Allegro MicroSystems, Inc. (ALGM) Q3 2022 Earnings Report, Transcript and Summary

0:01 Good day and thank you for standing by. Welcome to the Allegro MicroSystems Q3 Fiscal 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. 0:29 I would now like to hand the conference over to your speaker today, Ms. Katie Blye. Ms. Blye, the floor is yours.

0:36 Good morning and thank you for joining us today for Allegro's third quarter results for fiscal year 2022. I'm joined today by Allegro's President and Chief Executive Officer, Ravi Vig; and Allegro's Chief Financial Officer, Derek D’Antilio. We will review our quarterly financial performance and provide a summary of our outlook. Our earnings release and the accompanying financial tables are available on the Investor Relations page of our website. This call is being webcasted and a recording will be available on our IR page shortly. 1:06 Please note that comments made during this conference call will be forward-looking statements as defined by federal securities laws. These forward-looking statements include projections and other statements about future events that are based on current expectations and assumptions and as a result, are subject to risks and uncertainties that could cause actual results to vary materially from our projections. 1:26 Please refer to the earnings press release we issued today, and other documents filed by us with the SEC, including the risk factors discussed in detail in our most recent 10-K filed on May 19, 2021. The company assumes no obligation to update any forward-looking information presented. The non-GAAP financial measures that are discussed today are not intended to replace or be a substitute for the presentation of Allegro's GAAP financial results and may be calculated differently than similar measures used by other companies. 1:56 We're providing this supplemental information because it may enable investors to make meaningful comparisons the core operating results and more clearly highlight the results of our core ongoing operations. A reconciliation of GAAP to non-GAAP financial measures referenced during today's call can be found in our earnings press release, which has been posted to our IR page. 2:16 I'll now turn the call over to Allegro's President and CEO, Ravi Vig. Ravi?

