Q2 2020 SiTime Corp Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin momentarily until the time your lines will again be playing music called Thank you for your patience.
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Good afternoon, and welcome to be five times second quarter Twentytwenty financial results Conference call.
At this time all participants are no listen only mode at the conclusion of today's conference call instructions will be given for the question and answer session.
If anyone needs assistance at anytime during the conference call. Please press the Star key followed by these zero on your Touchtone phone as a reminder, this conference is being recorded today Wednesday August Twentytwenty.
Now I'd like to turn the call over to the end sievers.
Of Shelton Group Investor Relations Leann. Please go ahead.
Good afternoon, and welcome to start time second quarter 2020 financial results conference call on the call from side time rejects fishes.
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 plans future operation the tiny market in other areas of discussion, it's not possible for the company's management.
Picked all risks nor can the company assess the impact of all factors on its business, where the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statement in light of these risks uncertainties and assumptions. The forward looking events discussed during this call may not occur in.
Actual results could differ materially and adversely from the anticipated or implied.
Needed the company nor any of the person assumes responsibility for the accuracy and completeness of the forward looking statements. The company undertakes no obligation to publicly update forward looking statements for any reason after the data this call to conform these statements to actual results or to changes in the company's expectations for more detailed information on risk. So.
She had with our business refer you to the risk factors described in our 10-K filing which we filed with the FCC on March 2nd 2020.
Also during this call we will refer to certain non-GAAP financial measures, which we consider 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.
The only difference between GAAP and non-GAAP results is stock based compensation expense. Please refer to the press release issued today for a decent detailed reconciliation between our GAAP and non-GAAP financial results I'd now like to turn the call over to research. Please go ahead.
Hi, there a good to have you all here today and thank you Dan.
I hope that you in your families are safe and healthy.
Hi time has continued to work productivity from home as evidenced by a second quarter results, which at 21.5 million were up 36% what were the same quarter last year.
Normally we don't quantify or design wins and don't plan to do so going forward, but I want to do share you would use some remarkable progress and design wins in the second quarter. This year.
We had more than 300 across the entire product portfolio, including 50 elite and embedded products.
On the product front, we continue to innovate and introduced two new products. The nine five Judah one the differential lots of data and Cascade, which is a first clocking product.
As discussed on last quarter's call, we talk a business would be impacted by the pandemic.
But the impact that transpired was less than we expected.
Communications and enterprise markets were up 20% sequentially.
Industrial auto and aerospace were up 10%.
The one segment that was down was mobile our European consumer, which was down 14%, which was still less don't than we had expected.
And art Chadwick will provide more details in his financial overview in a few minutes.
I want to talk about or increased focus on the communications enterprise and data center markets as part of a future growth story put a number of reasons.
One of technology is well suited to these markets, where we can solve difficult timing problems.
To the higher margin profile associated with these markets aligns well to a target gross margin.
Three these markets have longer product like product, lifecycles, which deliver higher <unk> revenue predictability.
Once we have designed into these end products customers are less inclined to change suppliers.
As part of this post into communications, we introduced two new products. The S&P nine five year, one for optical modules and data center.
First klauk I see the Cascade platform.
Well the night. So 79 501 is a differential Mems alternated is based on a third generation Mems technology.
The offers 70 femto seconds of Georgia.
In half the space of existing products.
This enables customers to integrate more features deliver higher performance and reduced development times.
Particularly in outdoor deployment. This device also offers outstanding Brazilians do environmental stressors, such as vibration high temperature in shock.
In addition to the 100 gig and he had sort of get gig optical modules in data centers. The nine times due to one is well suited for switches routers AD servers graphic cards storage controllers and positions us therefore to CAD to capture meaningful share of market in these applications.
We're also bringing outstanding value to our next product or Cascade, which is our first clock chip, which is a mems clock system on a chip.
Oh this platform this cascade platform can be configured into five different products.
Two plus generators, one jitter cleaner and to network synchronizes all through Configurable programmable set up on one platform.
All of these offer unsurpassed environmental resilience and end to end integration.
