SiTime Corporation (NASDAQ:SITM) Q1 2024 Earnings Call Transcript May 8, 2024

SiTime Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you standing by. Welcome to SiTime's First Quarter Earnings Call and Webcast. 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] Please be advised today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Brett Perry with Shelton Group Investor Relations. Brett, please go ahead.

Brett Perry: Thank you, Kevin. Good afternoon, and welcome to SiTime's first quarter 2024 financial results conference call. Joining us on today's call from SiTime are Rajesh Vashist, Chief Executive Officer; and Beth Howe, Chief Financial Officer. Before we begin, I'd like to point out that during the course of this call, the company may make forward-looking statements regarding expected future results, including financial position, strategy and plans, future operations, the timing market and other areas of discussion. It's not possible for the company's management to predict all risks nor can the company assess the impact of all factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed during this call may not occur and actual results could differ materially and adversely from those anticipated or implied. Neither the company, nor any person assumes responsibility for the accuracy and completeness of forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform statements to actual results or to changes in the company's expectations. For more detailed information on risks associated with the business, we refer you to the risk factors described in the 10-K filed on February 26, 2024, as well as the company's subsequent filings with the SEC.

During the call, we'll refer to certain non-GAAP financial measures, which are considered to be an important measure of company performance. These non-GAAP financial measures are provided in addition to and not as a substitute for or superior to measures of financial performance prepared in accordance with U.S. GAAP. The GAAP to non-GAAP reconciliation includes stock-based compensation as well as acquisition related items related to amortization of intangible assets, one-time acquisition related charges and expenses or income related to changes in the estimated fair value measurement of acquisition consideration payable and sales based earnout liabilities. Please refer to the company's press release issued today for a detailed reconciliation between GAAP and non-GAAP financial results.

With that, it's now my pleasure to turn the call over to SiTime's CEO, Rajesh. Please go ahead.

Rajesh Vashist: Thank you, Brett. Good afternoon, all. I'd like to welcome new as well as existing investors to our first quarter 2024 earnings call. For those of you that are not as familiar with SiTime, we are the leader in a dynamic new semiconductor category called precision timing. In electronics, timing is ubiquitous and ensures reliable functioning. SiTime precision timing solutions serve the needs of AI, data center, automated driving, IoT and 5G. We are in the early days of transforming the $10 billion timing market. On our Q1 results, those were at the high end of our outlook. Revenue for the quarter was $33 million and non-GAAP gross margins were 57.9%. In the past few months, we've continued to see a downward trend in customer inventories as expected, which has resulted in a pickup in order activity.

In our last earnings call, SiTime forecast sequential growth throughout this year in Q2, Q3 and Q4 2024 trending back to a target growth rate. Now we reiterate that growth. We continue to see positive evidence of this. One of SiTime's strengths comes from the diversity of end markets, customers, geographies and products. This strength shows in 2024, where every end market is expected to grow over the previous year. I will shortly provide more color on three noteworthy markets, the comms enterprise data center or CED and automotive and industrial. We've always stated that one of the best use cases of precision timing is in the CED market because of its high growth, high ASPs and high gross margins with enduring revenue. At CED customers worldwide, we see diverse applications using a broad product line, which I am going to talk about now.

In North America, customers are developing enterprise AI systems and all aspects of data center network infrastructure such as switches, SmartNIC, optical modules and active electrical and optical cables. We're providing key OEMs and CSPs or cloud service providers with complete timing solutions, both clocks and oscillators for many different use cases. Our products uniquely reliably deliver high performance in the presence of common system stressors such as high and rapidly changing temperatures, vibration and other kinds of system noise. As our data center customers push harder to increase their performance, they are looking to precision timing. SiTime is working closely with these customers to deliver optimized timing solutions and we expect this trend to grow over time.

In Taiwan and China, we are engaged with many of the key ODMs and OEMs that develop optical modules and servers for CSPs and OEMs around the world. We are in a good position to benefit as 800G optical modules, displace 400G and become mainstream in the next two years. We're also beginning to win the next generation of 1.2 terabit and 1.6 terabit module designs that will ramp into production in the next year. In Europe, our focus in the CED market is on telecom applications, while 5G infrastructure deployment has slowed in the past few years, we expect that the next generation of 5G advanced equipment, which includes features for high performance and efficiency and lower power will start ramping in 2025. We are engaged with key OEMs that will provide 5G advanced equipment such as remote radio units, distributed units and centralized units.

