# ALLEGRO MICROSYSTEMS, INC. (ALGM) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from ALLEGRO MICROSYSTEMS, INC.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/866291/000086629122000011/algm-20220325.htm Accession: 0000866291-22-000011 Filing date: 2022-05-18 Report date: 2022-03-25 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/ALGM/ All MD&A years: /company/ALGM/mda/ Next year: /company/ALGM/mda/fy2023/ (FY 2023) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Annual Report on Form 10-K (the “Annual Report”). In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking 48 Statements” included elsewhere in this Annual Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. We operate on a 52- or 53-week fiscal year ending on the last Friday of March. Each fiscal quarter has 13 weeks, except in a 53-week year, when the fourth fiscal quarter has 14 weeks. All references to “2022,” “fiscal year 2022” or similar references relate to the 52-week period ended March 25, 2022. All references to “2021,” “fiscal year 2021” or similar references relate to the 52-week period ended March 26, 2021. This section discusses items pertaining to and comparisons of financial results between 2022 and 2021. A discussion of 2020 items and comparisons between 2021 and 2020 financial results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2021 (the “2021 MD&A”), filed with the SEC on May 19, 2021. Management’s Discussions and Analysis (“MD&A”) is divided into the following sections: •Overview •Our Growth Strategies and Outlook •Recent Initiative to Improve Results of Operations •Impact of the COVID-19 Pandemic •Other Key Factors and Trends Affecting our Operating Results •Components of Our Results of Operations •Results of Operations •Non-GAAP Financial Measures •Liquidity and Capital Resources •Recent Accounting Pronouncements •Critical Accounting Policies and Estimates 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 the 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 17 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 2022 and 2021, we generated $768.7 million and $591.2 million in total net sales, respectively, with $119.6 million and $18.1 million in net income, respectively, and $226.1 million and $144.8 million in Adjusted EBITDA in such fiscal years, respectively. On November 2, 2020, we completed our IPO of 28,750,000 shares of our common stock at an offering price of $14.00 per share, of which 25,000,000 shares were sold by us and 3,750,000 shares were sold by selling stockholders, resulting in net proceeds to us of approximately $321.4 million, after deducting $20.1 million of underwriting discounts and $8.5 million of offering costs. Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol “ALGM.” 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 49 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 electrified vehicles (“xEVs”), advanced driver assistance systems (“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 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 Light Detection and Ranging (“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 average sales prices (“ASP”) 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 partners 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 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. 50 •Maintain sustainability efforts. We intend to continue to innovate with purpose, aiming to address 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 with goals of maintaining dedication to social responsibility in our supply chain and disclosing the environmental impact of our business operations. The secular trends that drive our long-term trajectory–including vehicle electrification, advanced driver assistance systems, data center efficiency and efficient motion control–continue to see strong adoption in the market. In addition, our design win momentum and record backlog will continue to serve as significant growth drivers for fiscal 2023, contributing to an increase in our full year revenue growth outlook. Recent Initiatives to Improve Results of Operations We implemented several initiatives over the fiscal year 2022 designed to improve our operating results. In February 2020, we announced that we would consolidate our assembly and test facilities into a single site, located at our manufacturing facility in the Philippines (the “AMPI Facility”). We completed this transition and closed our manufacturing facility in Thailand (the “AMTC Facility”) as of March 2021, and the AMTC Facility was sold in August 2021. Consequently, we realized an improvement in profitability in fiscal year 2022. We continue to implement initiatives to improve gross margins. Our gross margin improved from 47.2% in fiscal year 2021 to 53.0% in fiscal year 2022. This gross margin improvement was a result of our operational transformation, improved product mix of higher ASPs on more value-added products, increased leverage of our distribution channel, and continued efficiency and leverage on higher volumes. The closure of the AMTC Facility significantly reduced our cost of goods sold and fixed overhead costs associated with operating this location. By centralizing this portion of our assembly and test facilities at the AMPI Facility, we expect to continue to realize this lower level of cost of goods for the immediate future. Additionally, we will continue to the leverage our facility to increase production where demand for our products warrants. We have been successful in increasing our average selling prices through a focus on higher value-added products and selective price increases. Increased ASPs and manufacturing efficiencies have allowed us to continue to improve gross margin in an environment of limited capacity at our suppliers and rising input costs. Limited supply and increased demand for many of our products and applications, as well as supply chain disruptions related to the COVID-19 pandemic, have contributed to input cost increases on the components needed to manufacture our products. We will continue to consider opportunities for strategic price increases and process efficiencies to offset input cost increases on the materials and supplies that we use in production. With the consolidation of our facilities as discussed above, we have attained efficiencies through cost structure improvements, streamlining of manufacturing and support processes, and further utilization of excess capacity. These manufacturing efficiencies allowed us to leverage higher volumes to keep pace with increasing demand across most of our applications, while reducing cost of goods sold and increasing the absorption of fixed costs. Although these initiatives have resulted in gross margin and operating income improvements over the previous quarters, we cannot ensure that these trends will continue over the long-term. Impact of the COVID-19 Pandemic On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act contains numerous tax provisions including a correction to the applicable depreciation rates available in the original Tax Cuts and Jobs Act (“TCJA”) for Qualified Improvement Property (“QIP”), temporarily establishes a five-year carryback period for current net operating losses (“NOL”), and contains a provision for deferred payment of 2020 employer payroll taxes. The Company currently estimates cash tax benefits of the QIP adjustment and NOL carryback period to be $12.8 million. The COVID-19 pandemic continued during fiscal year 2022, and various authorities instituted measures related to the COVID-19 pandemic that 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. As the COVID-19 pandemic continues, the timing and overall demand from customers, the efficiency in our supply chain, the availability of logistical services and component supply, and the impact of rising inflation may have a material net negative impact on our business and financial results. 51 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, despite current inflationary and pricing conditions, we expect the ASPs of our products to decline over time, and we consider design wins to be critical to our future success 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 market acceptance of our customers’ end products, which may be affected by several factors beyond our control. Customer Demand, Orders and Forecasts Demand for our products is highly dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, cyclicality 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. We continue to see demand for our products exceed supply and we are currently operating in an inflationary environment. Manufacturing Costs and Product Mix Gross margin has been, and will continue to be, affected by a variety of factors, including the ASPs of our products, product mix in a given period, material costs, yields, manufacturing costs and efficiencies. We believe the primary driver of gross margin is the ASP negotiated between us and our customers relative to material costs and yields. Our pricing and margins depend on the volumes and the features of the products we produce and sell to our customers. As our products mature and unit volumes increase, despite current price leverage, we expect their ASPs to decline in the long term. We continually monitor and work to reduce the cost of our products and improve the potential value our solutions provide to our customers as we target new design win opportunities and manage the product life-cycles of our existing customer designs. We also maintain a close relationship with our suppliers and subcontractors to improve quality, increase yields and lower manufacturing costs. As a result, these declines often coincide with improvements in manufacturing yields and lower wafer, assembly, and testing costs, which offset some or all of the margin reduction that results from declining ASPs. However, we expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs due to product mix, new product introductions, transitions into volume manufacturing and manufacturing costs. Gross margin generally decreases if production volumes are lower as a result of decreased demand, which leads to a reduced absorption of our fixed manufacturing costs. Gross margin generally increases when the opposite occurs. Cyclical Nature of the Semiconductor Industry The semiconductor industry 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 52 periods of slower growth or industry contractions, our sales, production and productivity suffer and margins generally decline. 