Allegro Microsystems (NASDAQ:ALGM) Q4 2026 Earnings Call

0:00 Good morning, and welcome to Allegro MicroSystems' fourth quarter and full fiscal year twenty twenty six earnings call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jolene Hoover, Vice President of Investor Relations and Corporate Communications. Thank you, Aliyah. Good morning and thank you for joining us today to discuss Allegro's fiscal fourth quarter and full fiscal year twenty twenty six results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Duke and Allegro's Chief Financial Officer, Derek Dantilio.

0:47 They will provide highlights of our business, review our fourth quarter and full fiscal year 2026 financial results and share our first quarter outlook. We will follow our prepared remarks with a Q and A session. Today's call includes remarks about future expectations, plans and prospects, which are forward looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements except as required by law. For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic filings with the SEC.

1:35 Additionally, we will refer to non GAAP financial measures during today's call. Today's earnings press release, which is available on the Investor Relations page of our website at www.allegromicro.com, contains important information about our non GAAP financial and also includes reconciliations of our non GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast and a replay will be available in the Events and Presentations section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and CEO, Mike Tuohs. Mike? Thank you very much, Deline, and good morning. Thank you all for joining our fourth quarter and full fiscal year twenty twenty six earnings call.

2:23 We finished fiscal year twenty twenty six with strong momentum, delivering a fifth consecutive quarter of sales growth at $243,000,000 Fourth quarter EPS was zero one seven dollars nearly tripling year over year. FY 'twenty six sales increased by 23% year over year to $890,000,000 and EPS more than doubled to $0.54 per share. This performance is a result of our team's dedicated execution of strategic initiatives discussed at our February Analyst Day. In automotive end markets, our focused auto sales, which includes XEV and ADAS, increased 30% in FY 'twenty six.

3:09 Content expansion and share gains drove this growth. FY 'twenty six growth included gains in steering and braking for ADAS applications, increased adoption of high voltage traction inverters, and ramping programs for VLDC motor drivers in XEV powertrain systems. As a result, total auto sales grew 17% in fiscal twenty twenty six, well above our SAAR plus 7% to 10% target, coming off an inventory digestion period. Industrial and other end markets led fourth quarter sales growth with data center up 41% sequentially to establish a new quarterly record at 14% of total sales. For fiscal twenty twenty six, industrial and other end markets grew 38%, led by data center and robotics and automation.

4:03 This is well above our high teens sales growth target for our industrial business. Our high efficiency motor drivers for three phase data center fans continue to gain traction. Historically, these fans cooled CPUs and GPUs, but have now expanded into power supplies and into network switching equipment. We're also seeing growing adoption of our high speed current sensors in power supplies, battery backup units, and capacitor backup units across the data center. Our data center content is not limited by unit volume growth. We are seeing strong growth as a result of our expanding product portfolio and the adoption of new high voltage data center architectures.

4:49 As AI racks move from 15 kilowatt to one megawatt of power consumption, Allegro's content scales with power per rack. Because we solve the thermal and sensing challenges that come with extreme power density, our content opportunity correct scales from approximately 150 in today's servers to over $425 in next generation AI configurations. I'd like to share a few highlights from my trip to Asia last month, where I met with our top data center customers in Taiwan and Vietnam. Three things stood out. First, customers expect data center fan volumes to grow for the foreseeable future, even as liquid cooling is adopted.

5:35 Continued growth is driven by fan proliferation into power supplies and into network switching equipment, which use a large number of fans and are rarely liquid cooled. Second, design win activity for our current sensors in power supplies and backup systems is large and growing. Both hall and TMR current sensors are shipping or will soon ship across multiple hyperscaler platforms in AC to DC, PFC, and DC to DC power stages. Current sensors for data centers are emerging as a meaningful new growth pillar, and we expect this to be an area of significant growth over the next several years. And finally, we're seeing significant design in progress for high voltage gate drivers and data center power supplies.