For example, we are 10 x. more robust and reliable then courts based solutions due to the in head into robustness of her Mems and analog.
We believe that this hired resiliency and reliability is needed for the next generation that columns and enterprise hardware.
The integration of the men's resonator, the oscillator and block I see all three of which are in this mems clock system on the chip.
Eliminates the potential problems that are typically associated with using other kinds of clocks, which use external courts devices and have noise issues impedance mismatches unreliable start up and activity dips.
Since I'm as the only producer of high performance Mems resonate, there's oscillators influx reported a unique position to solve difficult timing problems and thereby delivering value to our customers.
In doing so we continue to strengthen our role as a trusted timing advisor to a customers.
And we believed that this also brings incremental revenue opportunities with the Aussie products.
Overall site them is well positioned to gain increasing market share and revenue growth to the U.S. took 'em we.
We expect strong growth into second half of this year across all our segments.
With that I'd like to turn the call over to art.
To discuss a second quarter financial results and give you the third quarter outlook.
Ours too great. Thanks for Josh and good afternoon, everyone.
So we're very pleased to be holding our third financial results conference call as a public company.
During my review today, I'll discuss Q2, 2020 financial results and will provide guidance for the third quarter.
I'm going to 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, which exclude stock based compensation and related payroll tax expense.
[noise] going ended the quarter, we knew our business would be impacted by the pin debit, especially our mobile aiotv and consumer business.
Business was impacted but not as much as feared.
Revenue for the quarter was $21.5 million down 1% from Q1, but up 36% over the same quarter a year ago.
To provide some color on end markets a report sales by market group as I have in the past.
The first is mobile aiotv and consumer which consist primarily of sales into mobile phones wearable devices and consumer products.
This was the segment most impacted by the global slowdown.
We ended the quarter, we expected sales might be down as much as 20% to 30% sequentially due to the pandemic.
Sales were down but not that much.
Sales in Q2 were $10.2 million or 47% of total sales.
Down, 14% sequentially and down 6% from the same quarter last year.
The second is industrial auto and aerospace, which goes into industrial automotive aerospace military application and includes broad based sales.
This segment was strong during the quarter as expected.
Sales were $6.1 million for 28% of sales up 10% sequentially and up 70% over the same quarter a year ago.
The third is coms and enterprise, which consists of wireless infrastructure, including Fiveg datacenter and networking.
This was our highest growth segment this quarter with particular strength in data center.
Sales in Q2 were $5.2 million for 24% of sales up 20% sequentially and up 121% over the same quarter last year.
We had just wondering customer in Q2 were sales exceeded 10% and sales to that customer were 26% of sales.
Non-GAAP gross margins for the quarter were 46.8% up 70 basis points from Q1.
Non-GAAP operating expenses were $11.9 million essentially flat with Q1 comprised of 6.3 million in R&D and 5.7 million in SGN a expense.
The non-GAAP operating loss was $1.9 million essentially flat with Q1.
Net interest and other expense was zero point $3 million.
[noise] this generated a non-GAAP net loss of $2.2 million for 14 cents per share on a fully diluted basis.
Stock based compensation expense and related payroll taxes were $3.4 million.
Accounts receivable were 13.0 million down from 15.8 million in Q1 with Dsos at 58 days.
Inventory was 14.8 million up just slightly from 14.2 million in Q1.
We generated 3.6 million in cash from operations.
And used 3.2 million for the purchase of assets and taxes paid on RSU grants.
Our big financially than during the quarter was our follow on stock offering in June we sold 1.525 million shares of stock at $32 per share.
Many $45.8 million after fees and expenses.
In addition, maybe chips sold 2.5 million shares of side time stock, putting those shares into the public float and this has increased our daily trading volume and liquidity of our stock.
Make it shipped sale reduce their ownership percentage from approximately 66% to just 45% now.
In addition, we pay down $15 million of debt, reducing our debt from 50 million at the end of March to 35 million at the end of June.
In Q3, we plan to reduce debt, even more and may pay it off entirely.
We ended the quarter with $102.5 million in cash and equivalents.