2:21 Thank you, Katie, and good morning, everyone. Q3 was story of great products, accelerating design wins and strong financial performance. Demand from our customers remains very strong, especially in our target automotive and industrial markets. We continue to benefit from multiple tailwinds, including alignment to high-growth applications, automotive content expansion, and design win momentum. Our Q3 design wins in emerging growth markets and xEV, ADAS and industry 4.0 and data center are up nearly 100% on a rolling four quarter basis with total design wins of roughly 25%. The momentum and make up the wins in these areas support the better than industry growth in our long-term target revenue model. 3:10 Now turning to Q3 results. In fiscal Q3, we overcame the COVID related disruptions they described last quarter and revenue was up 13% year-over-year to $186.6 million. We expect to be back on track to prior revenue run rate in Q4 margin expansion again exceeded the high-end of our guidance with non-GAAP gross margins at 54.8% and we continue to make progress towards 55% target. This year shaping up to be one for the record [Indiscernible]. 3:47 Now, most of you saw our announcement a few weeks ago that Paul Walsh is retiring after a long and successful career in this industry. I want to take this opportunity to thank Paul again, particularly for being a partner to our strategic transformation and subsequent IPO. I fully support his decision and wish him the best. 4:07 Today I'm pleased to introduce you to Derek D’Antilio, our new Chief Financial Officer. Derek joined Allegro in January, with decades of Broad Financial and Operating experience in Sanlitun (ph) High Tech. We are glad to have Derek on board. He's an accomplished CFO with a strong business acumen and the financial expertise to continue with Paul laptop. And he's already hitting the timeline. 4:35 Now I'll turn the call over to Derek, he will provide you with more color on the financials and then I'll share more details on the business and our outlook. Derek? Derek D’Antilio: 4:43 Thank you Ravi and good morning everyone. First let me say I'm very excited to be part of the Allegro team and after my first few weeks with the company, I'm very encouraged about the prospects for the business. From what I've seen Allegro is well-positioned within high-growth markets and the company has made great financial progress. In Q3, Allegro delivered another quarter of solid financial results, revenue gross margin and earnings per share all exceeded our guidance. Customer backlog remains strong across all of us sort of dead markets and regions and backlog continue to climb, sitting at historic levels. Last quarter, the company expected that business would be impacted by COVID-19 related supply disruptions at assembly partners in Malaysia. 5:26 I am pleased to report that our increasingly diversified supply chain enabled us to recover supply more quickly than anticipated, and revenue for the quarter was $186.6 million, an increase of 13% over the same quarter one year ago and down 4% sequentially. Our sales marketing supply chain and operations teams have all done a remarkable job supporting our customers, particularly in automotive. As a result of their efforts in Q3, our automotive revenue grew 4% sequentially to $130.8 million, representing 70% of our revenue. We continue to see strong growth in our xEV and ADAS businesses, which represented roughly 37% of our automotive revenue in the quarter. 6:12 Our industrial revenue was $31.9 million, representing 17% of revenue in the quarter. Industrial revenue declined 12% sequentially in with supply constrained. Our industrial customer demand remains very strong with backlog at record levels. Other revenue was $23.9 million in represented 13% of revenue in the quarter, declining 23% sequentially. A sequential decline was anticipated based upon supply constraints and we expect that other revenue will stabilize over the coming quarters. 6:48 Once again no single-end customer represented more than 10% of our revenue in the quarter. Customer orders continue to outpace supply in the quarter and our technology and operation teams have been working diligently to secure additional capacity. Our TSMC ramp is well underway, and we expect our TSMC wafer receipts to double this quarter on track to plan. We are also in the process of securing long-term capacity with our foundry partners to enable over a year growth and we continue to bring on additional sources of back end capacity to give us enhanced flexibility. We are pleased with the progress we've made on both of these fronts. 7:27 We also continue to make meaningful progress towards the target financial model. In Q3 GAAP gross margin was 54.2% a recent record. Gross margin continued to benefit from multiple factors including structural improvements, good cost controls and in advantageous product mix. After excluding $0.7 million for stock-based compensation expense, and $0.4 million of other charges non-GAAP gross margin was 54.8%, up 100 basis points sequentially in more than 500 basis points compared to the same quarter just one-year ago. 8:04 We remain on track to meet our non-GAAP gross margin target of 55%. GAAP operating expenses were $65.6 million. GAAP R&D expense was $30.3 million and GAAP SG&A expense was $38 million. Total non-GAAP expenses, Operating expenses in Q3 were $59.2 million, compared to $57.5 million in Q2 and with 31.7% of revenue. Operating expenses in the quarter included higher variable compensation of about point $0.9 million above last quarters run rate and continued investments in research and development. 8:45 Non-GAAP adjustments include stock-based compensation of $6.9 million and $2.1 million of other charges offset by $2.7 million gain from an adjustment of a contingent consideration liability. 8:59 Non-GAAP R&D expenses were $29.3 million and non-GAAP SG&A expense was $30 million. We expect non GAAP expenses to be up modestly in the fourth quarter. Third quarter GAAP operating income was $35.6 million or 19.1% of sales and non-GAAP operating income was $43.1 million or 23.1% of sales. GAAP net income was $33 million for the quarter with an effective tax rate of 16%. The Q3 diluted share count was $192.1 million shares and GAAP earnings per diluted share was $0.17. 9:42 Non-GAAP net income was $36.1 million, or 19.3% of revenue. The Q3 non-GAAP effective tax rate was 15.9% and we expect that to be about 16% in the fourth quarter. Our non-GAAP earnings per diluted share was $0.19, exceeding our guidance by about 5.5%. We also continue to strengthen our balance sheet in the quarter. Cash and cash equivalents in Q3 increased by $11 million over Q2 to $267 million. We generated $46.7 million in operating cash flow in the quarter, a sequential increase of $15.3 million. Accounts receivable balances were $107.4 million, and we ended the quarter with DSO of 52 days within our target range. 10:30 Net inventory rose marginally to end the quarter at $79 million. An increase of about $0.8 million. Days in inventory were 83, compared to 77 in Q2 still below our target of about 100 to 110 days. In addition, inventory in the channel remains at historically low levels. In summary, demand remains very strong, backlog is at historically high levels, and we continue to make very meaningful progress toward our target financial model. 11:01 Now we'll turn the call back over to Ravi for additional commentary on the business and our outlook for the fourth quarter.

