accordance with SEC guidance, we have increased the number of shares in the denominator by             shares in order to give effect to the number of shares, the proceeds of which would be necessary to pay the dividend in excess of current year earnings and the portion funded by borrowings under the Term Loan Facility that will remain unpaid after this offering.

 

     Year ended      Three months ended  
     March 29      March 27      June 28,      June 26,  
     2019      2020      2019      2020  

Numerator:

           

Pro forma net income

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Shares outstanding after conversion of Class A and Class L shares to common stock

           

Assumed shares sold in this offering sufficient to pay the dividend in excess of current year earnings and the portion funded by the Term Loan Facility that will remain unpaid after this offering

           

Total

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma earnings per share Basic and Diluted

   $                $                $                $            
  

 

 

    

 

 

    

 

 

    

 

 

 

 

2.

Price Support Payment

As part of the PSL Divestiture, we and PSL entered into a price support agreement, which replaced the previous transfer pricing agreement and requires us to make a payment of $5.9 million to PSL during the fiscal year ending March 26, 2021 in cash or, at our option, as a reduction of PSL’s debt obligations under the Consolidated Loan Agreement. As of June 26, 2020, we have paid $1.8 million of this amount. This agreement terminates at the end of fiscal year 2021 and, as a result, does not have a continuing impact on our results of operations. See “Certain Relationships and Related Party Transactions—The Divestiture Transactions—Wafer Foundry Agreement and Price Support Agreement” and “Certain Relationships and Related Party Transactions—The Divestiture Transactions—Transfer Pricing Agreements.”

 

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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 the sections titled “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes and other information included elsewhere in this prospectus. 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 “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this prospectus. 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 “2019,” “fiscal year 2019” or similar references relate to the 52-week period ended March 29, 2019. All references to “2020,” “fiscal year 2020” or similar references relate to the 52-week period ended March 27, 2020.

Overview

Allegro MicroSystems is a leading global designer, developer, manufacturer and marketer of sensor ICs and application-specific analog power ICs enabling the most important emerging technologies in the automotive and industrial markets. We are the number one supplier of magnetic sensor IC solutions worldwide based on market share, driven by our market leadership in automotive. We focus on providing complete IC solutions to sense, regulate and drive a variety of mechanical systems. This includes sensing angular or linear position of a shaft or actuator, driving an electric motor or actuator, and regulating the power applied to sensing and driving circuits so they operate safely and efficiently.

We are headquartered in Manchester, New Hampshire and have a global footprint with 16 locations across four continents. Our portfolio includes more than 1,000 products, and we ship over one billion units annually to more than 10,000 customers worldwide. During fiscal years 2019 and 2020, we generated $724.3 million and $650.1 million in total net sales, respectively, with $84.8 million and $37.1 million in net income and $166.8 million and $132.2 million in Adjusted EBITDA in such fiscal years, respectively. On a pro forma basis, after giving effect to the PSL Divestiture and the transfer of the Sanken products distribution business to PSL, our total net sales for fiscal year 2020 were $542.3 million, with net income of $53.1 million and Adjusted EBITDA of $125.5 million in such fiscal year. See “—Adjusted EBITDA” below and “Prospectus Summary—Summary Historical and Pro Forma Consolidated Financial and Other Data” elsewhere in this prospectus for more information regarding our pro forma financial data and our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.

Our Growth Strategies and Outlook

We plan to pursue the following strategies to continue to grow our sales and enhance our profitability:

 

   

Invest in research and development that is market-aligned and focused on targeted portfolio expansion. We believe that our investments in research and development in the areas of product design, automotive-grade wafer fabrication technology and IC packaging development are critical to maintaining our competitive advantage. In both the automotive and industrial markets, major technology shifts driven by disruptive technologies are creating high-growth opportunities in areas such as xEVs, ADAS, Industry 4.0, data centers and green energy applications. Our knowledge of customers’ end systems has driven an expansion of our sensor IC and power solutions to enable these

 

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new technologies. By aligning our research and development investments with disruptive technology trends while undergoing a rigorous ROI review, we believe we can deliver an attractive combination of growth and profitability.

