SiTime Corporation (NASDAQ:SITM) Q4 2023 Earnings Call Transcript
SiTime Corporation (NASDAQ:SITM) Q4 2023 Earnings Call Transcript February 13, 2024
SiTime Corporation beats earnings expectations. Reported EPS is $0.24, expectations were $0.2. 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 afternoon, and welcome to SiTime's Fourth 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, Tuesday, February 13, 2024. 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, Norma. Good afternoon, and welcome to SiTime's fourth 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. Please refer to the company's press release issued today for a detailed reconciliation between GAAP and non-GAAP financial results The only difference between reported GAAP and non-GAAP financial results, is stock-based compensation expense.. With that, it's now my pleasure to turn the call over to SiTime's CEO. Rajesh, please go ahead.
Rajesh Vashist: Thanks, Brett. Good afternoon. I'd like to welcome you, as well as existing investors, to SiTime's Q4 2023 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 of the system. SiTime created precision timing to serve the needs of applications like automated driving, data center, 5G, and AI. We are early in our growth as we transform the $10 billion timing market. Q4 2023 was in line with our outlook. Revenue for the quarter was $42.4 million. Non-GAAP gross margins were 58.3%. Non-GAAP EPS was $0.24 per share versus $0.06 in Q3. As we forecasted, we continue to see a reduction of weeks of channel inventory in Q4 and an overall uptick in end demand, although we saw variations in demand across segments and customers.
Looking back, 2023 truly was a tale of differing halves. The first half of the year saw declining revenue because of over-ordering at our customers, leading to a build-up of inventories and clearly weak demand. In the second half of the year, we saw sequential improvement as channel inventories continued to be consumed and demand in some markets such as consumer and data center improved, and we finished the year strong. Most importantly, though, through all these changes, the strength of SiTime's business based on SAM, or served market, ASP, or average selling price, design wins, and single sourcing has only become greater, and we are better positioned than ever to accelerate our growth. We continue to expand our SAM through new differentiated products that solve our customers' toughest timing problems.
Our ASPs continue to remain strong, design wins continue to grow, and a large majority of our business remains single sourced. We finished 2023 strong and rounded out our timing story with the acquisition in December of Aura Semiconductor's clocking products. This acquisition was a key milestone in achieving SiTime's vision since our IPO. At the time of our IPO in 2019, our goals were to grow our oscillator business and move into the clocking business. Since then, we've grown our oscillator SAM to two billion, and the Aura transaction expands the SAM further. In the last quarter, we sampled these clocking products successfully, and initial customer responses validate our strategy to offer complete precision timing solutions. The early design momentum is promising, and we are well on our way to building a large funnel, though, as expected, revenue will take time.
Now I'd like to provide a few thoughts on SiTime's growing role in AI. The massive amount of data processing required for AI requires network infrastructure upgrades, which depend upon precision timing to deliver and process data at high speeds while maintaining uptime. We have strong engagement with two of the top cloud service providers, or CSPs, and the top AI server supplier, using our new clock and oscillator products together. We're also actively engaged with two of the top AI companies to create new variants of clock products that currently don't exist. These clocks will be used in conjunction with our oscillators, like EliteX, EliteRF, and Epoch, to deliver the best time accuracy for AI. Our precision timing products are in most of the AI service shipped-to-date, and we are also shipping into the top 10 optical module providers, including AEC and AOC, for 400 gigabits and 800 gigabits.
Sales into the data center and communication segments was up 64% from Q3 to Q4 2023. We expect this business to grow by 50% in 2024. In conclusion, we're pleased with our current opportunities in the AI segment, and believe additional applications will materialize as the segment is still in its early stage. For the aerospace defence markets in Q4, we introduced a transformative product, the Endura Epoch OCXO, and we're seeing excellent design interaction with customers. This new product delivers superior operations for radio, data link, navigation, and guidance systems in military environments. Our ASPs grew from Q3 to Q4 2023, driven by stronger sales in comms enterprise data center and automotive industrial aero defence markets, where we bring significant value to our customers.