[noise] [noise] I'd now like to provide some guidance for the third quarter of 2020.
We believe the Covidien pandemic, we'll continue to have some impact on our business this quarter, but even with that headwind we are expecting strong sequential revenue growth.
We expect revenue will be up 30% to 35% sequentially.
Which would put Q3 revenue of between 28 million and $29 million.
Driven in large part by strong demand in our mobile aiotv and consumer business.
In addition.
We believe there's a very good chance we may have additional revenue this quarter from a phone design.
We believe such a when would be for just one skew.
And shipments would not begin until later in the quarter.
However, any such revenue would be upside to the guidance I just provided.
In regards to gross margins with a number of initiatives within the company to expand gross margins and they're starting to pay off.
We expect gross margins in Q3 will increase to approximately 50% plus or minus a point.
So what that midpoint, there would be gross margins.
Three points higher than they were in Q2.
We're also aggressively managing operating expenses operating expenses will increase but at a significantly lower rates and top line growth.
Non-GAAP operating expenses are expected to increase between 2% and 4% sequentially.
You bet that midpoint would be approximately $12.3 million.
Net interest expense will decrease from Q2 to less than $150000 as we pay down debt.
Share count has increased as a result of our recent stock offering the basic share count in Q3 will be approximately 16.8 million shares.
In addition, the dilutive effect of employee Rs use will add approximately 2 million additional shares.
Taking the total Q3 share count used for non-GAAP EPS calculation to approximately 18.8 million shares.
Stock based compensation expense in Q3 will be approximately $4.5 million up from Q2 due to the higher stock price some new higher employee stock grants and the establishment of an executive performance stock bonus plan.
We expect non-GAAP EPS will go from a loss in Q2, two a profit in Q3.
Based on the guidance just given we expect Q3, non-GAAP EPS will be between eight cents and 12 cents per share.
[noise], though the Covance pandemic still pose a certain challenges to how we run our business and to many of our customers. We believe we are well positioned for the second half of this year and beyond.
We have an exceptional workforce is performing extremely well sheltered at home.
We have differentiated products that address large and growing markets, we have a number of new products and the pipeline.
An enviable list of tier one customers.
And a strong balance sheet and with that I'd like to turn the call back to the operator for questions and answers. Thank you very much.
Okay.
At this time, if you like to ask a question I need to press Star then the number one on your Touchtone phone.
To withdraw your question press the pound key please standby goldblatt compiled the Q and a roster.
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And your first question comes from the line of Blayne Curtis with Barclays.
Hi, guys. They say my question and Great results, maybe a near term one that a long term one system near term can you just talked about the rebound and I have to consumer mobile I know there is some uncertainty with Covidien you said, it's coming back.
But I also through the gross margin kind of coming up so just trying to understand the big move with the mix going to the.
Yes, lower margin part.
Good.
Pumps, you know just sheer volume driving margin better are you seeing a a better mix within segment.
So I mean, all of that is good news blades right.
Gross margins are improving for a whole variety of reasons, we've talked about some of these in the past you know we've been raising some some prices.
The mix obviously in Q2 was very favorable for us and that we hope will continue you're right. The consumer margins are generally somewhat lower than the corporate averages, but even within our consumer space. Our gross margins are expected to improve going forward.
Again, the mix within those products cost reductions that that are taking place, we're taking more sales direct and that could south middle man. So all the things that we've talked about to improve gross margins are happening taking place the higher volume also helps.
But it's really all those things combined so yet even with a higher expected a mobile aiotv consumer mix next quarter, we're still expecting gross margins to improve.
More than.
Three points give or take from Q2 to Q3.
Thanks, and then just longer term you you mentioned, the first clock product and that the primarily so lots later today just kind of curious with it I think you said it could be five skus you look at that Tam for clock kind of kind of equate that to how much of that and you can address them I think you're going to.
I think if any more of a next year event, but I'm just kind of curious used to be a perspective as to where you are in Boston and right what that address will cabinet.
Right, Yeah, you're absolutely right. The revenue is out in the future. It's a it's a almost diminimus amount this year, but next year. It starts to ramp up nothing substantial but it's all over the coming years that it's really going to make an impact.