 

   

Emphasize the automotive first philosophy to align our product development with the most rigorous applications and safety standards. We have been intentional about incorporating support for the stringent automotive operating voltages, temperature ranges and safety and reliability standards into every part of our operations, from design to manufacturing. We believe our focus on meeting or exceeding industry standards as the baseline for product development increases our opportunity in the automotive market as customers look for trusted suppliers to deliver highly reliable solutions for rapidly growing emerging markets, and that our philosophy of designing for automotive safety and reliability gives us a meaningful lead over new entrants attempting to enter the automotive market. For example, we will apply this philosophy of innovation, quality and reliability to our new photonics portfolio which supplies components into safety-critical LiDAR applications. We also believe we can use our expertise in designing for the automotive market and our expanding product portfolio to capitalize on increasing demand among industrial customers for ruggedized solutions that meet the highest quality and reliability standards. Additionally, in our experience, demand for solutions that meet or exceed stringent safety and reliability specifications supports higher ASPs and lower ASP declines over time than are typical for our industry.

 

   

Invest to lead in chosen markets and apply our intellectual property and technology to pursue adjacent growth markets. We intend to continue to invest in technology advancements and our intellectual property portfolio to maintain the number one market share position in magnetic sensor ICs and achieve leadership positions in power ICs within our target markets. We believe that leveraging our technology and existing research and development, sales and support efforts will enable us to take advantage of synergistic opportunities in new, adjacent growth markets. We believe this strategy of leveraging our known capabilities to target adjacent growth markets will enable us to enjoy greater returns on our research and development investments.

 

   

Expand our sales channels and enhance our sales operations and customer relationships. Our global sales infrastructure is optimized to support customers through a combination of key account managers and regional technical and support centers near customer locations that enable us to act as an extension of our customers’ design teams, providing us with key insights into product requirements and accelerating the adoption and ramp up of our products in customer designs. We intend to continue strengthening our relationships with our existing customers while also enabling our channel partners to support demand creation and fulfillment for smaller broad-based industrial customers. We believe we will be able to further penetrate the industrial market and efficiently scale our business to accelerate growth by enabling our channel to become an extension of our demand generation and customer support efforts.

 

   

Continue to improve our gross margins through product innovation and cost optimization. We strive to improve our profitability by both rapidly introducing new products with value-added features and reducing our manufacturing costs through our fabless, asset-lite manufacturing model. We expect to continue to improve our product mix by developing new products for growth markets where we believe we can generate higher ASPs and/or higher gross margins. We also intend to further our relationships with key foundry suppliers to apply our product and applications knowledge to develop differentiated and cost-efficient wafer processes and packages. We believe we can reduce our manufacturing costs by leveraging the advanced manufacturing capabilities of our strategic suppliers, implementing more cost-effective packaging technologies and leveraging both internal and external assembly and test capacity to reduce our capital requirements, lower our operating costs, enhance reliability of supply and support our continued growth.

 

   

Pursue selective acquisitions and other strategic transactions. We evaluate and pursue selective acquisitions and other transactions to facilitate our entrance into new applications, add to our

 

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intellectual property portfolio and design resources, and accelerate our growth. From time to time, we acquire companies, technologies or assets and participate in joint ventures when we believe they will cost effectively and rapidly improve our product development or manufacturing capabilities or complement our existing product offerings. For example, our August 2020 acquisition of Voxtel, Inc. and its affiliate LadarSystems, Inc. brings together Voxtel’s laser and imaging expertise and our automotive leadership and scale to enable what we believe will be the next generation of ADAS.

 

   

Maintain commitment to sustainability. We intend to continue to innovate with purpose, addressing critical global challenges related to energy efficiency, vehicle emissions and clean and renewable energy with our sensing and power management product portfolio. In addition, we strive to operate our business in a socially responsible and environmentally sustainable manner, and we strive to maintain a commitment to social responsibility in our supply chain and disclosure of the environmental impact of our business operations.

Recent Initiatives to Improve Results of Operations

We have recently implemented several initiatives designed to improve our operating results.

On November 22, 2019, we entered into an agreement for the purchase of Voxtel, Inc., a privately-held technology company located in Beaverton, Oregon specializes in components for eye-safe LiDAR used in ADAS, fully autonomous vehicles, and industrial automation. The total purchase price of the acquisition was approximately $40.0 million and the transaction closed on August 31, 2020. In addition to the laser technology, Voxtel’s capabilities are its Indium Gallium Arsenide (“InGaAs”) Avalanche Photodiode (“APDs”) and APD photoreceivers—highly-sensitive in the important eye-safe region around 1550 nanometers (“nm”). This technology enables images to be obtained over a wide range of weather conditions and over a long-distance or a wide field of view using a laser that doesn’t pose an ocular hazard. The combination of these highly-sensitive detectors and high-peak-power eye-safe lasers, combined with Voxtel’s custom integrated circuits and electro-optical packaging expertise, allows for cost-effective, compact laser-ranging and 3D-image sensing. In addition, Voxtel holds more than 38 US patents, representing a comprehensive LADAR/LiDAR photonic technology suite.