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. Shutdowns of third-party factories, in connection with COVID-19 or other factors beyond our control, have affected, and are expected to continue to affect our product sales in the next fiscal quarter. Our core applications are focused on the automotive, industrial and other industries. We sell magnetic sensor ICs, power ICs and photonics. Revenue is generally recognized when control of the products is transferred to the customer, which typically occurs at a point in time upon shipment or delivery, depending on the terms of the contract. When we transact with a distributor, our contractual arrangement is with the distributor and not with the end customer. Whether we transact business with and receive the order from a distributor or directly from an end customer through our direct sales force and independent sales representatives, our revenue recognition policy and resulting pattern of revenue recognition for the order are the same. We recognize revenue net of sales returns, price protection adjustments, stock rotation rights and any other discounts or credits offered to our customers. For the consignment arrangements with distributors, delivery occurs and revenue is recognized when the distributor pulls product from consignment inventory that it is stored at designated distributor locations. Recognition is not contingent upon resale of the products to the distributors’ customers. Until the products are pulled for use or sale by the distributor, we retain control over the products’ disposition, including the right to pull back or relocate the products. Stock-based compensation In addition to the ratable vesting of our stock-based compensation, upon completion of our IPO during the third fiscal quarter of 2021, we recognized (i) one-time stock-based compensation charges of $40.4 million consisting of $4.1 million within cost of goods sold, $1.8 million within R&D expenses, and $34.5 million within SG&A expenses in connection with the vesting of all outstanding shares of Class A common stock, (ii) $1.6 million consisting of $0.2 million within cost of goods sold, $0.1 million within R&D expenses, and $1.3 million within SG&A expenses in connection with the automatic acceleration of 25% of the standard vesting term of shares of Class L common stock and (iii) $1.0 million consisting of $0.1 million within cost of goods sold, $0.4 million within R&D expenses, and $0.5 million within SG&A expenses through the conversion of awards granted under our pre-IPO cash incentive plans into restricted stock units of the Company at the time of the IPO (the “RSU Conversion Program”). Cost of goods sold, gross profit and gross margin Cost of goods sold consists primarily of costs of purchasing raw materials, costs associated with probe, assembly, test and shipping our products, costs of personnel, including stock-based compensation, costs of equipment associated with manufacturing, procurement, planning and management of these processes, costs of depreciation and amortization, costs of logistics and quality assurance, and costs of royalties, value-added taxes, utilities, repairs and maintenance of equipment, and an allocated portion of our facility occupancy costs. Gross profit is calculated as total net sales less cost of goods sold. Gross profit is affected by numerous factors, including average selling price, revenue mix by product, channel and customer, foreign exchange rates, seasonality, manufacturing costs and the effective utilization of our facilities. Another factor impacting gross profit is the time required for the expansion of existing facilities to reach full production capacity. As a result, gross profit varies from period to period and year to year. A significant portion of our costs are fixed and, as a result, costs are generally difficult to adjust or may take time to adjust in response to changes in demand. In addition, our fixed costs increase as we expand our capacity. If we expand capacity faster than required by our sales growth, our gross margin could be negatively affected. 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 of wafers and masks, license fees for computer-aided design software, costs 53 of development testing and evaluation, costs of developing automated test programs, equipment depreciation and related occupancy and equipment costs. While most of the costs incurred are for new product development, a significant portion of these costs are related to process technology development, and proprietary package development. R&D expenses also include costs for technology development by external parties. We expect further increases in R&D expenses, in absolute dollars 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 continue to incur 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. Impairment of long-lived assets Impairment of long-lived assets reflects a $7.1 million expense in the fiscal year ended March 26, 2021, representing impairment charges on the sale of the AMTC Facility. No impairment expense was recorded for the fiscal years ended March 25, 2022 and March 27, 2020. Change in fair value of contingent consideration The change in fair value of contingent consideration represents the gains and losses recorded in the fiscal years ended March 25, 2022 and March 26, 2021, resulting from the adjustment in contingent consideration related to the Voxtel Acquisition. There were no amounts recorded for the fiscal year ended March 27, 2020. Loss on debt extinguishment Loss on debt extinguishment represents the loss associated with the partial repayment of our Term Loan Facility on November 25, 2020. There were no amounts recorded for the fiscal years ended March 25, 2022 and March 27, 2020. Interest (expense) income, net Interest (expense) income, net is comprised of interest expense from term loan debt and credit facilities we maintain with various financial institutions. Current 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 (loss) gain We incur transaction gains and losses resulting from intercompany transactions as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded. Income in earnings of equity investment Income in earnings of equity investment is related to our equity investment in PSL subsequent to the PSL Divestiture. Other, net Other, net primarily consists of miscellaneous income and expense items unrelated to our core operations. Income tax provision (benefit) Our provision, or benefit, for income taxes is based on an estimate of the annual effective tax rate plus the tax impact of discrete items. We are subject to tax in the U.S. and various foreign jurisdictions. Our effective income tax rate fluctuates primarily because of: the change in the mix of our U.S. and foreign income; the impact of discrete transactions and law changes; and the difference between the amount of tax benefits generated by the foreign derived intangible income deduction (“FDII”) and 54 research credits, offset by the additional tax costs associated with global intangible low-tax income (“GILTI”), the base erosion tax (“BEAT”) and non-deductible stock-based compensation charges. We regularly assess the likelihood of outcomes that could result from the examination of our tax returns by the IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our then-current expectations, charges or credits to our provision for income taxes may become necessary. Any such adjustments could have a significant effect on our results of operations. Results of Operations Fiscal Year 2022 Compared to Fiscal Year 2021 The following table summarizes our results of operations for the fiscal years ended March 25, 2022 and March 26, 2021. [[GREPCENT_TABLE]] [["","Fiscal Year Ended","","Change"],["","March 25, 2022","","March 26, 2021","","$","","%"],["","(Dollars in thousands)"],["Total net sales (1)","$","768,674","","","$","591,207","","","$","177,467","","","30.0","%"],["Cost of goods sold","361,214","","","312,305","","","48,909","","","15.7","%"],["Gross profit","407,460","","","278,902","","","128,558","","","46.1","%"],["Operating expenses:"],["Research and development","121,873","","","108,649","","","13,224","","","12.2","%"],["Selling, general and administrative","150,937","","","153,476","","","(2,539)","","","(1.7)","%"],["Impairment of long-lived assets","\u2014","","","7,119","","","(7,119)","","","(100.0)","%"],["Change in fair value of contingent consideration","(2,000)","","","(2,500)","","","500","","","(20.0)","%"],["Total operating expenses","270,810","","","266,744","","","4,066","","","1.5","%"],["Operating income","136,650","","","12,158","","","124,492","","","1,024.0","%"],["Other income (expense), net:"],["Loss on debt extinguishment","\u2014","","","(9,055)","","","9,055","","","(100.0)","%"],["Interest expense, net","(1,057)","","","(2,603)","","","1,546","","","(59.4)","%"],["Foreign currency transaction loss","(568)","","","(2,889)","","","2,321","","","(80.3)","%"],["Income in earnings of equity investment","1,007","","","1,413","","","(406)","","","(28.7)","%"],["Other, net","4,714","","","(475)","","","5,189","","","(1,092.4)","%"],["Total other income (expense), net","4,096","","","(13,609)","","","17,705","","","(130.1)","%"],["Income (loss) before income tax provision (benefit)","140,746","","","(1,451)","","","142,197","","","(9,799.9)","%"],["Income tax provision (benefit)","21,191","","","(19,552)","","","40,743","","","(208.4)","%"],["Net income","119,555","","","18,101","","","101,454","","","560.5","%"],["Net income attributable to non-controlling interests","148","","","148","","","\u2014","","","\u2014","%"],["Net income attributable to Allegro MicroSystems, Inc.","$","119,407","","","$","17,953","","","$","101,454","","","565.1","%"]] [[/GREPCENT_TABLE]] (1)Our total net sales for the periods presented above include related party net sales generated through our distribution agreement with Sanken. See our consolidated financial statements included elsewhere in this Annual Report for additional information regarding our related party net sales for the periods set forth above. 