As far as you know as we've said before that the total market for clocks is about a billion growing to about 1.2 1.3 billion in the next five years.
We continue to look at the communications market as the best place for these clocks [noise].
And so I would say that with this particular product with the Cascade products, we have going quite about a tam up around 20 to 30 million. So I think particularly large.
But what it is notable for is the fact that we as we said we are going to be during the IPO. We said that we are going to be food levels systems player in the timing markets and you're going to be focusing on every aspect of signing so in a sense its fulfilling a promise Stewart invest.
Testers that we will be in blocking and I think it what it does is it changes the kind of conversation that beacon have right now when we go in with a high end product in oscillators like an elite toward Ambrose we are able to bring in the Cascade has as a as a part of the system.
Solution.
As we go forward and as we introduce more products next year into year. After we'll be able to also reversed the products, but the process, where we lead with the clocking products and we'd be able to bring the.
Offer leaders in into those customers. So we think it's a highly strategic move and a few years from now we think that revenue of this for this product could be a very high indeed.
And we think it's very promising market.
Thanks.
Thanks, Mike.
And your next question comes online at toy Sundeck with stifle.
Yes. Thank you first question on the phone design win I know you only guide one quarter out but sounds like this is going to be sort of a late quarter event. So.
Should we infer that that would be material enough to perhaps a growth again sequentially in the December quarter.
[noise] so [laughter].
Yeah. So we we have we had the thread the needle on this one right.
Because we've we've obviously been working towards getting such a design win as as you know and expansion of our business.
Well, we've also said that we don't want to bake it into anybody's numbers until we shipped enough production parts that were confident that is real interesting.
And as of today August Fiveth, we're not at that point, but we do believe that there is a very good chance that we will have that design win it will be for we believe just one skew.
Shipments would would begin later this quarter and we're not including it in our guidance as I mentioned, so this would be incrementally positive to our guidance in Q3 and of course, we haven't given any guidance for Q4 yet.
Okay, that's fair and regression on the clock product or Cascade. The first of all I assume this fab that would your main foundry partner and then should we assume the profitability of this platform to to be quite a bit higher than your corporate average.
Just given the amount of content you can get from a club like that.
Yeah. So we generally don't comment on where our products our fab.
So I won't comment on that but basically what I'd say is that.
It is inline with our corporate guidelines.
For our particularly going forward [noise], we viewed this first product.
As a more up a strategic foot in the water products. So that we can start the conversations going with key customers. We have a lot more of these coming of different versions and different architectures coming. So we just wanted to get connected to a customers and start to get does.
England's which we have yeah.
Very good congratulations again.
Thanks story.
And your next question comes for line, Chris Caso with Raymond James.
Yes, so thank you.
Just another question on a on the phone win and.
Just maybe clarify what why you chose not to put it in guidance.
Is that still some question of whether or not you've actually secured the socket or perhaps that's a question of how much revenue comes in within the quarter, because I guess, we know that in some cases and the second half the timing of some of these launches have been affected my Colgate and I suppose that would affect how much rather.
New comes in the September quarter as compared to the December quarter.
Yeah, So Chris very very fair question, but my answers could be very similar to a hobby answer to the minute ago.
We until we start shipping a production parts.
To at least a certain level, where we're comfortable that the design win is solid and we'll continue we've chosen not to included in our numbers.
And that's where we are today so.
Three months from now when we report Q3, we may have more to say about that but as of today I think it's very good news that we believe there is a very good possibility or in fact, a probability that this will happen, but until we start shipping production parts, we're not going to count it yet.
Got it okay. That's clear. Thank you follow up question is just regard to you know the other segments and what you see through the second half and in general.
And perhaps you could separate out some of the covert effects of some of the other markets against some of the design what affects and you suggested that are you expecting strong growth across all segments. As you go through the that second half maybe could you give some some color of what you're thinking for those other segments.
Yes, so obviously the Oh go ahead go ahead, Jeff.
So obviously the.