Through the end of fiscal year 2020, we held a 100% ownership interest in PSL, a semiconductor wafer fabricator engaged in the manufacturing and testing of foundry wafers. PSL accounted for 9.9% and 11.1% of our net sales and supplied 56.9% and 44.2% of our wafer requirements in fiscal years 2019 and 2020, respectively. In addition, through end of fiscal year 2020, we acted as a distributor of Sanken products in North America, South America and Europe on a low-margin, buy-resale basis pursuant to the Sanken Products Distribution Agreement between AML, our wholly owned subsidiary, and Sanken. Our net sales from the distribution of Sanken products in fiscal years 2019 and 2020 were $37.9 million and $35.4 million, respectively.

Subsequent to the end of fiscal year 2020, as part of the Divestiture Transactions described elsewhere in this prospectus under “Prospectus Summary—The Divestiture Transactions,” and in order to further our strategy for developing a flexible and efficient manufacturing model that minimizes capital requirements, lowers operating costs, enhances reliability of supply and supports our growth going forward:

 

   

We divested a majority of our ownership interest in PSL to Sanken in the PSL Divestiture, in connection with which:

 

   

Our equity interests in PSL were recapitalized in exchange for (i) the contribution by us to PSL of $15.0 million of intercompany debt, representing a portion of the aggregate principal amount of debt owed by PSL to us under certain intercompany loan agreements (the “Existing Allegro Loans”), (ii) the assumption by us of $42.7 million in aggregate principal amount of debt owed by PSL to Sanken under certain intercompany loan and line-of-credit agreements (the “PSL-Sanken Loans”), that was subsequently forgiven in exchange for our transfer to Sanken of 70% of the issued and outstanding equity interests in PSL, and (iii) the termination of the Existing Allegro

 

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Loans and the issuance, pursuant to a consolidated and restructured loan agreement (the “Consolidated Loan Agreement”), of a note payable to us in an aggregate principal amount of $51.4 million (representing the aggregate principal amount of debt outstanding under the Existing Allegro Loans prior to their termination); and

 

   

In exchange for the extinguishment of all outstanding indebtedness owed by us to Sanken under the PSL-Sanken Loans, we (i) divested 70% of the issued and outstanding equity interests in PSL to Sanken, as a result of which Sanken holds a 70% majority share in PSL and we hold a 30% interest, and (ii) amended and restated the existing limited liability company agreement of PSL to admit Sanken as a member, reflect the recapitalization of our equity interests and otherwise reflect the rights and obligations of us and Sanken thereunder;

 

   

AML entered into a letter agreement with Sanken providing for, among other things, the termination of AML’s services under the Sanken Products Distribution Agreement, and Sanken and PSL entered into a new distribution agreement providing for PSL to serve as a distributor of Sanken products in North America, South America and Europe; and

 

   

We entered into certain other agreements and transactions with Sanken and PSL as more fully described under “Prospectus Summary—The Divestiture Transactions.”

As a result of the PSL Divestiture and the transfer of the Sanken products distribution business to PSL, we expect a material improvement over the next fiscal year in gross profit, operating income and net income, as well as reduced capital expenditures and increased cash flow from operations. Strategically, we believe these changes better enable us to focus solely on our core business in sensor and power applications for the automotive and industrial end markets.

In February 2020, we announced that we would consolidate our assembly and test facilities into a single site, located at the AMPI Facility. As such, we have commenced the closure of the AMTC Facility. We expect to substantially complete this transition by the end of March 2021. We expect to realize a material reduction in cost of goods sold in subsequent periods.

Impact of the COVID-19 Pandemic

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of the COVID-19 pandemic.

We continue to monitor the rapidly evolving conditions and circumstances as well as guidance from international and domestic authorities, including public health authorities, and we may need to take additional actions based on their recommendations. There is considerable uncertainty regarding the impact on our business stemming from current measures and potential future measures that could restrict access to our facilities, limit manufacturing and support operations and place restrictions on our workforce and suppliers. The measures implemented by various authorities related to the COVID-19 outbreak have caused us to change our business practices including those related to where employees work, the distance between employees in our facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations or to attend trade shows, investor conferences and other events.