11:07 Thank you, Derek. Revenue in Q3 reflected year-over-year spreads across our strategic product lines and end markets. We continue to benefit from multiple tailwinds including audible content expansion, designed with momentum and fast growing end markets. Fuelling these tailwinds is the alignment of our R&D pipeline, but emerging growth markets, which was a key part of our strategic transformation. Our investments in xMR and embedded motion control by yielding innovations that are giving us a competitive advantage and we are seeing this translate into market share gains. 11:44 The result is accelerating new product revenue that we believe, we will have a positive impact on both the top and bottom line. Here are three examples from last quarter that offer great proof points of a technical leadership. First, our back biased GMR solutions continue to take share from competitors, particularly in xEV, where a technology enabled significant efficiency gains. We expanded our share in transmission speed sensors at 10, transmission assignments in the quarter. 12:18 Second, [Indiscernible] we secured 25 new steering and braking design wins including the center motor driver at 12:26 [Indiscernible] socket and the next generation steering systems for the market leader in EVs. Third, we expanded up family of 3D position sensors to include a tiny 3D IC for both low and high speed motor position applications with initial designments in areas such as E-bikes, factory robotics and automotive wipers, it's an incredibly versatile chip and well-aligned with our strategy to expand our channel sales and grow up broad-market industrial business. 12:58 Moving to end-market in Q3, automotive revenue was up 15% year-over-year and $130.8 million. We have another record quarter for xEV powertrain revenue, our revenue is up roughly 60% of xEV on a rolling four quarter basis. This compares favorably to xEV current production growth of 49% over that period, supporting the content momentum we have in this growing market. And we believe our result would have been even stronger, were it not for the Malaysia supply chain challenges we face in the quarter. 13:38 Looking ahead xEV comp reductions (ph) forecasted to grow at a 32% CAGR from 2021 to 2025. On top of that growth, we estimate xEV also has 60% more content opportunity than internal combustion vehicles. We win with ours electrified and we believe we're in a good position to take advantage of this secular growth trend. We also continue to see acceleration in the adoption of level one plus ADAS systems and advanced gearing and breaking. 14:11 Last quarter, we launched our first end market high resolution TMR real speed sensor, which is a key enabler of level three plus automation and passenger vehicles. We're also increasing our braking system context across our product portfolio. Last quarter, we secured a significant design win with a market leading Tier 1 supplier in Europe using our 3D position sensors in an ADAS level three plus ready brake by wire solution that is modularized cross vehicle platforms. We continue to win with ADAS adoption, and we believe that uniquely positioned with a broad range of solutions for these ADAS level one plus rating systems. 14:55 As you know, are in line with the secular growth trends extends beyond automotive into the industrial and infrastructure market. In Q3, our industrial business was up 35% year-over-year to $31.9 million. We saw strong earlier results in many major categories like robotics, green energy and EV charging infrastructure. In these areas, as well as data center, we saw revenue doubled year-over-year, the strong growth was offset by a falls in a broad-based industrial revenue stemming from supply constraints. Demand is quite healthy and at record levels across industrial business and we expected to return to grow in Q4, ending FY22 with strong double-digit growth for the year. 15:45 Looking to FY23 and beyond, we expect one of our strongest industrial growth drivers to be data center. Reasons new design with a data center are layering on top of the long-term agreements we discussed last quarter. Positioning us both strong sustained growth in the key market. The growth has been driven not just by data center build outs to support hyperscalers (ph) and 5G but also by preface fastened versions and existing service stacks with the economics of conversion both in efficiency gains and an audible noise safety are incredibly favorable. 16:20 Looking ahead, Q4 is playing out the exactly as we framed the last quarter. We anticipate a return to sequential growth, with revenue in the range of $193 million to $197 million to end fiscal ‘22 of approximately 29% year-over-year. For Q4, we expect both automotive and industrial to be off sequentially and other will be flat to down. We expect non-GAAP gross margin to be in the range of 54 to 55%. We anticipate non-GAAP earnings per share will be in the range of $0.20 to $0.21. 17:00 Looking ahead. I believe the acceleration with senior strategic markets is a strong indicator of competitive differentiation. We have a strong innovation pipeline and we're in the fleet spot of the convergence of growth trends in automotive, green energy, industry 4.0 and data center. We believe Allegro is a secular growth story and expect that technology content and marketer expansion will be key enabler, so better than industry growth. 17:28 With that, I'll turn the call back over to Katie.

17:32 Thanks, Ravi. That concludes our prepared remarks. Now we'll open the call for questions. Operators, can you please review the question-and-answer instructions with our participants.