55 The following table sets forth our results of operations as a percentage of total net sales for the periods presented. [[GREPCENT_TABLE]] [["","Fiscal Year Ended"],["","March 25, 2022","","March 26, 2021"],["Total net sales","100.0","%","","100.0","%"],["Cost of goods sold","47.0","%","","52.8","%"],["Gross profit","53.0","%","","47.2","%"],["Operating expenses:"],["Research and development","15.9","%","","18.4","%"],["Selling, general and administrative","19.6","%","","26.0","%"],["Impairment of long-lived assets","\u2014","%","","1.2","%"],["Change in fair value of contingent consideration","(0.3)","%","","(0.4)","%"],["Total operating expenses","35.2","%","","45.2","%"],["Operating income","17.8","%","","2.0","%"],["Other income (expense), net:"],["Loss on debt extinguishment","\u2014","%","","(1.5)","%"],["Interest expense, net","(0.1)","%","","(0.4)","%"],["Foreign currency transaction loss","(0.1)","%","","(0.5)","%"],["Income in earnings of equity investment","0.1","%","","0.2","%"],["Other, net","0.6","%","","(0.1)","%"],["Total other income (expense), net","0.5","%","","(2.3)","%"],["Income (loss) before income tax provision (benefit)","18.3","%","","(0.3)","%"],["Income tax provision (benefit)","2.8","%","","(3.3)","%"],["Net income","15.5","%","","3.0","%"],["Net income attributable to non-controlling interests","\u2014","%","","\u2014","%"],["Net income attributable to Allegro MicroSystems, Inc.","15.5","%","","3.0","%"]] [[/GREPCENT_TABLE]] Total net sales Total net sales increased by $177.5 million, or 30.0%, to $768.7 million in the fiscal year ended March 25, 2022 from $591.2 million in the fiscal year ended March 26, 2021. This increase was primarily due to the continued economic recovery and increases in demand for ADAS, safety, comfort and convenience, internal combustion engine (“ICE”) applications, xEV, wireless infrastructure, personal mobility, industrial automation, cloud computing/data center and gaming applications, partially offset by declines in personal electronics and PC printers and peripherals. Sales Trends by Market The following table summarizes total net sales by market. The categorization of net sales by market is based on the characteristics of the end product and application into which our product will be designed. [[GREPCENT_TABLE]] [["","Fiscal Year Ended","","Change"],["","March 25, 2022","","March 26, 2021","","Amount","","%"],["","(Dollars in thousands)"],["Automotive","$","531,564","","","$","398,298","","","$","133,266","","","33.5","%"],["Industrial","133,187","","","94,872","","","38,315","","","40.4","%"],["Other","103,923","","","98,037","","","5,886","","","6.0","%"],["Total net sales","$","768,674","","","$","591,207","","","$","177,467","","","30.0","%"]] [[/GREPCENT_TABLE]] The increase in net sales to our end markets was driven by an increase in automotive of $133.3 million, or 33.5%, an increase in industrial of $38.3 million, or 40.4%, and an increase in other of $5.9 million, or 6.0%. 56 Automotive net sales increased in the fiscal year ended March 25, 2022 compared to the fiscal year ended March 26, 2021 due to the continued higher demand across all of our major applications, primarily our ADAS, safety, and comfort and convenience. Industrial net sales improved in the fiscal year ended March 25, 2022 compared to the fiscal year ended March 26, 2021 primarily due to increased demand in industrial automation, cloud computing/data center, wireless infrastructure and personal mobility. Other net sales improved in the fiscal year ended March 25, 2022 compared to the fiscal year ended March 26, 2021 primarily attributable to increased demand in gaming applications of approximately $27.0 million, partially offset by declines in personal electronics and PC printer and peripherals of approximately $21.0 million. Sales Trends by Product The following table summarizes net sales by product: [[GREPCENT_TABLE]] [["","Fiscal Year Ended","","Change"],["","March 25, 2022","","March 26, 2021","","Amount","","%"],["","(Dollars in thousands)"],["Power integrated circuits (\u201cPIC\u201d)","$","268,381","","","$","203,600","","","$","64,781","","","31.8","%"],["Magnetic sensors integrated circuits (\u201cMS\u201d)","498,561","","","386,372","","","112,189","","","29.0","%"],["Photonics","1,732","","","1,235","","","497","","","40.2","%"],["Total net sales","$","768,674","","","$","591,207","","","$","177,467","","","30.0","%"]] [[/GREPCENT_TABLE]] The growth in net sales by product was driven by increases in MS product sales of $112.2 million and in PIC product sales of $64.8 million, as well as a $0.5 million increase in Photonics product sales. Sales Trends by Geographic Location The following table summarizes net sales by geographic location based on ship-to location. [[GREPCENT_TABLE]] [["","Fiscal Year Ended","","Change"],["","March 25, 2022","","March 26, 2021","","Amount","","%"],["","(Dollars in thousands)"],["Americas:"],["United States","$","108,396","","","$","82,165","","","$","26,231","","","31.9","%"],["Other Americas","23,056","","","16,558","","","6,498","","","39.2","%"],["EMEA:"],["Europe","134,537","","","103,128","","","31,409","","","30.5","%"],["Asia:"],["Japan","148,813","","","104,661","","","44,152","","","42.2","%"],["Greater China","191,895","","","157,546","","","34,349","","","21.8","%"],["South Korea","80,451","","","62,075","","","18,376","","","29.6","%"],["Other Asia","81,526","","","65,074","","","16,452","","","25.3","%"],["Total net sales","$","768,674","","","$","591,207","","","$","177,467","","","30.0","%"]] [[/GREPCENT_TABLE]] The increase in net sales across geographic locations in the fiscal year ended March 25, 2022 compared to the fiscal year ended March 26, 2021 was primarily due to content and market share gains, as many countries continue to experience economic expansion coming out of the COVID-19 pandemic, and demand for many of our products and applications rose year-over-year. The increase in net sales in Japan of $44.1 million, or 42.2%, was primarily driven by higher demand for our xEV, ADAS, personal mobility and cloud computing/data center offerings. The increases in net sales of $34.4 million, or 21.8%, in Greater China and $32.7 million, or 33.2%, in the Americas each related to higher automotive demand, primarily in our 57 ADAS, ICE, safety, and comfort and convenience applications, as well as increased demand in our industrial sectors. Higher year-over-year net sales of $31.4 million, or 30.5%, in Europe, predominantly comprised of Germany and France, was driven by increases in our ADAS, ICE, safety, comfort and convenience and grid infrastructure offerings. South Korea and Other Asia experienced sales growth of $18.4 million, or 29.6%, and $16.5 million, or 25.3%, respectively, mainly due to higher automotive demand, specifically in ADAS, safety, and comfort and convenience applications, as well as growth in our industrial applications, especially in our cloud computing/data center offerings. Cost of goods sold, gross profit and gross margin Cost of goods sold increased by $48.9 million, or 15.7%, to $361.2 million in the fiscal year ended March 25, 2022 from $312.3 million in the fiscal year ended March 26, 2021. The increase in cost of goods sold was primarily attributable to higher production volume, partially offset by decreases in amortization of manufacturing cost absorptions and lower cost of goods sold related to our photonics product line attributable to the discontinuation of a legacy Voxtel product line during 2022. Gross profit increased by $128.6 million, or 46.1%, to $407.5 million in the fiscal year ended March 25, 2022 from $278.9 million in the fiscal year ended March 26, 2021. The increase in gross profit was driven by a $177.5 million increase in net sales in all markets, partially offset by the impacts to cost of goods sold discussed above. R&D expenses R&D expenses increased by approximately $13.2 million, or 12.2%, to $121.9 million in the fiscal year ended March 25, 2022 from $108.6 million in the fiscal year ended March 26, 2021. This increase was primarily due to higher employee-related personnel costs of $10.1 million and a combined $5.1 million increase in general operating expenses, partially offset by a combined $2.6 million decrease in inventory and supplies and contract labor costs. R&D expenses represented 15.9% of our total net sales for the fiscal year ended March 25, 2022, a decrease from 18.4% of our total net sales for the fiscal year ended March 26, 2021. This percentage decrease was primarily due to the growth in our net sales in 2022. SG&A expenses SG&A expenses decreased by $2.6 million, or 1.7%, to $150.9 million in the fiscal year ended March 25, 2022 from $153.5 million