The full extent to which the ongoing COVID-19 pandemic adversely affects our financial performance will depend on future developments, many of which are outside of our control, are highly uncertain and cannot be

 

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predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the effectiveness of actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume. The COVID-19 pandemic could also result in additional governmental restrictions and regulations, which could adversely affect our business and financial results. In addition, a recession, depression or other sustained adverse market impact resulting from COVID-19 could materially and adversely affect our business and our access to needed capital and liquidity. Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact.

To the extent that the COVID-19 pandemic adversely affects our business, results of operations, financial condition or liquidity, it also may heighten many of the other risks. Such risks include, if the business impacts of COVID-19 carry on for an extended period, we may be required to recognize impairments for goodwill and certain long-lived assets including amortizable intangible assets. We have taken actions to mitigate our financial risk given the uncertainty in global markets caused by the COVID-19 pandemic. In March 2020, we borrowed $43.0 million under our credit facilities (including $10.0 million borrowed by PSL under the PSL Revolver, the proceeds of which were retained by PSL and are no longer available for use by us following the consummation of the PSL Divestiture). The borrowing was made as part of our ongoing efforts to preserve financial flexibility considering the current uncertainty in the global markets and related effects on our business resulting from the COVID-19 pandemic. While we do not currently expect to use the remaining proceeds from these borrowings following the consummation of the PSL Divestiture for any near-term liquidity needs, we may use the proceeds for working capital and other general corporate purposes.

On March 27, 2020, the President of the United States signed and enacted into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act contains numerous tax provisions including a correction to the applicable depreciation rates available under the original Tax Cuts and Jobs Act (“TCJA”) for Qualified Improvement Property (“QIP”). We are currently evaluating the impact of this change and will adjust historical income tax filings if deemed beneficial. Additional income tax provisions of the Act are currently being evaluated and not expected to have a material impact. The CARES Act also contains a provision for deferred payment of 2020 employer payroll taxes, after the date of enactment, to future years. We expect to defer a portion of our remaining 2020 employer payroll taxes to subsequent years.

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:

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 revenue can be lengthy, typically between two and four years. As a result, our future revenue is highly dependent on our continued success at winning design mandates from our customers. Further, because we expect the ASPs of our products to decline over time, we consider design wins to be critical to our future success and anticipate being increasingly dependent on revenue from newer design wins for our newer products. The selection process is typically lengthy and may require us to incur significant design and development expenditures in pursuit of a design win with no assurance that our solutions will be selected. As a result, the loss of any key design win or any significant delay in the ramp-up of volume production of the customer’s products into which our product is designed could adversely affect our business. In addition, volume production is contingent upon the successful introduction and acceptance of our customer’s end products, which may be affected by several factors beyond our control.

 

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Customer Demand, Orders and Forecasts

Demand for our products is highly dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, cyclicality and competitive conditions. In addition, a substantial portion of our total net sales is derived from sales to customers that purchase large volumes of our products. These customers generally provide periodic forecasts of their requirements, but 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 exposes us to the risks of inventory shortages or excess inventory.

Manufacturing Costs and Product Mix

Gross margin, or gross profit as a percentage of total net sales, 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. 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 is highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life cycles and fluctuations in product supply and demand. New technology may result in sudden changes in system designs or platform changes that may render some of our products obsolete and require us to devote significant research and development resources to compete effectively. Periods of rapid growth and capacity expansion are occasionally followed by significant market corrections in which sales decline, inventories accumulate and facilities go underutilized. During periods of expansion, our margins generally improve as fixed costs are spread over higher manufacturing volumes and unit sales. In addition, we may build inventory to meet increasing market demand for our products during these times, which serves to absorb fixed costs further and increase our gross margins. During an expansion cycle, we may increase capital spending and hiring to add to our production capacity. During periods of slower growth or industry contractions, our sales, production and productivity suffer and margins generally decline. We are currently in a period in which our manufacturing volumes are below optimal levels, as a result of the impact of COVID-19 on our primary end market, automotive.

Components of Our Results of Operations

Net sales

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

 

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the automotive, industrial and other industries. Additionally, until the consummation of the Divestiture Transactions following the end of fiscal year 2020, we also manufactured products for other applications such as wafer foundry products and acted as a distributor of Sanken products in North America, South America and Europe.

We sell magnetic sensor ICs and power ICs, and until the consummation of the Divestiture Transactions following the end of fiscal year 2020, we also sold wafer foundry products and acted as a distributor for Sanken products in North America, South America and Europe. Revenue is generally recognized when control of the products is transferred to the customer, which typically occurs at 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.