6:26 In addition to data center's record performance, robotics and automation sales doubled year over year in fiscal twenty twenty six, we saw increasing adoption of our sensors in factory and building automation applications during the year, along with growing engagement and design wins with humanoid robotics customers. For example, we secured two design wins with leading Chinese robotic companies for use in robotic joints during the quarter. In the first win, our current sensors were selected over local alternatives based on superior performance and our smaller package size. In the second win, our latest inductive sensor was selected in an approximate 90 IC per robot opportunity, where small form factor, high precision motor control capability, and our local coil design expertise were decisive factors.

7:21 Initial shipments will begin in calendar twenty twenty six with volumes expected to increase in 2027. Now turning to design win and backlog momentum. Our fiscal 'twenty six design wins increased more than 30% year over year. Focus auto, including XEV and ADAS, led automotive design win activity with powertrain agnostic safety, comfort and convenience also achieving strong results. Data center led industrial design wins for the full year. In addition, we exited the year with total company backlog sitting at a multi year high. These metrics give us confidence in our forward looking momentum. Our R and D investments are guided by our core value, innovation with purpose, which drives differentiated sensor and power technology.

8:13 Great pride in holding the number one position in magnetic sensing, reflecting our broadest portfolio and our leading performance in the market. Allegro's magnetic current sensors enhance our technology and market leadership positions in output accuracy, bandwidth, and power density. To illustrate this leadership, I'll share some recent examples. In Q4, our 10 megahertz TMR current sensor was named EDN's twenty twenty five sensor product of the year. As the industry's first 10 megahertz TMR IC, it offers the highest bandwidth solution available today, enabling the high speed control required for next generation gallium nitride and silicon carbide power systems across XEV, data center, and robotics applications.

9:03 We also expanded our sensor portfolio during the quarter with the release of an ASIL D passive TMR angle sensor. This IC delivers the fail safe reliability essential for the industry's transition to steer by wire ADAS systems. Those systems support Allegro's two to 3x content uplift compared to conventional steering systems. One of our more differentiated and fastest growing technologies in magnetic sensing is CMR. We expect TMR to extend our leading magnetic sensing position. During fiscal twenty twenty six, TMR represented approximately 30% of our sensor product releases, offering a superior accuracy, bandwidth, and low power consumption that our customers demand.

9:53 We are also expanding our lead in power ICs, which we expect to drive continued share gains. In fiscal twenty twenty six, we released our first isolated gate driver specifically designed for silicon carbide transistors and are seeing strong customer interest. Our power through architecture delivers up to 40% greater efficiency, and we expect to see a two to three x dollar content uplift from isolated gate drivers as customers move toward 800 volt XEV platforms and higher power AI architectures. This is a clear example of how our differentiated technology translates directly into content expansion and share gains. As we enter fiscal twenty twenty seven, we see demand trends that support continued growth and we remain confident in our ability to execute towards our target financial model.

10:47 I'll now turn the call over to Derek to provide additional color on our financial performance as well as our first quarter outlook. Thank you, Mike, and good morning, everyone. Starting with our fourth quarter results, sales were $243,000,000 and non GAAP earnings per share were $0.17 As a percentage of sales, gross margin was 50%, operating margin was 15.6% and adjusted EBITDA was 20.4%. Q4 sales increased by 6% sequentially and 26% year over year. Sales to our automotive customers were essentially flat sequentially at $164,000,000 including an expected decline in China due to the Chinese New Year.

11:38 Auto sales increased by 18% over Q4 of FY twenty twenty five. And focus auto sales, which include XEV and ADAS, increased by 25% versus Q4 of twenty twenty five. Industrial and other sales increased by 23% sequentially, dollars 79,000,000 and forty nine percent over Q4 of FY twenty twenty five, led by continued strength in data center to record levels. Sales to our data center customers were 14% of Q4 sales, up from 10% in Q3 and 8% in Q2. And as Mike discussed, we are seeing continued strength in data center demand as we move into fiscal twenty twenty seven.