in the fiscal year ended March 26, 2021. This decrease was primarily due to a $14.7 million decrease in stock-based compensation expense and a combined $8.0 million decrease in general operating expenses, partially offset by an increase of $19.9 million in combined employee-related personnel costs, contract labor, insurance and general expenses. SG&A expenses represented 19.6% of our total net sales for the fiscal year ended March 25, 2022, representing a decrease from 26.0% of our total net sales for the fiscal year ended March 26, 2021. This percentage decrease was primarily due to the growth in net sales in the fiscal year ended March 25, 2022. In addition, the percentage decrease represents the lower SG&A expenses as discussed above, as those costs were incrementally higher for the fiscal year ended March 26, 2021 due in large part to IPO-related costs and accelerated vesting of the Class A and L common stock and RSU Conversion Program incurred during that period. For details, see Note 12, “Management Long-Term Cash Incentive Plan” to the audited consolidated financial statements. Impairment of long-lived assets Impairment of long-lived assets reflected a $7.1 million expense in the fiscal year ended March 26, 2021, representing impairment charges on the held for sale AMTC Facility. No impairment loss occurred in the fiscal year ended March 25, 2022. Change in fair value of contingent consideration The change in fair value of contingent consideration reflected a $0.5 million decrease in gains in the fiscal year ended March 25, 2022, resulting from the write-down in contingent consideration related to the acquisition of Voxtel in 2021. Loss on debt extinguishment Loss on debt extinguishment reflected a $9.1 million loss in the fiscal year ended March 26, 2021, representing the write-off of unamortized balances of previously deferred financing costs as a result of the $300.0 million Term Loan Facility principal balance repayment on November 25, 2020. No loss occurred in the fiscal year ended March 25, 2022. 58 Interest expense, net Interest expense, net decreased by $1.5 million to $1.1 million in the fiscal year ended March 25, 2022 from $2.6 million in the fiscal year ended March 26, 2021. The decrease in interest expense, net was primarily due to lower outstanding debt balances during the fiscal year ended March 25, 2022. Foreign currency transaction loss We recorded a foreign currency transaction loss of $0.6 million in the fiscal year ended March 25, 2022 compared to a loss of $2.9 million in the fiscal year ended March 26, 2021. The foreign currency transaction loss recorded in the fiscal year ended March 25, 2022 was primarily due to $0.9 million of realized and unrealized losses from our UK location, partially offset by $0.3 million of realized and unrealized gains from our Philippines location. The foreign currency transaction loss recorded in the fiscal year ended March 26, 2021 was primarily attributable to $3.5 million of realized and unrealized losses from our UK location, partially offset by $1.3 million realized and unrealized gains from our Thailand location. Income in earnings of equity investment Income in earnings of equity investment reflected gains of $1.0 million and $1.4 million in the fiscal years ended March 25, 2022 and March 26, 2021, respectively, representing the earnings on our 30% investment in PSL. Other, net Other, net increased by approximately $5.2 million to $4.7 million of gains in the fiscal year ended March 25, 2022 from $0.5 million of loss in the fiscal year ended March 26, 2021. The increase in the fiscal year ended March 25, 2022 was primarily due to the $3.7 million unrealized gains on marketable securities and a $0.4 million gain related to the sale of the AMTC Facility. The loss in the fiscal year ended March 26, 2021 was primarily due to disposals of equipment from various facilities. Income tax provision (benefit) The provision for income taxes was $21.2 million for the fiscal year ended March 25, 2022 as compared to a benefit of $19.6 million for the fiscal year ended March 26, 2021. The increase in income tax expense in fiscal year 2022 as compared to fiscal year 2021 relates primarily to tax impacts of the fiscal year 2021 IPO transaction. The fiscal year 2021 IPO transaction resulted in excess tax over financial reporting deductions related to a $40.4 million stock-based compensation charge (and the related incremental tax deductions), a $16.0 million one-time dividend treated as compensation expense for tax purposes, as well as a tax loss on the divestiture of PSL. The tax impacts of these transactions and other discrete transactions caused an overall U.S. NOL for fiscal year 2021 that will be carried back five years. Additional fluctuations in our effective income tax rate relate primarily to differences in our U.S. taxable income, estimated FDII benefits, GILTI income, research credits, non-deductible stock-based compensation charges, and discrete tax items. Non-GAAP Financial Measures In addition to the measures presented in our consolidated financial statements, we regularly review other measures, defined as non-GAAP financial measures by the SEC, to evaluate our business, measure our performance, identify trends, prepare financial forecasts and make strategic decisions. The key measures we consider are non-GAAP Gross Profit, non-GAAP Gross Margin, non-GAAP Operating Expenses, non-GAAP Operating Income, non-GAAP Operating Margin, non-GAAP Profit before Tax, non-GAAP Provision for Income Tax, non-GAAP Net Income, non-GAAP Net Income per Share, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin (collectively, the “Non-GAAP Financial Measures”). These Non-GAAP Financial Measures provide supplemental information regarding our operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be unrelated to our core operations, and in the case of non-GAAP Provision for Income Tax, management believes that this non-GAAP measure of income taxes provides it with the ability to evaluate the non-GAAP Provision for Income Taxes across different reporting periods on a consistent basis, independent of special items and discrete items, which may vary in size and frequency. By presenting these Non-GAAP Financial Measures, 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, and we believe that investors’ understanding of our performance is enhanced by our presenting these Non-GAAP Financial Measures, as they provide a reasonable basis for comparing our ongoing results of operations. Management believes that tracking and presenting these Non-GAAP Financial Measures provides management and the investment community with valuable insight into matters such as: our ongoing core operations, our ability to generate cash to service our debt and fund our operations; and the underlying business trends that are affecting our performance. These Non- 59 GAAP Financial Measures are used by both management and our board of directors, together with the comparable GAAP information, in evaluating our current performance and planning our future business activities. In particular, management finds it useful to exclude non-cash charges in order to better correlate our operating activities with our ability to generate cash from operations and to exclude certain cash charges as a means of more accurately predicting our liquidity requirements. We believe that these Non-GAAP Financial Measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry. These Non-GAAP Financial Measures have significant limitations as analytical tools. Some of these limitations are that: •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; •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. The Non-GAAP Financial Measures are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. These Non-GAAP Financial Measures should not be considered as substitutes for GAAP financial measures such as gross profit, gross margin, net income or any other performance measures derived in accordance with GAAP. Also, in the future we may incur expenses or charges such as those being adjusted in the calculation of these Non-GAAP Financial Measures. Our presentation of these Non-GAAP Financial Measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. Our prior disclosure referred to non-GAAP Gross Profit and non-GAAP Gross Margin as Adjusted Gross Profit and Adjusted Gross Margin, respectively. No changes have been made to how we calculate these measures. Non-GAAP Gross Profit and Non-GAAP Gross Margin We calculate non-GAAP Gross Profit and non-GAAP Gross Margin excluding the items below from cost of goods sold in applicable periods, and we calculate non-GAAP Gross Margin as non-GAAP Gross Profit divided by total net sales. •Voxtel inventory impairment—Represents costs related to the discontinuation of one of our product lines manufactured by Voxtel. •Inventory cost amortization—Represents 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 disposition of PSL during the fiscal year ended March 26, 2021 (the “PSL Divestiture”). Such costs did not have a continuing impact on our operating results after our second fiscal quarter of fiscal year 2021. •Foundry service payment—Represents foundry service payments incurred under our Price Support Agreement with PSL in respect to the guaranteed capacity at PSL to support our production forecast and are one-time costs incurred impacting our operating results during fiscal year 2021 following the PSL Divestiture. Such costs did have a continuing impact on our operating results after fiscal year 2021. •Stock-based compensation—Represents non-cash expenses arising from the grant of stock-based awards. •AMTC Facility consolidation one-time costs—Represents one-time costs incurred in connection with closing of the AMTC Facility and