17:40 Yes. Thank you. [Operator Instructions] And our first question comes from Gary Mobley of Wells Fargo. Your line is open.

18:04 Good morning, everybody. Welcome to the earnings call Derek and, Paul, wish you the best in the next chapter. I want to start out by asking about some of the supply constraints that you spoke of, perhaps impacting your outlook for the fourth fiscal quarter. I'm wondering if you can break out the contribution of those supply constraints between those factors that may be specific to kitting in your customers supply chain and what may be specific to your own internal supply constrained considerations such as back contestant assembly?

18:42 Yes. Just to clarify the supply constraints that we have in that affected our fiscal Q3 revenues were all specifically associated with COVID related impacts in Malaysia. At this point, we have a general industry continue – with a general industry wide supply demand imbalance, including wafer supply, backhands supply as capacity that we continue to balance with our – to our growth projections. So we continue to ramp capacity has been stated that our PSMC wafer receipts double, quarter over quarter, which gives us great momentum on the wafer firm. We have secured the long-term agreements and capacity with back end suppliers, and we also continue to bring on alternate sources to further increase our capacity. 19:42 So at this point, we continue for our momentum on growth. But clearly due to a design lens and a strong tailwinds of the target market, demand will continue to exceed supply in the near future.

19:57 Gotcha. Gotcha. I think previously, you were counting on your gross margin exiting in fiscal year ‘22 to be roughly 55%. Your guidance is simply a rounding there to – or rounding issue to get you to that point. But how do you view the achievement of 55% gross margin in the context of fiscal year ‘23? And double clicking on that? Would you expect it to be driven more so by your production mix that your three different front end fab options? Or would you expect it to be driven more so by overall product mix in ASP tailwinds? Derek D’Antilio: 20:39 Hi, Gary. This is Derek, thank you. I believe the company has said that the 55% is more about longer-term gross margin targeting fiscal ‘24. But you're right, in Q3, we had a great gross margin quarter and really what drove that was sort of two travel macro trends. One is the structural improvements you've seen over the last couple of years here at Allegro, which gross margins are 500 basis points over one-year as a result of those structural improvements. And we're really seeing a lot of the benefit from that. 21:10 The second piece really is the shift a little bit in the mix towards the higher feature content products that Ravi talked about, xEV and ADAS. So there's sort of two macro trends, really driving that. But in the near-term, as we've said here, we expect gross margins to be between 54% and 55%.

21:27 Okay, appreciate it. I'll hop back in the queue. Thank you, guys.

21:34 Thank you. Our next question comes from Vijay Rakesh of Mizuho. Your line is open.

21:43 Yes. Hi, guys. Congratulations on a great quarter and congratulations, Paul and Derek. I had a quick question on the design wins. I know you talked about design wins being up 100% as you look here, but just running how investors should think about revenue conversion, especially, these are pretty strong growth segments with xEV and ADAS and data center, etc. But how do you think through how that should translate to the revenue pipeline from the design wins? Thanks.

22:15 Yes. Our designed wins when we claim them, our projects that are one and grant awarded to us qualify that our customers as well as awarded to us by the customers purchasing organizations. So, for all practical purposes, they're – they're – they have a reasonable degree of assurance that they will convert to revenue. They, we continue to provide this data to show the momentum of the company and, but it doesn't replace our revenue guidance that we provide.

22:49 Got it. And I know you talked about auto industrial up sequentially into the March quarter. So good to see that. But you also talked about some constraints in the supply chain side and industrial. If you can guess what they are? How are you seeing that alleviate? When do you see it alleviate? That's it. Thanks.

23:15 Yeah, so when we start looking at the market in general, again, our business is really feel by the design wins that we have that are driving up our production win conversions, if you want to call it that, as well as the key sectors that were working in the cap rate, tailwinds xEV, ADAS as well as the broad industrial and data center. So when we look at all of this, we see that despite the increases in capacity that we continuously generate and an offer into the market. The demand levels that we experienced, still continue to exceed supply. And I think they will continue to exceed supply in the near future. Thanks.

24:09 Great. Thanks a lot, Ravi.

24:13 Thank you. Our next question comes from Quinn Bolton of Needham. Your line is open.