12:27 From a product perspective, magnetic sensor sales increased by 2% sequentially to $141,000,000 and increased by 21% over the prior year quarter. Sales of our power products increased by 12% sequentially to $102,000,000 and 35% over the prior year quarter. Sales by geography on a ship to basis were as follows: 30% of sales in the rest of Asia 25% of sales in China 17% in Japan 15% of sales in Europe and 13% in The Americas. Now turning to Q4 profitability. Gross margin was 50%, up from 49.9% in Q3 and 45.6% in Q4 of fiscal twenty twenty five.

13:21 Operating expenses were $84,000,000 an increase of $5,000,000 sequentially, largely due to annual payroll tax resets and higher incentive compensation. Operating margin was 15.6% of sales compared to 15.4% in Q3 and an increase of six sixty basis points compared to 9% in Q4 of fiscal twenty twenty five. The effective tax rate for the quarter was 6%. Interest expense was $5,000,000 which included $650,000 of expenses related to the repricing of our term loan down another 25 basis points to SOFR plus 175 basis points.

14:07 The fourth quarter diluted share count was 187,000,000 shares, and net income was $32,000,000 or $0.17 per diluted share. Non GAAP EPS increased by 13% sequentially and 183% over a year ago quarter on sales increases of six percent and twenty six percent, demonstrating the significant operating leverage in our business model. Now turning to a summary of our full fiscal year twenty twenty six results. Total sales increased by 23% year over year to $890,000,000 Auto sales were $629,000,000 an increase of 17% compared to fiscal twenty twenty five, and were 71% of our total sales.

14:57 Focus auto sales, which is XEV and ADAS, were $349,000,000 an increase of 30% year over year and represented 55% of our auto sales. Industrial and other sales were $261,000,000 an increase of 38% year over year, led by data center, which more than quadrupled and represented 10% of our total FY twenty twenty six sales. From a geographical perspective, the rest of Asia and China sales led regional growth. Rest of Asia sales increased 44% year over year due to strength in data center and China sales grew 36% year over year led by growth in our Focus Auto. Gross margin for the full year was 49.4, an improvement of 140 basis points year over year.

15:52 Operating leverage and factory efficiencies helped to more than offset price and commodity cost increases. The cost of gold in particular was an approximately 200 basis point headwind in fiscal twenty twenty six. And as we move into FY 2027, our teams remain focused on our goal to cost of conversions, as well as other cost reduction and factory efficiency initiatives as we progress towards our gross margin targets. Operating margin was 14.1% of sales. Adjusted EBITDA for the year was 19.1% of sales. And earnings per share were $0.54 more than double prior year.

16:39 Moving to the balance sheet and cash flow. We ended Q4 with $175,000,000 of cash. Q4 cash flow from operations was $36,000,000 CapEx was $17,000,000 and free cash flow was $19,000,000 For the full year, free cash flow was a record $125,000,000 and we also made $60,000,000 in voluntary debt payments, bringing our total debt balance to $285,000,000 and net debt to $116,000,000 exiting the year. From a working capital perspective, fourth quarter DSO was thirty five days compared to 40 in Q3, and inventory days were one hundred and twenty eight days compared to one hundred and thirty three in Q3.

17:29 Finally, I'll turn to our Q1 fiscal twenty twenty seven outlook. We expect first quarter sales to be in the range of $245,000,000 to $255,000,000 The midpoint of this range equates to a 23% year over year increase. Additionally, we expect the following on a non GAAP basis. Gross margin to be between 5051%. Operating expenses are expected to decline sequentially to $80,000,000 plus or minus $2,000,000 Within that, we expect to continue to make strategic investments in R and D and sales to drive above market growth. And these are funded largely through continued reallocation of resources and process efficiencies.

