SiTime Corporation (NASDAQ:SITM) Q3 2023 Earnings Call Transcript
SiTime Corporation (NASDAQ:SITM) Q3 2023 Earnings Call Transcript November 2, 2023
Operator: Good afternoon, and welcome to SiTime's Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded today, Wednesday, November 1, 2023. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Brett, please go ahead.
Brett Perry: Thank you. Good afternoon, and welcome to SiTime's third quarter 2023 financial results conference call. Joining us on today's call from SiTime are Rajesh Vashist, Chief Executive Officer; and Art Chadwick, 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 at 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 27, 2023, as well as the company's subsequent filings with the SEC.
Also 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 only difference between reported GAAP and non-GAAP results, is stock-based compensation expense. 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. Good afternoon. I'd like to welcome you as well, as existing investors to SiTime's Q3, 2023 earnings call. For those of you that, are not as familiar with SiTime's, we are the leader in a dynamic new semiconductor category called precision timing. In electronics, timing is ubiquitous and ensures reliable functioning. SiTime created precision timing, to serve the needs of applications like automated driving, data center, 5G and AI. We're early in our growth as we transform the $10 billion timing market. SiTime has shipped 3 billion precision timing chips to 15,000 customers in 300 applications. Q3, 2023 was in line with our guidance. Revenue for the quarter, was $35.5 million. Non-GAAP gross margins, were 58.2%.
Non-GAAP EPS, was $0.06 per share versus a loss of $0.21 in Q2, 2023. As we forecasted, we continue to see a reduction of inventory in Q3 and an uptick in end demand, particularly in the mobile IoT Consumer segment. We expect these trends to continue in Q4, leading to 15% to 20% sequentially higher revenue, over Q3. In addition, the long-term strength of our business continues, as we have envisioned. This is through the introduction of new exceptional products, leading to SAM expansion, solid ASPs, increased design wins, and continued strength in our single source business. In the second half of '23, all four factors continue to remain on track, and I will touch on these now in more detail. We continue to expand our SAM with high-value products like Epoch for the communications and data center markets.
Epoch is a revolutionary product that beats legacy quartz OCXOs on all key nine specifications that customers need. Our customers are excited about this product, and we've built a robust funnel of opportunities. Our ASPs are holding steady from 2022 to '23 despite lower revenues, which is an indication, of the value that we bring to our customers. Our funnel continues to show robust growth. Our cumulative design wins to-date in '23 have grown 75% over the same period in 2022. And lastly, in the multi-sourced oscillator business, 85% of our Q3 revenue was single source, which is an indication of the unique value of SiTime. Since our IPO in 2019, our singular focus has been on expanding SAM in the oscillator category, along with revenue growth.
In the past four years, we've grown from 60 to 150 unique oscillators, and the price of the highest value oscillator, has grown tenfold. This strategy makes us, the leader in the oscillator space and a trusted adviser, to customers in our focus markets, unlike our competitors. We're now applying the same focus to the clock category of the timing market with exciting results. We are acquiring clock products from Aura Semiconductor. This leverages our strong balance sheet to accelerate our clocking revenue and roadmap by several years. Additionally, we expect to increase our oscillator revenue, due to pull-throughs, when they are sold with complementary clocks. This proven portfolio of high-performance products, includes all the four major categories of clocks, network synchronizers, jitter cleaners, clock generators and buffers.
In fact, our Cascade clock, which was introduced in 2020 includes some Aura clock technology, and we already have 150 designs at 100 customers. With this acquisition, SiTime immediately adds 20 - best-in-class clocks now and another 20, by the end of 2024. Additionally, by combining our men's and oscillators with these clocks, we believe that a whole new category, of precision timing products will be created for our core markets of comms, data center and AI. This continues SiTime's trajectory of building unique timing products that brings us closer to the customer and enhances our trusted adviser status, at the top electronics companies. I'm deeply satisfied and convinced that this acquisition, significantly advances our vision. I'd also like to give an update on changes to our management team.
After four years at SiTime, Art Chadwick, our CFO, has decided to retire. Art's guidance has played a strong role in SiTime's achievements. He's been a tremendous partner and a key strategic adviser to SiTime's investors and our business partners. We thank Art wholeheartedly, for his contributions and impact on our business. I'm very excited to appoint a new member to SiTime's executive team. Beth Howe is joining SiTime as our CFO on November 8. She comes to SiTime with proven financial leadership and deep experience driving performance in scale, multinational organizations. Her wealth of experience will be invaluable, as we continue to build market momentum and drive SiTime's future growth and success. In conclusion, these are exciting changes to the company that advance our vision and take us to further success.