24:20 Congratulations on the nice results and outlook and welcome Derek. Ravi, just wanted to start with sort of a bigger picture. I think, in past conference calls. You guys have talked about your confidence and growing sort of by a load (ph), maybe mid-teen double digit rate in fiscal ‘23. As you look into calendar ’22, auto production versus content gains, can you give us a sense, what do you think, what do you – what are you sort of baking in in terms of unit production increases in calendar ‘22 or fiscal ‘23 versus your expectations for continued content gains, and then I've got a follow up.

24:58 Yeah, we have seen the market data from an independent projections of car production. But we remain cautious in terms of the car production numbers that are currently being forecasted. We do see that the supply demand challenges that exist today in automotive, we will continue to have an impact, I think early data year-to-date from external sources has already indicated that there is a soft and that there is an impact of car production at this point due to semiconductor availability. So our mid-teens guidance – low-to-mid teens guidance definitely have provided is really a factors in some cautiousness in terms of the industry car production. We will continue to review this as the year goes on and as supply continues to come into play. We'll, we'll relook at our estimates.

26:01 So for [Indiscernible] revenue is it – is it safe to assume you think it's probably more skewed to content gains with take – sent vehicle production comes in, it's forecast that could be a tailwind to the business.

26:14 I mean, our business is really a SAAR (ph) plus 5% to 10% range number, this is something that we provided to the market over the course of the last 12 months. And we expected that to continue in that direction and we also look at, we do not forget that our industrial business and our other business is 35% of our overall business that also has great tailwind. So, we do expect that there is reason for optimism. But at this point, I think we have the entire industry better off being a little cautious in terms of where this is growth will be.

27:00 Great. my follow up question was just wondering if you could spend a little bit of time talking about some of the traction you're seeing on the GMR side of the business. I think you mentioned some back bias and speed sensors for transmissions. But broadly, can you say where are you seeing the greatest interest in GMR technology? Is it mostly in speed sensors? Are you seeing that technology beginning to move into the current sense? The market which I know is a, a big application or big requirement in electric vehicles. Thanks.

27:29 Yes. So, we see GMR and TMR applicable in four different spaces. So, let me recall is the first one would be just wheel and motoring coding, which is the high density ring magnet type of products that we have announced, and we are continuously wisdom those are very applicable to ADAS applications specifically in the breaking area. We see the speed sensor back by speed sensor products that we have that service two purposes one is to continue to cement our market share in the internal combustion but more importantly, they provide transmission manufacturers enable them to have better solutions in the xEV space. And we see, I think we said that we had about 10 transmission central wins over the quarter. 28:29 The third area that we see is in in ADAS in terms of motor encoding, where TMR sensors are, off the positive top of silicon opportunity for heterogeneous redundancy, which what that means is that we can provide a higher, more safer – higher integrated more safer solution out to the market. These are currently in the pipeline and being sample and then the fourth area of course is current sensors with TMR and that then with TMR, that will attack the xEV area. So, we're proud to say that we have an extraordinarily broad-breadth of target applications in GMR and TMR and we will attack all aspects of the automotive ecosystem.

29:22 Thank you, Ravi.

29:26 Thank you. And next we have [Indiscernible] of Barclays. Your line is open.

29:34 Hey, good morning. Thanks for taking my question. I wanted to ask you Ravi, on pricing, you talked about your gross margin are turning towards at 55%. But you're seeing a lot of people start to see pricing start to layer through maybe you just address whether you're seeing any tailwind from pricing now and as you look to the next sphere.

29:57 Yeah, I think what you'll find is that we have long-term relationships with strategic customers and our approach on pricing has been that we would certainly pass through, being margin neutral on ASP. So in order to make sure that Allegro can operate successfully, but not with the objective of attacking margins on optimal pricing perspective. So, it's a long-term business, automotive is really one, that is, as well as industrial is one that we really focused on from a long-term perspective, long-term relationships and we think, we're great partners for our customer. So good opportunity at this point. But though, we are really trying to be margin neutral at this point with pricing. It is the mix that we worry about always. That's what we continually focus on new businesses bring up new opportunities for margin.

31:02 Thanks, and I might have missed this, but you had been breaking out kind of ADAS and xEV is the percent auto revenue, I think it was 35% last quarter. Just curious if you mentioned that number, and I missed it.