18:20 Interest expense is projected to be $4,000,000 We expect our non GAAP tax rate to be approximately 9%. We estimate our weighted average diluted share count will be 187,000,000 shares. And as a result, we expect non GAAP EPS to be between $0.19 and $0.23 per share. Now I'll turn the call back over to Jolene for questions. Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our first fiscal quarter conference lineup with you. We will attend TD Cowen's fifty fourth Annual Technology Media and Telecom Conference in New York on May 27. Evercore's twenty twenty six GMT Global Technology Conference on June 2 in San Francisco.

19:10 Bank of America Securities twenty twenty six Global Technology Conference on June 3, also in San Francisco, and the Zoho Technology Conference twenty twenty six on June 9 in New York. We will now open the call for your questions. Aliyah, please review Q and A instructions. This time, we will conduct the question and answer session. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We ask that you limit to one question and to one follow-up. Our first question comes from the line of Gary Mobley of Loop Capital. Your line is now open.

19:57 Good morning, everybody. Thank you so much for taking my questions, and congrats on a nice finish to the year. Guys, I know you mentioned in your prepared remarks that backlog is at a multi year high. I'm hoping that maybe you can share some additional details in terms of what's changed in the past ninety days as far as revenue KPIs go, And then perhaps maybe drilling down by end market? Anything you can provide there would be helpful. Sure, thanks Gary. This is Mike. You know, in the last ninety days in the prepared remarks, I talked about a trip I took to visit data center customers. It gave me increasing confidence that we have a strong story there, especially as we see the current sensors ramping on top of continued strong demand in fan drivers. So we're feeling good about the industrial market as we look ahead.

20:51 In the automotive space, we're seeing good signs of strength, both in terms of the backlog, but also forward looking design wins. And at our Analyst Day, we talked a lot about the importance of our increasing dollar content story, and it's encouraging to see a preponderance of wins in our automotive area coming in those applications that have higher dollar content. So, those would be the two most notable trends. Okay, And Derek, know in the past you've communicated that the gross profit drop through, you know, over the long term should range between $6.00 and $0.65 It looks like what's embedded in the Q1 guide is something about that, maybe $0.67 So, you know, perhaps maybe you can share with us the drop through you expect for the year and perhaps some additional detail by quarter as some seasonal factors might play into the expense equation.

21:49 Sure. And as you can see in the numbers, the Q4 drop through is in the low 50s. And that typically happens as our annual price negotiations with customers happen in that March quarter. So the revenue declines in that quarter for those price negotiations. And even though we negotiate potential cost declines in certain areas, whether it be wafers, rosettes or those sort of things, that takes a quarter or two to cycle through inventory. So we see some of that benefit going into our first quarter with a drop is actually closer to 70% in the first quarter with the guide of 50% to 51%. I also mentioned on the call that we have had some significant headwinds from particularly commodity costs and recently fuel costs. And I might get the question of what are we going to do with prices.

22:34 We are doing select price increases, but it's very nuanced. That didn't start in Q4. That will start at the end of Q1. And what we, of course, always look to do is offset any sort of cost increases we have with factory efficiencies, with improvements with our vendors. And we did a lot of that in 2026. We improved our gross margin by 140 basis points, even with the annual price declines, even with the cost headwinds. We'll continue to do that as we go into 2027 and look to do select price increases as we move throughout the year. Thank you. Thank you. Our next question comes from Quinn Bolton of Needham And Company. Your line is now open. Hey, this is Neil Young on for Quinn Bolton. Thanks for letting us ask some questions.

23:25 So, data center grew pretty strongly quarter over quarter. As you look into fiscal year twenty seven, can you help us think about the or help us think through the durability of that growth? And specifically how much of the forward pipeline is still fan driver driven versus the newer, you know, current sensor and isolated gate driver opportunities? And then I have a follow-up. Thank you. Sure, this is Mike. And, you know, when we look at the data center business, we see very durable demand. You know, in the call last quarter, there was some back and forth about what is the right growth rate for the business on a long term basis. And we look at that growth rate for our data center business coming in well north of 20% on a long term basis. As we look ahead in FY '27, we believe our growth rate will come in well above 20%.