Our funnel continues to show robust growth. The number of design wins continues to grow in Q4 over Q3. For the entire year, the number of design wins grew by 75%. And lastly, in contrast to the quartz oscillators that are typically multi-sourced, we continue to be differentiated as evidenced by 85% of our Q4 revenue was single source, which is another indication of the value of SiTime. For 2024, we expect sequential growth from quarter to quarter, with growth accelerating in the second half of the year. We also expect revenue this year to exceed 2023 as our growth trends back to our model of 30% annual growth. Our strategy and business fundamentals are strong. I'm now delighted to introduce Beth Howe, our new CFO, who joined us in November of last year.
I'll turn the call over to Beth to discuss the financial results in more detail. Take it away.
Beth Howe: Thanks, Rajesh. Good afternoon, everyone. It's a pleasure to be here today on my first SiTime earnings call. Today, I'll discuss the fourth quarter and full year 2023 results, and then provide our outlook for the first quarter of fiscal 2024. I'll focus my discussion on non-GAAP financial results and refer you to today's press release for our GAAP results, as well as a reconciliation of GAAP to non-GAAP results. In the past, this reconciliation was related to stock-based compensation. With the closing of the ORA deal, our non-GAAP results will also include amortization of acquired intangibles and acquisition-related dispenses that include transaction and certain other cash costs associated with the business acquisition, as well as changes in the estimated fair value of contingent consideration and earn-out payments.
Now, turning to the details of our results. For the full year, we delivered revenue of $144 million, down 49% from fiscal '22, and non-GAAP gross margins of 59.2%. We reduced non-GAAP operating expenses $1.5 million to $107.6 million. For the fiscal year, we generated non-GAAP income of $4.2 million, non-GAAP earnings per share of $0.18, and cash flow from operations of $8.1 million. Looking at the details of the December quarter, revenue was $42.4 million, up 19% sequentially, and at the higher end of our outlook range. Drilling into revenue by market segment, sales into our mobile, IoT, and consumer segments were $17.1 million, or 40% of sales, down 4% from Q3, as expected. Sales to our largest customer were $11.7 million, or 28% of revenue.
Excluding sales to our largest customer, sales in this segment increased 16% to $5.4 million. Sales into our industrial, automotive, and aerospace segment were $15.6 million, or 37% of sales, up 19% from Q3. And sales into our communications and enterprise segment were up 64% sequentially, to $9.7 million, or 23% of sales. Non-GAAP gross margins were 58.3%, up 10 basis points sequentially. Total non-GAAP operating expenses for the quarter were $26.6 million, compared with $26.3 million in Q3. R&D expense was $15.9 million, and SG&A expense was $10.8 million. The fourth quarter non-GAAP operating loss was $1.9 million, an improvement of $3.7 million sequentially, due to higher revenue. Interest in other income was $7.5 million, up from $7.1 million in Q3, due to higher earned interest on our investments.
Fourth quarter non-GAAP net income was $5.5 million, or $0.24 per share, compared with $0.06 per share in Q3. Turning to the balance sheet, accounts receivable were $21.9 million, with DSOs of 46 days, down from 64 days in Q3, due to improved revenue linearity. Inventory at the end of the quarter was $65.5 million. During the quarter, we used $1.4 million in cash from operations, invested $3.1 million in capital purchases, and paid $39 million to Aura Semiconductor, of which $36 million was paid at the time of close, and an additional $3 million was paid in the month of December. We ended the fourth quarter with $528 million in cash, cash equivalents, and short-term investments. Let me now review our outlook for the March quarter. As we enter 2024, we are expecting typical Q1 seasonality, as well as continued progress toward channel inventory normalization.
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 first quarter. We expect revenue of approximately $31 to $33 million, gross margin to be in the range of 57% to 58%; operating expenses to be roughly flat year-on-year, and interest income of roughly $5.5 million. As a result, we expect non-GAAP earnings per share to be a loss in the range of $0.12 to $0.17 per share. In closing, we are navigating the current environment. We have unique technology that addresses a large and growing market, and our design wins reinforce the strength of our value proposition with customers. All in all, we are excited about the market position and believe our growth strategy is fully intact.
With that, I'd like to hand the call back to the operator for questions and answers.
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