The most significant growth from Q2 to Q3 will be in a mobile aiotv, we we pretty much have the booking so we know what that looks like.
And in Q4, we would expect that segment to just drinking even more.
Just because it's the holiday season, and historically Q4 would be stronger in that [noise].
Our other segments, we've got a number of design wins that continue to ramp and in the second half of the year, we would expect sales for those segments to be higher than they are in the first quarter.
I think [noise].
There will be an impact because the pandemic, we know a few of our customers that are delaying some of their rollout as result of the pandemic.
But we have factored that into our guidance.
Yeah with the numbers that we provided for Q3.
[noise] [noise] that's great. Thank you.
And your next question comes online is Suji de Silva with Roth capital.
Hi, Rich I art congratulations on the progress here in the momentum so in the in the third quarter timeframe, just the that the non consumer mobile segment, <unk> industrial and communications.
Do you expect communications to continue to lead the growth here at with the ramp up of additional programs is that the way to think about the percent growth leadership.
So for Q3 again I mentioned, we've got.
A couple of specific customers that are slowing some of their programs down in Q3, because of the Pandemics and again I have factored that into the overall guidance, but I think.
The growth rate the sequential growth rate in Q3 in those segments will likely be less than they were going from Q1 to Q2.
Okay, but I understood effect and I again without going into guidance for Q to Q4, I expect those two to two.
Go very nicely from Q3 to Q4.
The segments outside of the mobile Aiotv, so both industrial and and the comp space again.
Basing that comment on specific knowledge of specific customers and where they are was different programs. So I think the growth rates for those two segments slow down from Q2 to Q3, but I think they they accelerate again from Q3 to Q4.
Okay. That's helpful and a relatively quick follow up question here on the smartphone a win can you say if that's a customer that's new to side time or an existing customer.
Yeah, we up we were not going to say, it's it's a phone design win so.
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That's that's what we're going to last of either [laughter] fair enough art. Congrats again on the progress great. Thanks, a lot Susie.
And your next question comes on line of Quinn, Bolton with Needham and company.
Hey, guys. Congratulations on the result, so I'll try one.
<unk>.
There it could you talk about who is there something that did the value that you guys brought the competitors could bring that allowed you to win that socket is this is it safe perhaps millimeter wave where are your solutions performed better than can tentative alternatives or if there's any.
What do you think technically allows you to secure that socket.
Yeah, I mean broadly speaking Oh, we have two categories reasons for people choosing US one is the performance area and in performance, we put in things like size.
And and quality reliability our into that mix.
The other a portion of it which we think is having a bigger impact overtime now.
Is the the supply chain value. So as you know we are always time is always a fabulous company and our competitors in the Ctwo and are in fact have taken factories have trouble fabs and decide the feast or famine for them I think that.
Portion of the fact that in todays business in today's call bid. So there are a few companies in the Crystal was that I've had significant issues with production either shutting down plans or a flow or basically I'm not being able to open plans and so on that as we think put.
In constrained in the world supply and it comes and goes so it's not a it's not quantifiable yet by us, but the supply constraints comes and goes so I think through an abundance of caution some of our customers are using us significantly for supply chain reasons, and just putting us into them.
Six and that's why.
The getting a smaller skewed rather than getting the whole phone is part of the reason why I attribute this to so we always get it because of performance reasons. There's always a performance reason to buy from site time, but in this case the supply chain is having a greater impact than then.
Previously.
Got it and for you or could you just I missed it but keep you reiterate the gross margin guidance for the third quarter.
Yes, so gross margins are improving very nicely from Q2 to Q3.
I guided in Q3 to be at 50 percentage points, plus or minus a point so at 50% that would be a little over a three point improvement from Q2.
Got it okay again already to it sounds like I know, you're not giving guidance for the December quarter, but.
I think in answer to today, you said full three segments look like they will grow again in the December quarter. It sounds like the gross margin trajectory should continue to increase into the fourth quarter unless there were some real significant mixed shift, but you know if comes enterprise and.