31:14 It's 37%. So you see a slight uptick, we'll continue to see a slight uptick in every quarter in that particular number.

31:24 Okay. Thanks, Ravi.

31:28 Thank you. Our next question comes from Srinivas Pajjuri of SMBC Nikko. Your line is open.

31:39 Thank you. And good morning, Ravi and Derek and Paul, congratulations to both of you. First, my question on TSM sourcing. I know it's early days, just wondering if you have any longer-term target for, how you see your sourcing mix and TSM versus UMC and then polar? And I guess the broader question is, how that mix might impact, you talked about a little bit on the pricing side, but just curious as to how that mix might, impact your gross margins going forward.

32:16 Yes. Our Asian sources certainly more competitive than pricing than our US sources is something that we have set to everybody over the last 15 months so that's not – so that is pretty well understood and as TSM ramps, we continue to increase the ratio of our Asian sources to our US sources. So, we would expect to see continued leverage in terms of the benefit from the sources – bring by these sources. It's not just a cost, but it really is a technology play for us. They're great partners, they've really capable in manufacturing, they really fulfill very well the automotive quality requirements and supply chain requirements, that stability and production. So there are enormous benefits to us with these sources, and we continue to look at other sources, right, we – our goal is to continue to support our long-term growth objectives and we continue to either ramp these – the – our current sources or bring on new ones.

33:27 Got it, and then Ravi, a question on the channel inventory, obviously, the things are quite tight still on the auto side. But in a given if you compare about a year ago versus now, at least, we're hearing the news flow is not as bad in terms of the production that in factories around the world. So if you can comment on what you're seeing in terms of channel inventory at your customers, but and then longer-term question, coming out of this I guess, unprecedented supply in a tightness? What are your customers telling you about, how they're going to manage their inventories going forward? I mean, do you think the industry is going back to just in time again or is there any other practice that they're looking at? I just want to hear your thoughts as we come out of this supply situation, what do you think the industry practices will look like?

34:22 So the channel inventory for us still are at record lows, phenomenally low levels, and so when we look at distribution inventories, they're all sitting extraordinarily low, we know that our OEMs direct customers rather, are taking every part we can – every device that we can give them and we know that we continue to participate as do most of our peers in, in conversations regarding material and keeping lines to the [Indiscernible]. So we have all indications in front of us are that the key areas that are growing in the vehicle, as well as an industrial, which are xEV, ADAS, even complex convenient areas such as lighting, [Indiscernible] fans, etc. These are all growth areas, the supply is extraordinarily tight for all of these, these growing areas as well as an industrial, a lot of it's fuelled by the need for additional semiconductors into these particular solutions, as opposed to ice, which is quite stable. 35:36 So when we look at customers, we don't really see at this point, there is a lot of conversations going on by the OEMs and how to deal with the supply chain crisis. The initial discussions have all been around, how do I get more, high density digital 300 millimeter supply, but rapidly the conversations are also going around SmartPower 200 millimetres supply situations, etc. But while the conversations are happening, there's been no conclusion at this point on how they would propose to address this.

36:14 Got it. Thanks, Ravi.

36:20 Thank you. And if we have Natalia Wendler (ph) of Jefferies, your line is open.

36:26 Hi, Ravi. Hi, Derek. A quick question, Ravi on the ADAS. Thank you so much for providing kind of some color on the growth and the proportion of automotive. I think on ADAS, the question I had was, and you guys see the transition you mentioned kind of the content increase from level zero to level one. I'm just curious, do you guys see kind of a similar uptick? As you go through further levels, is there any meaningful content increase if you were, once of the cars that kind of transitioning from level one and higher level?

37:02 Yeah. Hi, Natalia. So yes, great question. So, as you go to level one and you go to level one plus, level two, the more economy that you provide to the steering system, the higher, the electronic content tends to get to in terms of from a safety and functionality perspective. So these systems have to be more independent and in the past, we've spoken about that at this point, steering breaking, the entire motion control of a vehicle is being reimagined in the industry. As we get onto skateboard platforms of electrification. The ADAS and electrification intersect, it's really clear and so what you have is, long-term trends on break by wire, you know, break on the wheel, your steer by wire, steering on the wheel, movement of these motion control systems from the body into really onto the skateboard onto the wheel, onto the drive train and all of which actually results in more independent control per wheel, which requires more additional motion control systems, which will drive content. So we're – we feel very good about the secular tailwinds as it relates to motion control in the vehicle.