Effective March 30, 2019, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or “ASC 606”) using the modified retrospective method. ASC 606 superseded the guidance of Revenue Recognition (Topic 605) (“ASC 605”) formerly followed by us. The adoption of ASC 606 had an immaterial impact on the consolidated financial statements. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the new standard to have an immaterial effect on our net income on an ongoing basis.

Cost of goods sold, gross profit and gross margin

Cost of goods sold consists primarily of costs of purchasing raw materials, finished silicon wafers processed by internal (prior to the PSL Divestiture) and independent foundries, 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 occupancy costs.

Gross profit is calculated as total net sales less cost of goods sold. 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. We expect cost of goods sold to decrease in absolute dollars and as a percentage of total net sales in the future, primarily due to the Divestiture Transactions and as a result of the closure of the AMTC Facility and the transfer of the Sanken products distribution business to PSL.

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. Gross margin is calculated as gross profit divided by total net sales.

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 wafers and masks, license fees for computer-aided design software, costs of development testing and evaluation, costs of developing automated test programs,

 

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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 and as a percentage of total net sales 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 to increase in absolute terms as we expand our sales force and increase our sales and marketing activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. In addition, we expect to recognize approximately $40.4 million of one-time stock-based compensation expense in connection with the vesting of all outstanding shares of our Class A common stock upon the closing of this offering and approximately $1.4 million of one-time stock-based compensation expense in connection with the automatic acceleration of 25% of the standard vesting term of shares of our Class L common stock upon the closing of this offering.

Interest expense, net

Interest expense, net is comprised of interest on borrowings under the PSL-Sanken Loans (which were forgiven in connection with the PSL Divestiture) and the credit facilities we maintain with various financial institutions. Such expense is partially mitigated by income 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 gain (loss)

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. The largest contributor of the foreign currency transaction gain (loss) is the result of an intercompany loan to our subsidiary that operates the AMTC Facility where at the end of each reporting period we revalue the amounts due under the loan to the U.S. Dollar.

Other, net

Other, net primarily consists of miscellaneous income and expense items unrelated to our core operations.

Income tax provision

We are subject to income taxes in the United States and the foreign jurisdictions in which we do business. Our income tax provision is comprised of federal, state, local and foreign taxes based on income in multiple jurisdictions and changes in uncertain tax positions. The primary region that is applicable to the determination of our effective tax rate is the United States. Our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the utilization of foreign tax credits and research and development tax credits, changes in corporate structure, changes in the valuation of our deferred tax assets and changes in tax laws and interpretations. We are required to regularly assess the likelihood of outcomes that could result from the

 

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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 2019 Compared to Fiscal Year 2020

The following table summarizes our results of operations for the fiscal years ended March 29, 2019 and March 27, 2020.

 

     For the Fiscal Year Ended     Change  
     March 29, 2019     March 27, 2020     Amount     %  
     (Dollars in thousands)  

Total net sales(1)

   $ 724,311     $ 650,089     $ (74,222     (10.2 )% 

Cost of goods sold

     404,491       388,813       (15,678     (3.9 )% 
  

 

 

   

 

 

   

 

 

   

Gross profit

     319,820       261,276       (58,544     (18.3 )% 

Operating expenses:

        

Research and development

     107,585       102,052       (5,533     (5.1 )% 

Selling, general and administrative

     112,236       106,396       (5,840     (5.2 )% 

Total operating expenses

     219,821       208,448       (11,373     (5.2 )% 
  

 

 

   

 

 

   

 

 

   

Income from operations

     99,999       52,828       (47,171     (47.2 )% 

Other income (expense), net:

        

Interest expense, net

     (1,211     (110     1,101       (90.9 )% 

Foreign currency transaction (loss) gain

     (906     1,391       2,297       (253.5 )% 

Other income (expense), net

     1,560       (831     (2,391     (153.3 )% 
  

 

 

   

 

 

   

 

 

   

Total other (expense) income, net

     (557     450       1,007       (180.8 )% 
  

 

 

   

 

 

   

 

 

   

Income before provision for income taxes

     99,442       53,278       (46,164     (46.4 )% 

Provision for income taxes

     14,600       16,173       1,573       10.8
  

 

 

   

 

 

   

 

 

   

Net income

     84,841       37,105       (47,737     (56.3 )% 

Net income attributable to non-controlling interests

     117       134       17       14.5