transitioning of test and assembly functions to the AMPI Facility announced in fiscal year 2020, consisting of: moving equipment between facilities, contract terminations and other non-recurring charges. The 60 closure and transition of the AMTC Facility was substantially completed as of the end of March 2021, and we sold the AMTC Facility in August 2021. These costs are in addition to, and not duplicative of, the adjustments noted in note (*) below. •Amortization of acquisition-related intangible assets—Represents non-cash expenses associated with the amortization of intangible assets in connection with the acquisition of Voxtel, which closed in August 2020. •COVID-19 related expenses—Represents expenses attributable to the COVID-19 pandemic 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. (*) Non-GAAP Gross Profit and the corresponding calculation of non-GAAP Gross Margin do not include adjustments consisting of: •Additional AMTC-related costs—Represents costs relating to the closing of the AMTC Facility and the transitioning of test and assembly functions to the AMPI Facility in the Philippines announced in fiscal year 2020 consisting of the net savings resulted from or expected to result from the movement of work to the AMPI Facility, which facility had duplicative capacity based on the buildouts of the AMPI Facility in fiscal years 2019 and 2018. The elimination of these costs did not 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 was substantially completed as of the end of March 2021. •Out-of-period adjustment for depreciation expense of giant magnetoresistance assets (“GMR assets”)—Represents a one-time depreciation expense related to the correction of an immaterial error, related to 2017, for certain manufacturing assets that have reached the end of their useful lives. Non-GAAP Operating Expenses, non-GAAP Operating Income and non-GAAP Operating Margin We calculate non-GAAP Operating Expenses and non-GAAP Operating Income excluding the same items excluded above to the extent they are classified as operating expenses, and also excluding the items below in applicable periods. We calculate non-GAAP Operating Margin as non-GAAP Operating Income divided by total net sales. •Transaction fees—Represents transaction-related legal and consulting fees incurred primarily in connection with (i) the acquisition of Voxtel in fiscal year 2020, (ii) one-time transaction-related legal and consulting fees in fiscal 2021, (iii) one-time transaction-related legal, consulting and registration fees related to a secondary offering on behalf of certain stockholders in fiscal 2022, and (iv) one-time transaction-related legal and consulting fees in fiscal 2022 not related to (iii). •Severance—Represents severance costs associated with (i) labor savings initiatives to manage overall compensation expense as a result of the declining sales volume during the applicable period, including a voluntary separation incentive payment plan for employees near retirement and a reduction in force, (ii) 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, (iii) costs related to the discontinuation of one of our product lines manufactured by Voxtel in fiscal year 2022, and (iv) nonrecurring separation costs related to the departure of an officer in fiscal year 2022. •Impairment of long-lived assets—Represents impairment charge incurred in connection with the sale of the AMTC Facility. •Change in fair value of contingent consideration—Represents the change in fair value of contingent consideration payable in connection with the acquisition of Voxtel. (**) Non-GAAP Operating Income does not include adjustments consisting of those set forth in note (*) to the calculation of non-GAAP Gross Profit, and the corresponding calculation of non-GAAP Gross Margin, above or: •Labor savings—Represents salary and benefit costs 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 net of costs for newly hired employees in connection with such restructuring. EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin We calculate EBITDA as net income minus interest income (expense), tax provision (benefit), and depreciation and amortization expenses. We calculate Adjusted EBITDA as EBITDA excluding the same items excluded above and also 61 excluding the items below in applicable periods. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total net sales. •Non-core loss (gain) on sale of equipment—Represents non-core miscellaneous losses and gains on the sale of equipment. •Miscellaneous legal judgment charge—Represents a one-time charge associated with the final payment of the previously accrued amount payable with respect to a VAT dispute related to the construction of the AMPI Facility. •Loss on debt extinguishment—Represents one-time costs representing deferred financing costs associated with the $300.0 million of our term loan facility repaid during the fiscal year ended March 26, 2021. •Foreign currency translation loss—Represents losses and gains 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. •Income in earnings of equity investment—Represents our equity method investment in PSL. •Unrealized losses (gains) on investments—Represents mark-to-market adjustments on equity investments with readily determinable fair values. Non-GAAP Profit before Tax, Non-GAAP Net Income, and Non-GAAP Basic and Diluted Earnings Per Share We calculate non-GAAP Profit before Tax as Income (Loss) before Income Taxes excluding the same items excluded above and also excluding the item below in applicable periods. We calculate non-GAAP Net Income as Net Income excluding the same items excluded above and also excluding the item below in applicable periods. •Interest on repaid portion of term loan facility—Represents interest expense associated with the $300.0 million of our term loan facility repaid during the period. Non-GAAP Provision for Income Tax In calculating non-GAAP Provision for Income Tax, we have added back the following to GAAP Income Tax Provision (Benefit): •Tax effect of adjustments to GAAP results—Represents the estimated income tax effect of the adjustments to non-GAAP Profit Before Tax described above and elimination of discrete tax adjustments. 62 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of Non-GAAP Gross Profit"],["GAAP Gross Profit","","$","109,603","","$","101,165","","$","87,006","","$","407,460","","$","278,902"],["Voxtel inventory impairment","","\u2014","","\u2014","","\u2014","","3,106","","\u2014"],["Inventory cost amortization","","\u2014","","\u2014","","\u2014","","\u2014","","2,698"],["Foundry service payment","","\u2014","","\u2014","","930","","\u2014","","5,930"],["Stock-based compensation","","1,184","","742","","314","","3,176","","5,158"],["AMTC Facility consolidation one-time costs","","\u2014","","\u2014","","625","","144","","2,184"],["Amortization of acquisition-related intangible assets","","273","","273","","273","","1,092","","651"],["COVID-19 related expenses","","296","","137","","64","","1,092","","202"],["Total Non-GAAP Adjustments","","$","1,753","","$","1,152","","$","2,206","","$","8,610","","$","16,823"],["Non-GAAP gross profit*","","$","111,356","","$","102,317","","$","89,212","","$","416,070","","$","295,725"],["Non-GAAP gross margin","","55.6%","","54.8%","","50.9%","","54.1%","","50.0%"]] [[/GREPCENT_TABLE]] *Non-GAAP Gross Profit and the corresponding calculation of non-GAAP Gross Margin do not include adjustments for the following components of our net income: additional AMTC related costs of $— and $6,553 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and out-of-period adjustment for depreciation expense of GMR assets of $— and $768 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. 63 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of Non-GAAP Operating Expenses"],["GAAP Operating Expenses","","$","79,354","","","$","65,560","","","$","67,558","","","$","270,810","","","$","266,744"],["Research and Development Expenses"],["GAAP Research and Development Expenses","","32,432","","","30,297","","","28,140","","","121,873","","","108,649"],["Stock-based compensation","","1,119","","","1,019","","","536","","","3,933","","","3,573"],["AMTC Facility consolidation one-time costs","","\u2014","","","\u2014","","","\u2014","","","2","","","2"],["COVID-19 related expenses","","3","","","6","","","8","","","23","","","100"],["Transaction fees","","5","","","\u2014","","","\u2014","","","5","","","18"],["Non-GAAP Research and Development Expenses","","31,305","","","29,272","","","27,596","","","117,910","","","104,956"],["Selling, General and Administrative Expenses"],["GAAP Selling, General and Administrative Expenses","","46,822","","","37,963","","","34,799","","","150,937","","","153,476"],["Stock-based compensation","","12,598","","","5,859","","","2,119","","","26,439","","","41,139"],["AMTC Facility consolidation one-time costs","","74","","","108","","","1,488","","","657","","","5,626"],["Amortization of acquisition-related intangible assets","","22","","","23","","","37","","","90","","","117"],["COVID-19 related expenses","","215","","","356","","","250","","","1,503","","","4,926"],["Transaction fees","","384","","","1,085","","","3,727","","","1,498","","","7,426"],["Severance","","\u2014","","","578","","","\u2014","","","746","","","156"],["Non-GAAP Selling, General and Administrative Expenses","","33,529","","","29,954","","","27,178","","","120,004","","","94,086"],["Impairment of long-lived assets","","\u2014","","","\u2014","","","7,119","","","\u2014","","","7,119"],["Change in fair value of contingent consideration","","100","","","(2,700)","","","(2,500)","","","(2,000)","","","(2,500)"],["Total Non-GAAP Adjustments","","14,520","","","6,334","","","12,784","","","32,896","","","67,702"],["Non-GAAP operating expenses *","","$","64,834","","","$","59,226","","","$","54,774","","","$","237,914","","","$","199,042"]] [[/GREPCENT_TABLE]] *Non-GAAP Operating Expenses do not include adjustments for the following components of our net income: additional AMTC related costs of $— and $723 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and labor savings costs of $— and $218 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. 