Industrial auto Andy Reaccelerate in Q4 that doesn't sound like mix becomes an issue. So should we be thinking that gross margin continues to trend higher into the fourth quarter.
Oh, yes, without getting too far ahead of ourselves I think you know we're setting ourselves up for good gross margin expansion over time, I think going from Q3 to Q4, it will at least be at Q3 levels and likely a little bit higher.
Great. Thank you.
Hi, and Blaine I just.
And Blaine I just wanted to say one thing that on the Cascade Tam I looked at it a little carefully and itself 50 million just for the communications portion of it.
Thanks for your last question comes from the line of Alexandre da Vinci with William Blair.
Hi, everyone. Congratulations on the excellent results.
Just on the indoor platform, which I believe was launched in Q4 I was wondering if you could sort of update us on design win traction there parts. It you know at aerospace and defense and potentially if that's been pushed out a little bit as well.
Due to cold Ed.
Actually we see no.
We see no stopping in in the design win activity in fact in some cases, it's been very.
Very strong and that's why I mean, I made a point of trading the numbers up 300.
Total design wins, including 50, an elite and and Emerald some of the elite Oh in emeralds.
We're in good the Indura line. So I think we have a very strong broad based demand for into euro grade products and there's been no push outs in that market. In fact, as I said, we are gaining even more traction as we go and ER as it becomes apparent.
The value of the products that we bring.
Okay, Great that was that was very helpful.
Is it for me.
Great. Thanks, Alex.
There are no further questions at this time I'll now turn it back over to our topic for any closing remarks.
Right I just wanted what I. Thank all of you for spending the time listening to our call.
We really appreciate it and we hope everyone has a great rest of the afternoon. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect. Thank.
Thank you.
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[music].
[music].
Good afternoon, and welcome to be five times second quarter Twentytwenty financial results Conference call.
At this time all participants are no listen only mode at the conclusion of today's conference call instructions will be given for the question answer session.
If anyone needs assistance at any time during the conference call. Please press the Star key followed by these zero on your Touchtone phone.
A reminder, this conference is being recorded today Wednesday August Twentytwenty I would now like to turn the call over to Leann Sievers.
Shelton Group Investor Relations Lynn. Please go ahead.
Good afternoon, and welcome to start time second quarter 2020 financial results conference call on the call from side time refresh Freshest, Chief Executive Officer, and Art Chadwick Chief Financial Officer before we begin I'd like to point out the during the course of this call. The company May make forward looking statements regarding expected future results, including.
Financial position strategy and plans future operation the tiny market than other areas of discussion, it's not possible for the company's management predict all risks nor can the company assessed the impact of all factors on its business or the extent to which any factor or combination of factors may cause actual results could differ materially from those contained in any.
Forward looking statement in light of these risks uncertainties and assumption the forward looking events discussed during this call may not occur in actual results could differ materially and adversely from the anticipated or implied.
Neither the company nor any of the person assumes responsibility for the accuracy and completeness of the forward looking statements. The company undertakes no obligation to publicly update forward looking statements for any reason after the data this call to conform these statements to actual results or to changes in the company's expectations for more detailed information on risk <unk>.
With our business refer you to the risks factors described in our 10-K filing which we filed with the FCC on March 2nd 2020.
Also during this call we will refer to certain non-GAAP financial measures, which we consider 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.
The only difference between GAAP and non-GAAP result is stock based compensation expense. Please refer to the press release issued today for a decent detailed reconciliation between our GAAP and non-GAAP financial results I'd now like to turn the call over to recession. Please go ahead.
Hi, there are good to have you all here today and thank you Leann.
I hope that you in your families are safe and healthy.
Hi time has continued to work productively from home as evidenced by a second quarter results, which at 21.5 million were up 36% or the same quarter last year.
Normally don't quantify or design wins and don't plan to do so going forward, but I wanted to share with you some remarkable progress and design wins in the second quarter. This year.
We had more than 300 across the entire product portfolio, including 50 elite and memory products.
On the product front, we continue to innovate and introduced two new products.
Entice you to one the differential lots of data.
Cascade, which has a first clocking product.