We also believe that, our newest oscillators such as the Epoch OCXO, Elite RF and EliteX, Super-TCXOs deliver exceptional performance in these applications. Our continued success in our core CED market is especially hardening, as it validates the strategy that we presented at our IPO. At that time, we said we would expand our serviceable market or SAM with breadth in our product portfolio and we accomplished this. We introduced 17 compelling new oscillators and clocks for this market. The recent introduction of our Chorus clock generator for AI data centers adds to the clock products that we acquired from Aura, all of which are complementary to our oscillator portfolio. The integration of Aura products is progressing well and by the end of 2024, we will have added 40 new clocks, further expanding our portfolio in this market.

As our most innovative customers seek out our most innovative solutions, our customer connections are strengthening and our business is growing. While it will take time to generate meaningful revenue from the clock products, we're happy with the progress to date, as it validates our strategy of offering a full product portfolio with one-stop shop for the precision timing needs. With all this, we believe we are in great position in the comms enterprise data center market. Another market where we expect to see growth in 2024 is automotive. While there is current uncertainty in the growth of EVs, our presence in a variety of automotive applications, particularly in ADAS electronics should help us to grow in 2024. Our products are used in sensing, communications and computing in automotive electronics and the growth of electronics in all cars, not just EVs is a multi-year trend, which bodes well for our future automotive revenue.

Over time, our focus will be on developing new products that dramatically improve the performance and reliability of automotive electronics. In this market, we are beginning to see some pricing pressure, but expect to offset this with new designs ramping into production in 2024, as well as increasing market share. The industrial market is our most diverse amongst all markets with over a 100 end applications that use our products. While industrial applications are typically lower volume than in consumer, these designs can last as long as 10 years. To give you a sense of the diversity of our business, here are some new use cases in the industrial markets. Seismic sensors for geo exploration of oil, gas and minerals, new gas detection sensors for environmental safety as well as efficient farming equipment, which uses GNSS electronics with centimeter level positioning.

Our products deliver an order of magnitude better performance in these harsh environments in these applications, where they operate and we expect they'll do naturally well. To summarize, we believe that SiTime strategy is paying off. We will leverage our strengths in end market diversity and product breadth as we return to a target growth rate. I'll now turn the call over to Beth to discuss our financial results in more detail.

Beth Howe: Thanks, Rajesh, and good afternoon, everyone. Today, I'll discuss our first quarter results and then provide our outlook for the second quarter of fiscal 2024. Q1 revenue was $33 million, compared with $42.4 million in Q4, down 22% as expected in line with typical seasonality. Drilling into revenue by market, sales into the communications, enterprise and data center market were $9.9 million or 30% of sales. Sales into the mobile, IoT and consumer market were $10.3 million or 31% of sales, with sales to our largest customer totaling $6.3 million or 19% of sales. Sales into the automotive, industrial and aerospace market were $12.9 million or 39% of sales. Non-GAAP gross margins were 57.9%, down 40 basis points sequentially.

The impact of lower volumes was partially offset by favorable mix and cost. Total non-GAAP operating expenses for the quarter were $27.4 million with R&D expense of $16.4 million and SG&A expense of $11 million. Total operating expenses were up sequentially as expected due to first quarter, the full integration of the Aura transaction as well as seasonally higher FICA taxes. We continue to be disciplined in the management of expenses, while investing in our portfolio. The Q1 non-GAAP operating loss was $8.3 million. Interest and other income was $6.3 million and the Q1 non-GAAP net loss was $1.9 million or $0.08 per share. Turning to the balance sheet. Accounts receivable were $16.8 million with DSO of 46 days, which is flat sequentially. Inventory at the end of the quarter was $74.4 million, as we continue to make strategic wafer purchases.

During the quarter, we generated $1.7 million in cash from operations, invested $3 million in capital purchases and ended the quarter with $517 million in cash, cash equivalents and short-term investments. Let me now review our outlook for Q2. As we noted last quarter, we are well positioned for long-term growth and expect to grow sequentially as well as year-over-year for the remainder of 2024. We are taking a prudent approach to managing our cost structure as we absorb the acquisition and prioritize investments to drive long-term growth. With that in mind, we are providing the following outlook for the second quarter. We expect revenue of $40 million to $42 million, an increase of 21% to 27% sequentially. Gross margins to be roughly flat compared with Q1, operating expenses of $27.5 million to $28 million and interest income of at least $5 million.

As a result, we expect non-GAAP earnings per share to be in the range of $0.01 to $0.05 per share. In closing, we are executing on our strategy. We have a unique technology that addresses large and growing markets and our design wins reinforce the strength of our value proposition with customers. All-in-all, we are excited about our market position and believe our growth story is firmly intact. With that, I'd like to hand the call back to the operator for questions-and-answers.

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