64 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of Non-GAAP Operating Income"],["GAAP Operating Income","","$","30,249","","","$","35,605","","","$","19,448","","","$","136,650","","","$","12,158"],["Voxtel inventory impairment","","\u2014","","","\u2014","","","\u2014","","","3,106","","","\u2014"],["Inventory cost amortization","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,698"],["Foundry service payment","","\u2014","","","\u2014","","","930","","","\u2014","","","5,930"],["Stock-based compensation","","14,901","","","7,620","","","2,969","","","33,548","","","49,870"],["AMTC Facility consolidation one-time costs","","74","","","108","","","2,113","","","803","","","7,812"],["Amortization of acquisition-related intangible assets","","295","","","296","","","310","","","1,182","","","768"],["COVID-19 related expenses","","514","","","499","","","322","","","2,618","","","5,228"],["Impairment of long-lived assets","","\u2014","","","\u2014","","","7,119","","","\u2014","","","7,119"],["Change in fair value of contingent consideration","","100","","","(2,700)","","","(2,500)","","","(2,000)","","","(2,500)"],["Transaction fees","","389","","","1,085","","","3,727","","","1,503","","","7,444"],["Severance","","\u2014","","","578","","","\u2014","","","746","","","156"],["Total Non-GAAP Adjustments","","$","16,273","","","$","7,486","","","$","14,990","","","$","41,506","","","$","84,525"],["Non-GAAP Operating Income*","","$","46,522","","","$","43,091","","","$","34,438","","","$","178,156","","","$","96,683"],["Non-GAAP Operating Margin* (% of net sales)","","23.2%","","23.1%","","19.7%","","23.2%","","16.4%"]] [[/GREPCENT_TABLE]] *Non-GAAP Operating Income and the corresponding calculation of non-GAAP Operating Margin do not include adjustments for the following components of our net income: additional AMTC related costs of $— and $7,276 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, labor savings costs of $— and $218 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and out-of-period adjustment for depreciation expense of GMR assets of $— and $768 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. 65 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of EBITDA and Adjusted EBITDA"],["GAAP Net Income","","$","25,652","","","$","32,973","","","$","8,689","","","$","119,555","","","$","18,101"],["Interest (income) expense, net","","(707)","","","269","","","668","","","1,057","","","2,603"],["Income tax provision (benefit)","","4,504","","","6,281","","","8,361","","","21,191","","","(19,552)"],["Depreciation & amortization","","12,006","","","12,011","","","12,082","","","48,527","","","48,307"],["EBITDA","","$","41,455","","","$","51,534","","","$","29,800","","","$","190,330","","","$","49,459"],["Non-core loss (gain) on sale of equipment","","1","","","(19)","","","156","","","(349)","","","442"],["Voxtel inventory impairment","","\u2014","","","\u2014","","","\u2014","","","3,106","","","\u2014"],["Miscellaneous legal judgment charge","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","574"],["Loss on debt extinguishment","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","9,055"],["Foreign currency translation loss","","513","","","3","","","1,558","","","568","","","2,889"],["Income in earnings of equity investment","","(215)","","","(287)","","","(6)","","","(1,007)","","","(1,413)"],["Unrealized losses (gains) on investments","","760","","","(3,504)","","","\u2014","","","(3,722)","","","\u2014"],["Stock-based compensation","","14,901","","","7,620","","","2,969","","","33,548","","","49,870"],["AMTC Facility consolidation one-time costs","","74","","","108","","","2,113","","","803","","","7,812"],["COVID-19 related expenses","","514","","","499","","","322","","","2,618","","","5,228"],["Impairment of long-lived assets","","\u2014","","","\u2014","","","7,119","","","\u2014","","","7,119"],["Change in fair value of contingent consideration","","100","","","(2,700)","","","(2,500)","","","(2,000)","","","(2,500)"],["Transaction fees","","389","","","1,085","","","3,727","","","1,503","","","7,444"],["Severance","","\u2014","","","578","","","\u2014","","","746","","","156"],["Inventory cost amortization","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,698"],["Foundry service payment","","\u2014","","","\u2014","","","930","","","\u2014","","","5,930"],["Adjusted EBITDA*","","$","58,492","","","$","54,917","","","$","46,188","","","$","226,144","","","$","144,763"],["Adjusted EBITDA Margin* (% of net sales)","","29.2%","","29.4%","","26.4%","","29.4%","","24.5%"]] [[/GREPCENT_TABLE]] *Adjusted EBITDA and the corresponding calculation of Adjusted EBITDA Margin do not include adjustments for the following components of our net income: AMTC additional costs of $— and $7,276 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and labor savings costs of $— and $218 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. 66 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of Non-GAAP Profit before Tax"],["GAAP Income (Loss) before Tax Provision (Benefit)","","$","30,156","","","$","39,254","","","$","17,050","","","$","140,746","","","$","(1,451)"],["Non-core loss (gain) on sale of equipment","","1","","","(19)","","","156","","","(349)","","","442"],["Voxtel inventory impairment","","\u2014","","","\u2014","","","\u2014","","","3,106","","","\u2014"],["Miscellaneous legal judgment charge","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","574"],["Loss on debt extinguishment","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","9,055"],["Foreign currency translation loss","","513","","","3","","","1,558","","","568","","","2,889"],["Income in earnings of equity investment","","(215)","","","(287)","","","(6)","","","(1,007)","","","(1,413)"],["Unrealized losses (gains) on investments","","760","","","(3,504)","","","\u2014","","","(3,722)","","","\u2014"],["Inventory cost amortization","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,698"],["Foundry service payment","","\u2014","","","\u2014","","","930","","","\u2014","","","5,930"],["Stock-based compensation","","14,901","","","7,620","","","2,969","","","33,548","","","49,870"],["Interest on repaid portion of Term Loan Facility","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,163"],["AMTC Facility consolidation one-time costs","","74","","","108","","","2,113","","","803","","","7,812"],["Amortization of acquisition-related intangible assets","","295","","","296","","","310","","","1,182","","","768"],["COVID-19 related expenses","","514","","","499","","","322","","","2,618","","","5,228"],["Impairment of long-lived assets","","\u2014","","","\u2014","","","7,119","","","\u2014","","","7,119"],["Change in fair value of contingent consideration","","100","","","(2,700)","","","(2,500)","","","(2,000)","","","(2,500)"],["Transaction fees","","389","","","1,085","","","3,727","","","1,503","","","7,444"],["Severance","","\u2014","","","578","","","\u2014","","","746","","","156"],["Total Non-GAAP Adjustments","","$","17,332","","","$","3,679","","","$","16,698","","","$","36,996","","","$","98,235"],["Non-GAAP Profit before Tax*","","$","47,488","","","$","42,933","","","$","33,748","","","$","177,742","","","$","96,784"]] [[/GREPCENT_TABLE]] *Non-GAAP Profit before Tax does not include adjustments for the following components of our net income: additional AMTC related costs of $— and $7,276 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, labor savings costs of $— and $218 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and out-of-period adjustment for depreciation expense of GMR assets of $— and $768 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. 67 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of Non-GAAP Provision for Income Taxes"],["GAAP Income Tax Provision (Benefit)","","$","4,504","","","$","6,281","","","$","8,361","","","$","21,191","","","$","(19,552)"],["GAAP effective tax rate","","14.9%","","16.0%","","49.0%","","15.1%","","1,347.5%"],["Tax effect of adjustments to GAAP results","","2,817","","","561","","","(3,053)","","","6,415","","","34,486"],["Non-GAAP Provision for Income Taxes *","","$","7,321","","","$","6,842","","","$","5,308","","","$","27,606","","","$","14,934"],["Non-GAAP effective tax rate","","15.4%","","15.9%","","15.7%","","15.5%","","15.4%"]] [[/GREPCENT_TABLE]] *Non-GAAP Provision for Income Taxes does not include tax adjustments for the following components of our net income: additional AMTC related costs, labor savings costs, and out-of-period adjustment for depreciation expense of GMR assets. The related tax effect of those adjustments to GAAP results were $— and $1,851 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. 