24:15 We're not going to forward guide with specific numbers, but we do see strength for data center coming into FY '27. Back to the question on the mix, the majority of our business is still with the fan drivers, and that's a good story. It's a good story because, as I mentioned in the prepared remarks, the fans are starting to appear in new locations within the data center build outs, most notably power supplies. So that business continues to grow and remain strong. On top of that, current sensors in these power supplies, that business started to ramp in FY twenty six, and we believe it will ramp even more strongly in FY twenty seven. The isolated gate driver business is still eighteen to twenty four months out from having material revenue in the data center, but we're encouraged by design and activity that's happening now.

25:11 And this is Derek, to add one piece of context, Current sensors entering FY20, zero part of that data center business. In Q3, it was about 10%. In Q4, it got closer to that 20% of our data center business. Great, thanks. And then, you got it June quarter gross margin of 50 to 51 range. Well, you know, the longer term model still is targeting that over 55%. Could you maybe walk us through the biggest drivers of that bridge from here, you know, whether it be op leverage, factory efficiency, mix, new products, etcetera? And which one of those are most controllable versus volume dependent? Thanks. Sure. The three pieces of that really are operating leverage.

25:57 And so when you look at our model, as Gary pointed out, we're going to grow at about 70% drop through in the Q1. And that always happens that quarter. But the typical drop through is between 60% to 65%. That's our variable contribution margin. So as we put more volume through our back end facility in The Philippines and the fixed cost grow and inflation, you get a significant amount of leverage. So if you plug in your revenue numbers like we have at our Analyst Day, that's the biggest driver of overall gross margin going forward. The second biggest piece though is improving that variable contribution margin. And we talked about this gold to copper conversion program that's ongoing. It's not going to happen all in one quarter. There's customer qualifications that are required. So it will happen over time. But that was a 200 basis point headwind in FY 2026 alone. So as we move through that program, that's a significant uplift in addition to negotiating cost savings with our wafer suppliers and others, especially as we get through these geopolitical times right here. Those are the two biggest pieces. And those are the pieces the second piece is clearly controllable by us. The first piece is market dependent, which we see good things happening right now. And the third level, which is not insignificant, is continued factory efficiencies.

27:05 And within FY '26, again, we were able to offset 200 basis points of gold headwinds and still improve our gross margin just through factory efficiencies. And we'll continue to do those things going forward. Thank you. Our next question comes from Joe Quatrochi of Wells Fargo. Your line is now open. Yeah, thanks for taking the question. Maybe first, just to start, can kind of walk through the puts and takes of Focus Auto for the March quarter? I think that was kind of flattish sequentially.

27:51 And then how do you think about that, you know, kind of accelerating or where could that go in fiscal 'twenty seven? Yeah, thanks, Joe. This is Mike. So, Focus Auto, you know, the way I look at it, it was up roughly 30% year over year in FY 'twenty So it's demonstrating strength on the annualized basis of FY26. And I think we'll see something similar in FY27. And the reason for that goes back to what I mentioned just a few minutes ago. When we look at our design wins, they're happening, do we have share gains? We get a very positive story in our focused auto segment, and that we do see strong share gains. We do see significant wins in these areas with expanding dollar content. So we remain positive on the future of focused auto. And we remain positive on our ability to outgrow auto production by SAR plus 7% to 10% because of our strong story between share gains and dollar content gains.

28:51 And Joe, a little specificity on Q4. The reason why Focus Auto was flat to down a little bit was largely China. We have a large business in China on the Focus Auto that continues to grow. In fact, our design wins were led by China ADAS applications. So that's encouraging for the future. And within that, we're expecting focused auto and auto to be up in Q1 a couple of percentage points. And then Q1 will be led by data center on the industrial side, as you might imagine. Yes, that's helpful color. And maybe just on the industrial side, I think maybe ex data center, that was actually pretty strong sequentially. What's driving that? Is it I assume robotics is still maybe a little bit small, but any help there in just kind of what's driving non data center industrial? Yeah, in our category of robotics and industrial automation, it's not large, but I wouldn't necessarily characterize it as small either. So, we saw some meaningful movement there on the factory automation side of things.