Thank you.
Art Chadwick: Well, thanks, Rajesh, and good afternoon, everyone. Today, I'll discuss third quarter 2023 results and then provide some guidance for the fourth quarter. I'll focus my discussion on non-GAAP financial results and refer you to today's press release, for a detailed description of our GAAP results, as well as a reconciliation of GAAP to non-GAAP results. Revenue in the third quarter was $35.5 million, up 28% from Q2. Sales into our mobile IoT and Consumer segment, were $17.9 million or 50% of sales, up from $10.4 million in Q2, due primarily to higher sales, to our largest customer. Sales to that customer, were $13.2 million, up from $4.6 million in Q2. Excluding sales to our largest customer, sales into this segment, were $4.7 million, or 13% of sales.
Sales into our Industrial, Automotive and Aerospace segment were $11.7 million or 33% of sales, down just slightly from $12.4 million in Q2. Sales into our Communications & Enterprise segment were $5.9 million or 17% of sales, up from $4.9 million in Q2. Non-GAAP gross margins, were 58.2% essentially flat with margins in Q2. Non-GAAP operating expenses, were $26.3 million, down about 4% from Q2, as we continue to closely manage expenses. Expenses were $15.8 million in R&D and $10.5 million in SG&A. The third quarter non-GAAP operating loss, was $5.6 million, substantially better than the $11.2 million loss last quarter. Interest and other income was $7.1 million, up from $6.5 million in Q2 due to higher earned interest on our T-Bill investments.
Third quarter non-GAAP net income was $1.4 million or $0.06 per share, compared to a loss of $4.8 million last quarter. Accounts receivables were $25.2 million with DSOs of 65 days, as compared to $15.8 million and DSOs of 51 days in Q2. Inventory at the end of the quarter was $64.5 million, essentially flat with last quarter. During the quarter, we consumed $11.6 million in cash from operations, invested $3 million in capital purchases, and ended the quarter with $568.1 million in cash, cash equivalents and short-term investments. I'd now like to provide some financial guidance, for the fourth quarter of 2023. There is still more inventory in the channel than normal, but it is being worked down. For some customers, including our largest customer, channel inventory is back to normal.
But for other customers, it will take them until the end of this year or into 2024 to get back to more normalized levels. As Rajesh mentioned, we are seeing an uptick in end demand, and we now expect fourth quarter sales will be up 15% to 20% sequentially. Whereas growth from Q2 to Q3, was essentially driven by increased sales to our largest customer, growth from Q3 to Q4, will be driven by customers, other than our largest customer, especially in the comms and enterprise, industrial and aero markets. We expect non-GAAP gross margins, will be essentially flat with Q3, as will operating expenses. Interest income will be approximately $6.5 million. Our share count, will be approximately 22.5 million shares. As a result, we expect non-GAAP EPS, will be somewhere between $0.18 and $0.22 per share.
I'd now like to make a few comments, about our deal with Aura Semiconductor. This is a very exciting and strategic deal for SiTime. It's an all-cash transaction, comprised of fixed payments totaling $148 million, $36 million of, which will be paid at close and expected $75 million will be paid in 2024 and an expected $37 million, will be paid in 2025, all tied to product deliveries from Aura. The earn-out payments will be based on various multiples of revenue generated from the acquired products from 2023 through 2028, with a total cumulative earn-out capped at $120 million. This deal will clearly accelerate our clocking business, but it will take time to grow revenue. We must first win design sockets with our customers, and then it takes time, for those designs to go into production.
We therefore, do not expect any material revenue, or non-GAAP operating income in 2024. However, revenue and operating income should increase in 2025 and beyond, growing to $100 million business in a number of years. I would also like, to note that from a reporting standpoint, we plan to exclude amortization, of these acquired intangible assets and licenses when we report future non-GAAP results. Now on a personal note, today, we announced that I have decided to step down as CFO and retire. I have had an amazing four years here at SiTime, helping take the company public, raising capital and being part of this amazing management team. But my wife and I are now empty nesters, and we usually want to spend more time on activities outside of work.
So, I decided it's now time to pass the baton. I want to thank Rajesh and everyone here at SiTime for being so great to work with. And I want to extend a special thanks to Sam Shier Amit [ph], our VP of Finance, and our entire finance and accounting team who do amazing work and who made my job easy. Finally, I'd also like to welcome Beth as our new CFO. I think she's going to do great, and I think the company is going to do great. And on that note, I'd like to hand the call back to the operator for Q&A.
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