68 [[GREPCENT_TABLE]] [["","","Three-Month Period Ended","","Fiscal Year Ended"],["","","March 25, 2022","","December 24, 2021","","March 26, 2021","","March 25, 2022","","March 26, 2021"],["","","(Dollars in thousands)"],["Reconciliation of Non-GAAP Net Income"],["GAAP Net Income","","$","25,652","","","$","32,973","","","$","8,689","","","$","119,555","","","$","18,101"],["GAAP Basic Earnings per Share","","$","0.14","","","$","0.17","","","$","0.05","","","$","0.63","","","$","0.22"],["GAAP Diluted Earnings per Share","","$","0.13","","","$","0.17","","","$","0.05","","","$","0.62","","","$","0.10"],["Non-core loss (gain) on sale of equipment","","1","","","(19)","","","156","","","(349)","","","442"],["Voxtel inventory impairment","","\u2014","","","\u2014","","","\u2014","","","3,106","","","\u2014"],["Miscellaneous legal judgment charge","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","574"],["Loss on debt extinguishment","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","9,055"],["Foreign currency translation loss","","513","","","3","","","1,558","","","568","","","2,889"],["Income in earnings of equity investment","","(215)","","","(287)","","","(6)","","","(1,007)","","","(1,413)"],["Unrealized losses (gains) on investments","","760","","","(3,504)","","","\u2014","","","(3,722)","","","\u2014"],["Inventory cost amortization","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,698"],["Foundry service payment","","\u2014","","","\u2014","","","930","","","\u2014","","","5,930"],["Stock-based compensation","","14,901","","","7,620","","","2,969","","","33,548","","","49,870"],["Interest on repaid portion of Term Loan Facility","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,163"],["AMTC Facility consolidation one-time costs","","74","","","108","","","2,113","","","803","","","7,812"],["Amortization of acquisition-related intangible assets","","295","","","296","","","310","","","1,182","","","768"],["COVID-19 related expenses","","514","","","499","","","322","","","2,618","","","5,228"],["Impairment of long-lived assets","","\u2014","","","\u2014","","","7,119","","","\u2014","","","7,119"],["Change in fair value of contingent consideration","","100","","","(2,700)","","","(2,500)","","","(2,000)","","","(2,500)"],["Transaction fees","","389","","","1,085","","","3,727","","","1,503","","","7,444"],["Severance","","\u2014","","","578","","","\u2014","","","746","","","156"],["Tax effect of adjustments to GAAP results","","(2,817)","","","(561)","","","3,053","","","(6,415)","","","(34,486)"],["Non-GAAP Net Income*","","$","40,167","","","$","36,091","","","$","28,440","","","$","150,136","","","$","81,850"],["Basic weighted average common shares","","189,997,738","","","189,736,901","","","189,429,893","","","189,748,427","","","83,448,055"],["Diluted weighted average common shares","","192,125,252","","","192,068,222","","","190,860,556","","","191,811,205","","","176,416,645"],["Non-GAAP Basic Earnings per Share","","$","0.21","","$","0.19","","$","0.15","","$","0.79","","$","0.98"],["Non-GAAP Diluted Earnings per Share","","$","0.21","","$","0.19","","$","0.15","","$","0.78","","$","0.46"]] [[/GREPCENT_TABLE]] *Non-GAAP Net Income does not include adjustments for the following components of our net income: additional AMTC related costs of $— and $7,276 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, labor savings costs of $— and $218 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and out-of-period adjustment for depreciation expense of GMR assets of $— and $768 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively, and (ii) the related tax effect of adjustments to GAAP results of $— and $1,851 for the fiscal years ended March 25, 2022 and March 26, 2021, respectively. Liquidity and Capital Resources As of March 25, 2022, we had $282.4 million of cash and cash equivalents and $407.5 million of working capital compared to $197.2 million of cash and cash equivalents and $313.9 million of working capital as of March 26, 2021. Working capital is impacted by the timing and extent of our business needs. 69 Our primary requirements for liquidity and capital are working capital, capital expenditures, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met through cash provided by operating activities and cash and cash equivalents. Our current capital deployment strategy for 2023 is to utilize excess cash on hand to support our continued growth initiatives into select markets, planned capital expenditures and strategic arrangements, as well as consider potential acquisitions. As of March 25, 2022, the Company is not party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the upcoming fiscal year relate to our leases, operating and capital purchase commitments and expected contributions to our defined benefit and contribution plans. For information regarding the Company’s expected cash requirements and timing of payments related to leases and noncancellable purchase commitments, see Note 17, “Commitments and Contingencies” to the audited consolidated financial statements. Additionally, refer to Note 16, “Retirement Plans” to the audited consolidated financial statements for more information related to the Company’s pension and defined contribution plans. On September 30, 2020, we (i) 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 due in fiscal 2028 (the “Term Loan Facility”), (ii) entered into a revolving facility credit 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 expiring in 2023 (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”), and (iii) used cash on hand to repay all amounts outstanding under AML’s revolving credit agreement with Mizuho Bank, Ltd. (the “AML Revolver”) and AML’s line of credit with Bank of Mitsubishi UFJ (the “AML Line of Credit”) and terminated all commitments thereunder. On November 25, 2020, we repaid $300.0 million of the outstanding $325.0 million Term Loan Facility using proceeds from our completed IPO. Refer to the “Debt Obligations” section below for additional information regarding our credit facilities. We are obligated to pay interest on the outstanding debt balances, and the principal outstanding is due in fiscal year 2028. As expected with our IPO, we experienced a significant increase in accounting, legal and professional fees and other costs associated with being a public company. However, we believe that our existing cash resources and our access to the capital markets will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next twelve months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to seek additional financing. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all. See “Risk Factors —Risks Related to Our Business and Industry—Our ability to raise capital in the future may be limited and could prevent us from executing our growth strategy.” Cash Flows from Operating, Investing and Financing Activities The following table summarizes our cash flows for the fiscal years ended 2022 and 2021: [[GREPCENT_TABLE]] [["","Fiscal Year Ended"],["","March 25, 2022","","March 26, 2021"],["","(dollars in thousands)"],["Net cash provided by operating activities","$","156,129","","","$","120,570"],["Net cash used in investing activities","(66,271)","","","(68,245)"],["Net cash used in financing activities","(5,307)","","","(72,186)"],["Effect of exchange rate changes on cash and cash equivalents","1,373","","","3,860"],["Net increase (decrease) in cash and cash equivalents and restricted cash","$","85,924","","","$","(16,001)"]] [[/GREPCENT_TABLE]] 70 Operating Activities Net cash provided by operating activities was $156.1 million in fiscal year 2022, resulting primarily from our net income of $119.6 million and non-cash charges of $89.9 million, partially offset by a net decrease in operating assets and liabilities of $53.3 million. Net changes in operating assets and liabilities consisted mostly of a $19.5 million increase in prepaid expenses and other assets, an $18.3 million increase in trade accounts receivable, net, a $4.5 million increase in inventories, a $4.3 million decrease in trade accounts payable, and a $3.4 million decrease in accrued expenses and other current and long-term liabilities. The increase in prepaid expenses and other assets was primarily due to higher long-term deposits and income taxes receivable, partially offset by lower prepayments of taxes, including VAT receivables. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year, as well as the timing of receipts. The increase in inventories was primarily a result of raw materials purchases and inventory builds to support anticipated sales growth in 2023. The decreases in trade accounts payable and accrued expenses and other current and long-term liabilities were primarily due to the release of deposits related to the sale of our AMTC Facility and the reduction of the balance due on the Voxtel acquisition, as well as the timing of payments of purchases. These decreases were partially offset by higher accrued personnel costs, particularly for management incentive bonuses, higher operating purchases, including unpaid capital expenditures of $2.0 million, and higher income taxes due. Net cash provided by operating activities was $120.6 million in fiscal year 2021, resulting primarily from our net income of $18.1 million and non-cash charges of $98.4 million, partially offset by a net increase in operating assets and liabilities of $4.0 million. Net changes in operating assets and liabilities consisted of a $15.1 million increase in trade accounts payable, a $14.8 million increase in accrued expenses and other current and long-term liabilities, a $7.6 million decrease in inventories, and a $4.9 million decrease in due from/to related parties, partially offset by increases of $29.0 million and $9.3 million in prepaid expenses and other assets and trade accounts receivable, net, respectively. The increase in trade accounts receivable, net was primarily a result of increased sales year-over-year. The increase in trade accounts payable and the increase in accrued expenses and other current and long-term liabilities was primarily the result of the deposits related to the sale of our AMTC facility, higher operating purchases, including unpaid capital expenditures of $3.2 million, and the timing of payments of purchases, partially offset by lower severance costs, income taxes and professional