29:50 We're not talking about certainly humanoid robots, but there are a lot of robotic systems in factories, product, moving equipment, etcetera. And we're seeing strength there. Additionally, we're seeing strength in energy infrastructure. I think there's some pull through there, perhaps because of data center build outs. And we see continued strength in the two wheeler market as well, two wheel transportation. Thank you. Thank you. Our next question comes from Timothy Arcuri of UBS. Your line is now open. Thanks a lot. Derek, I wanted to ask also on data center and what's being assumed for the guidance in June? Because if it grows in the same I mean, grew 40 in December, it grew 40 in March. If it grows 40 in June, then the rest of business is down like 3% to 4%, and the rest of industrial is down like mid teens, which doesn't seem to make a lot of sense. So maybe data centers assume to slow down on a sequential basis in June. Can you kind of go into that?

30:57 Yeah, Joe. So you could look, data center was 14% of our total sales in Q4. You could increase that by a couple of percentage points, two or three percentage points. So in Q1, it'll be 16%, 17% of our total sales, which implies 20% to 25% growth in the data center. And I wouldn't call it a slowdown. It's the large numbers, right? And so if you take 20% to 25% a quarter, that's still a pretty significant growth rate. Remember in FY 2026, entering the year data center was still 2% or 3% of our sales as we had a real rebound in fans and then the current census the last couple of quarters. Okay, got it. Thanks, Derek. And then, so it seems like mature node foundry is getting pretty tight. You have two of your three major foundries there. Are you seeing cost pressure? You did cite gold pressure from gold.

31:49 Some of it lightweight for pricing pressure as well? And can you sort of talk about you know, you did talk about maybe raising prices a little bit to kind of pass that on. Can you just talk about the foundry cost? Thanks. Yeah. So Joe, I think we've done a pretty good job and our foundry partners have been really good at working with us. So that's not the biggest headwind we have necessarily right now. I think they've been really good partners. The biggest headwind happens to be gold and then more recently fuel charges for freight and also in our Philippines facility. To touch on the pricing increases, it's not the first place we go. It's not a cost plus type of situation. We work with these customers we've worked with for years on finding efficiencies. And of course, some of those things from gold to copper on the wires. That's the first place. We will do select price increases that will begin here at the end of Q1.

32:37 Some of that is surcharges related to those two costs that I mentioned. All right. Thank you, Derek. Thank you. Our next question is from Vijay Rakesh from Mizuho. Your line is now open. Yeah. Hi, Mike and Eric. Thanks. Just a quick question on the data center side again. Looks like if you quadrupled for this fiscal, your content is going up and going up four x. Just wondering sorry, from 150 to $4.25, I guess. As you look at fiscal 'twenty fiscal 'twenty seven, 'twenty eight, any thoughts on how the data center side should And are you going to be breaking it out every quarter?

33:23 Thanks. Yeah, Vijay, so this is Mike. You know, as I mentioned, we look at the long term data center growth rate north of 20%. And what we really see as you go through that evolution of dollar content, it's really driven by architectures and the on ramp of new technologies in the data center, Whether it be 800 volt architectures, etcetera. So, for our current sensors, Derek mentioned, we saw a nice ramp in FY twenty six. That will be the next step up for us. And the speed with which they ramp is somewhat correlated to the different architectures that are adopted and when and with what market share. But we see nothing but positivity there. Like I said, we expect FY twenty seven to be well above a 20% growth rate.

34:13 And we're seeing very positive signs right now from customers and from the architectural evolutions happening out there that seem to benefit Allegro. Got it. And in terms of the auto side, are you seeing any memory constraints affecting that in the second half or into '27? That's it. Thank you. Yes, this is Mike. I'll take that one. Our customers all seem concerned, but when we see it is when somehow orders are impacted, and we are not seeing that. We are seeing no impact of material shortages on our orders. So I know it's tight out there, but it's not really impacting our business at this point, at least as far as we can tell. Got it. Thank you.