38:30 That's very helpful color. Thank you. And for my follow up, I just wanted to double check, you guys put kind of a lot of focus on data center and [Indiscernible], just curious if you feel like this would be the main source of growth for industrial in fiscal ’20, in the future fiscal year?

38:50 Well, we did announce last quarter that we had signed several long-term agreements, we continue to wrap our industrial – our data center business, I think AD had a great stat on data center, quarter-over-quarter – year -over-year, okay…

39:05 To get more than doubled.

39:06 More than doubled. So, we were talking about this particular segment continuing to grow for us and as these new projects start ramping, our design winds were up also, as these projects started ramping, we'll start seeing the data center cooling, really taking hold. But in addition to that, we do have this broad-market motion control and also solar electrification, infrastructure associated with electrification that's driving our industrial business, and we see equal grow in the broad-market area of our industrial business. So we are pretty excited about our core strategy, which is setting in motion control, both for automotive as well as in industrial.

39:59 Thank you. That's very helpful.

39:59 Thank you. [Operator Instructions] And we have a question from John Pitzer of Credit Suisse. Your line is open.

40:18 Yeah. Good morning, Ravi, Derek. Thanks for letting me ask the question. Ravi, I'm gonna go back to an answer you gave earlier about pricing and basically saying that you're raising pricing only to pass along costs and the real driver pricing for you is sort of mix and new products. I'm wondering if you could just elaborate on the second half of that. When you think about mix, when you think about new products like GMR, when you think about the very strong design pipeline funnel? How should we on the outside looking in think about pricing and given that gross margins have been beating street expectations? Should we say that the path to your target is faster, or should we start to think about the target that needs to be revised higher?

41:05 Yeah, so, great question, right? John, so, we're not the other, you're right that our pricing strategy at this point is really to try to keep ourselves margin neutral in terms of where the costs are coming in. So that's a cost increase and certainly there is as inflation going around throughout the descending supply chain. So but on the other hand, our long-term story is about attacking these new emerging growth segments. These segments are typically offer us higher margin opportunities and so we will continue to see some uplift as a result of these segments growing. On the other hand, we also have continued to add efficiency activities, both in our backhand facility in the Philippines, but also as we bring on more additional Asian supply sources for wafers, we'll continue to see that help us with our marketing mix. 42:09 So to your question, we are a little bit ahead of where we probably would be a gross margin. We like to overachieve I guess and so we'll continue to push forward and once we get closer to running stably at that bit 55 – at that 55% target that we are, we'll certainly be looking at the next step in the journey, which will be clearly a step ahead.

42:39 And then Ravi is my follow on, there's sort of direct supply constraints that you have to deal with and then there's indirect and I'm wondering if you can differentiate between the two today? Is your demand being 100% limited by what you can directly supply? Or do you get the sense that customers are not completing full kits? Because there's deficiencies away from you? And as you address the question, it'd be kind of curious as to whether or not the current environment makes you change or rethink your strategy around CapEx and kind of how much of your supply you want to control internally versus externally?

43:18 Tough question there. So what – what we look at the demand that's out there. Our demand that we see is really fuelled by, by the new products that we have in the areas that we are, some of the examples are that our industrial business as well as our FCBA ADAS businesses, certainly outgrowing the rest of our business in general. So it really kind of validates the narrative that we have that we are about growth is not just the organic car production or inventory fuel growth, that could be there. But it really is a growth that is focused on new projects and new wins. 44:11 We don't see inventory builds that our customers, we don't – we see that supply challenges are going to be broad 200 millimeter, which is where we live on, is certainly always has been a constraint and will continue to be challenged over the next near future. So we do see continued supply demand challenges, specifically, as we ramp up our 200 millimeter, we'll be specifically really being challenged, pressured on the other end by design wins and just the growth of the target markets that we are focused on.

44:55 Thanks, guys.

44:56 Thank you. And I'm seeing no further questions in the queue. I'll turn it back over to the speakers for closing remarks.

45:07 Okay, thank you, Chris. If there are no further questions, we will conclude the call this morning. Thank you all for joining us today.

45:17 Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.