fees. The decrease in inventories was primarily a result of the drawdown after building inventory up to support anticipated sales growth in 2020. The decrease in due from/to related parties and the decrease in accounts receivable-other was primarily due to variations in the timing of such payments in the ordinary course of business. The increases in prepaid expenses and other assets and trade accounts receivable, net were primarily due to higher prepayments of taxes, including VAT receivables, insurance and contract costs, as well as the timing of receipts of trade accounts receivable. Investing Activities Net cash used in investing activities primarily consists of purchases of property, plant and equipment, partially offset by proceeds from sales of property, plant and equipment. Net cash used in investing activities was $66.3 million in fiscal year 2022, consisting of $69.9 million of purchases of property, plant and equipment, $14.5 million of cash expended for the acquisition of Voxtel and purchases of marketable securities of $9.2 million, partially offset by $27.4 million of cash received for the sale of the AMTC Facility. Net cash used in investing activities was $68.2 million in fiscal year 2021, consisting of $40.7 million of purchases of property, plant and equipment, $11.6 million of cash expended for the acquisition of Voxtel and $16.3 million of cash removed as a result of the PSL Divestiture, partially offset by $0.3 million of proceeds from sales of property, plant and equipment. Financing Activities Net cash used in financing activities was $5.3 million in fiscal year 2022, consisting of funds loaned to PSL of $7.5 million, partially offset by $2.2 million of proceeds received in connection with the issuance of common stock under the 2020 ESPP, net of payments for taxes related to the net settlement of equity awards. Net cash used in financing activities was $72.2 million in fiscal year 2021, consisting of $400.0 million of dividends paid prior to our IPO, $300.0 million for repayment of senior secured debt, $27.7 million of payments for taxes related to net share settlement of equity awards, and $33.0 million for repayment of unsecured credit facilities, partially offset by $315.7 million of borrowing of senior secured debt, net of deferred financing costs, $321.4 million of proceeds from our IPO, net of underwriting discounts and other offering costs, and a $51.4 million related party note receivable repayment. 71 Debt Obligations As of March 25, 2022, we had $25.0 million in aggregate principal amount of debt outstanding under our Senior Secured Credit Facilities. We entered into the Senior Secured Credit Facilities on September 30, 2020 consisting of a $325.0 million Term Loan Facility due in 2027 and a revolving facility credit agreement providing for a $50.0 million Revolving Credit Facility expiring in 2023. On November 25, 2020, we repaid $300.0 million of the outstanding Term Loan Facility principal balance. Description of Credit Facilities Term Loan Facility The Term Loan Facility bears interest at a rate per year of, at our option, either (i) the Base Rate (as defined in the credit agreement) plus an applicable margin from 2.75% to 3.00% depending on our net leverage ratio, or (ii) the Eurodollar Rate (as defined in the credit agreement) plus an applicable margin from 3.75% to 4.00% depending on our net leverage ratio. The Eurodollar Rate is subject to a floor of 0.50%. At March 25, 2022, all term loan borrowings were designated as Eurodollar loans and bore interest of 4.25%. We incurred deferred financing costs of $9.4 million in connection with the Term Loan Facility, the total of which was amortized into interest expense or recognized as loss on debt extinguishment as of March 26, 2021. The Term Loan Facility contains certain covenants that may, among other things and subject to certain exceptions, restrict the ability of us to: •create, incur, assume or suffer to exist any lien upon any of our property, assets, or revenue; •create, incur, or assume indebtedness; •merge, consolidate or amalgamate with or into any other entity; •purchase or otherwise acquire all or substantially all of the assets, liabilities or properties of any other entity; •sell, lease, transfer or otherwise dispose of all or substantially all of our assets or properties; •enter into transactions with affiliates; •pay dividends or make other distributions; or •change the nature of our business activities, our fiscal year, or our governing documents. Borrowings under the Term Loan Facility are secured by 100% of the stock of our domestic subsidiaries, portions of the stock of certain of our foreign subsidiaries, and substantially all of our and our subsidiaries’ other property and assets, in each case subject to various exceptions. We may be required to make mandatory prepayments of the Term Loan Facility if we have Excess Cash Flow (as defined in the credit agreement) if we make certain sales of assets outside the ordinary course of business, or if we suffer certain property loss events. We may make optional prepayments from time to time without premium or penalty. Revolving Credit Facility The Revolving Credit Facility bears interest at a rate per year of, at our option, the Base Rate plus 1.5%, the Cost of Funds Rate (as defined in the credit agreement) plus 2.5%, or the Eurodollar Rate plus 2.5%. In addition, commencing on the last business day of December 2020, we are required to pay, on a quarterly basis, a non-refundable commitment fee of 0.50% per year on the average daily unused commitments under the Revolving Credit Facility. We incurred financing costs of $0.3 million in connection with the Revolving Credit Facility, which we classified the related short-term and long-term portions within “Prepaid expenses and other current assets” and “Other assets” on our consolidated balance sheet, and are amortizing these costs over the term of the facility. The unamortized portion of the deferred financing costs associated with the Revolving Credit Facility was $0.1 million and $0.2 million at March 25, 2022 and March 26, 2021, respectively. The Revolving Credit Facility contains certain financial and non-financial covenants, including a maximum net leverage ratio applicable to the Revolving Credit Facility in the event that utilization exceeds 35% of the revolving loan commitment. 72 Borrowings under the Revolving Credit Facility are secured by 100% of the stock of our domestic subsidiaries, portions of the stock of certain of our foreign subsidiaries, and substantially all of our subsidiaries’ other property and assets, in each case subject to various exceptions. AMPI Credit Facilities On November 26, 2019, AMPI entered into a line of credit agreement with Union Bank of the Philippines, Inc. that provides for a maximum borrowing capacity of 60.0 million Philippine pesos (approximately $1.1 million) at the bank’s prevailing interest rate. While this line of credit initially expired on August 31, 2021 (in connection with certain delays as a result of the COVID-19 pandemic and its impact on bank operations), the line of credit was extended in September 2021 and is now expected to expire on August 21, 2022. There were no borrowings outstanding under this line of credit as of March 25, 2022 and March 26, 2021. On November 20, 2019, AMPI entered into a line of credit agreement with BDO Unibank that provides for a maximum borrowing capacity of 75.0 million Philippine pesos (approximately $1.4 million) at the bank’s prevailing interest rate. While this line of credit initially expired on June 30, 2021 (in connection with certain delays as a result of the COVID-19 pandemic and its impact on bank operations), the line of credit was extended in September 2021 and is now expected to expire on June 30, 2022. There were no borrowings outstanding under this line of credit as of March 25, 2022 and March 26, 2021. Recent Accounting Pronouncements Refer to Note 2, “Summary of Significant Accounting Policies” to the audited consolidated financial statements included elsewhere in this Annual Report for information regarding recent accounting pronouncements. Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate to useful lives of intangible assets, goodwill, stock-based compensation, and sales allowances. Such estimates could also relate to the net realizable value of inventory, accrued liabilities, and deferred tax valuation allowances. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates, and such differences may be material to our financial statements. We believe that the accounting policies described below require management’s most difficult, subjective or complex judgments. Judgments or uncertainties affecting the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. See Note 2, “Summary of Significant Accounting Policies” to the consolidated financial statements included elsewhere in this Annual Report for additional information regarding these and our other significant accounting policies. Revenue Recognition Revenue is recognized when transfer of control to the customer occurs in an amount reflecting the consideration that we expect to be entitled. Sales Allowances Sales allowances include sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. Such consideration primarily includes limited price protection provisions provided to distributors. We estimate potential future sales allowances based on historical data from prior sales adjustments. Historical experience can change over time. As a result, estimated sales allowances may differ significantly from that recorded in the current and historical periods. See Note 5, “Trade Accounts Receivable, net” to the consolidated financial statements for information regarding the change in sales allowances. 73