35:00 Thank you. Our next question comes from Tom O'Malley of Barclays. Your line is now open. Matti Pan on for Tom. Just curious, one of the other analog players of high auto exposures sort of guiding to auto sequential growth in June, pretty well above historic seasonality. Sort of looking at like your guys' historic seasonality in March or sorry, in June, I know you talked about sort of up a couple of points for auto in June. Is there any reason you shouldn't be growing above seasonality there? No. I mean, our guide total for the March quarter is up about 3% at the midpoint. The range is obviously a little bit higher than that, the high end of that.

35:46 And within that auto grows a couple of percentage points as China comes back. And then we're also shipping a significant amount of our products, as we talked about, into industrial and data center. To be honest, we have a little bit of delinquency that we're starting to build in certain pockets in both auto in industrial that we're putting some capacity in the back end in The Philippines. As you saw, 17,000,000 in CapEx in Q4. So that will help with capacity to facilitate both of those. Got it. And just a follow-up on, you know, we're hearing more about China EVs for exports. How impactful is this to you? And is your content any different on exports? Yeah, this is Mike. I'll take that one. We remain confident in our China business overall.

36:33 Certainly, China is the largest automotive market in the world, and we're having good success with China OEMs. I would say from a dollar content perspective, we feel positive about the dollar content we're establishing by OEM in the Chinese OEM landscape. So, as those cars may now become export Models into the world, we have good dollar content in those cars and we view that as. A good to neutral thing, we have no concern about Chinese cars selling at higher levels relative to a dollar content. Thank you. Our next question comes from the line of Joshua Buchalter of P. D. Cohen.

37:18 Your line is now open. Hey, guys, thank you for taking my questions. To start, maybe we could could you provide an update on what you're seeing in the auto backdrop, specifically on inventories? Like, still safe to assume that we're not seeing any meaningful signs of restocking, but that you're comfortable that inventory levels are low? And then should I guess, if indeed inventories are at healthy levels, any reason we shouldn't be modeling the 7% to 10% plus SAR for this fiscal year as we see it right now? Thank you. Hey, Josh, this is Mike. So, we still see somewhat thin inventory levels in automotive. We see no clear signs of restocking, at least not at a broad level. So, that's the environment that we're in right now. And, you know, when we look to the future, as I mentioned earlier, with share gains with the dollar we have, we certainly model what we look ahead at SAR plus 7% to 10, and that's probably the best model to put forth at this point.

38:23 Okay, thank you. And then on the data center side, obviously, CPUs have gotten a lot of renewed attention recently. Is it safe to assume that most of your cooling fan exposure is on the CPU side? Or maybe you can just help us with the CPU versus accelerated servers exposure as we think about your current sensing and the PMIC side of the house in data center? Thank you. Sure, Josh. Yeah, I actually did a bit of digging on my trip with customers to just actually model out as cooling is adopted to cool GPUs, CPUs, etcetera. What does that really do to fan demand? And our top customers painted a picture where because of the enormous number of power supplies going into the architectures and the fact that there are fans in those power supplies, they still see a story of growth for fan drivers in the data center, even as liquid cooling is adopted.

39:24 Now to be clear, fans that were cooling GPUs and TPUs will go to liquid cooling. That is a fact. But the proliferation of fans into the power supplies is significant and it seems that it more than overcomes the loss of fans when GPUs are liquid cool. Thanks Mike. Thank you. At this time, I'm showing no further questions in the queue. I would now like to hand it back to Jolene for closing remarks. Thank you, Aliyah. This concludes today's call. Thanks to all of you for taking the time to join us this morning. We look forward to seeing you at various investor events over the coming weeks. Thank you for your participation in today's conference.

40:12 This does conclude the program. You may now disconnect.