As discussed on last quarter's call, we talk a business would be impacted by the pandemic.
But the impact that transpired was less than we expected.
Communications and enterprise markets were up 20% sequentially, while industrial auto and aerospace was up 10%.
The one segment that was down was mobile our European consumer, which was down 14%, but was still less down than we had expected.
And art Chadwick will provide more details in his financial overview in a few minutes.
I want to talk about our increased focus on the communications enterprise and data center markets as part of a future growth story put a number of reasons.
One our technology is well suited to these markets, where we can solve difficult timing problems.
To the higher margin profile associated with these markets aligns well to a target gross margin.
Three these markets have longer product like product, lifecycles, which deliver higher revenue revenue predictability.
Once we had designed into these end products customers on less inclined to change suppliers.
As part of this tossed into communications, we introduced two new products. The S&P nine five unit one for optical modules and data center.
First clock I see the Cascade platform.
Well the night. That's 89 501 is a differential Mems oscillate that is based on a third generation Mems technology.
It offers 70 femto seconds of judo.
In half the space of existing products.
This enables customers to integrate more features deliver high performance and reduce development times.
Particularly in outdoor deployment. This device also offers outstanding resilience to environmental stressors, such as vibration high temperature in shock.
In addition to the 100 gig and you're trying to get gig optical modules in data centers. The nine times due to one is well suited for switches routers AD servers graphic cards storage controllers and positions us therefore to cat to capture meaningful share of market in these applications.
We'd also bringing outstanding value to our next product or Cascade, which is up first clock chip.
Which is a mems clock system on a chip.
This platform this cascade platform can be configured into five different products.
Tool club generators, one judo cleaner and to network synchronizes all to Configurable programmable set up on one platform.
All of these offer unsurpassed environmental resilience and end to end integration.
For example, we can act more robust and reliable then courts based solutions due to the in head and robustness of our men's and analog.
We believe that this hired resiliency and reliability is needed for the next generation the columns and enterprise hardware.
The integration of the men's resonator, the oscillator and block I see all three of which are in this mems clock system on the chip.
Eliminates the potential problems that are typically associated with using other kinds of clogs, which use external courts devices and have noise issues impedance mismatches unreliable startup and activity dips.
Since I am as the only producer of high performance Mems resonate airs oscillators influx, we are in a unique position to solve difficult timing problems and thereby delivering value to our customers.
In doing so we continue to strengthen our role as a trusted timing advisor to our customers.
And we believe that this also brings incremental revenue opportunities with the Aussie products.
Overall, excite them is well positioned to gain increasing market share and revenue growth the U.S. Chicago.
We expect strong growth in the second half of this year across all our segments.
With that I'd like to turn the call over to art.
To discuss a second quarter financial results and give you the third quarter outlook.
Alright, great.
Great. Thanks for Josh and good afternoon, everyone.
So we're very pleased to be holding our third financial results conference call as a public company.
During my review today, I'll discuss Q2, 2020 financial results and will provide guidance for the third quarter.
I'm going to 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, which exclude stock based compensation and related payroll tax expense.
Going into the quarter, we knew our business would be impacted by the end of it.
Especially our mobile aiotv and consumer business.
Business was impacted but not as much as feared.
Revenue for the quarter was $21.5 million down 1% from Q1, but up 36% over the same quarter a year ago.
To provide some color on end markets I'll report sales by market group as I have in the past.
The first is mobile aiotv and consumer which consist primarily of sales into mobile phones wearable devices and consumer products.
This was the segment most impacted by the global slowdown.
We ended the quarter, we expected sales might be down as much as 20% to 30% sequentially due to the pandemic.
Sales were down but not that much.
Sales in Q2 were $10.2 million or 47% of total sales.
14% sequentially and down 6% from the same quarter last year.
The second is industrial auto and aerospace, which goes into industrial automotive aerospace military application and includes broad based sales.
This segment was strong during the quarter as expected.
Sales were $6.1 million for 28% of sales.
10% sequentially and up 70% over the same quarter a year ago.
The third is comes in enterprise, which consists of wireless infrastructure, including Fiveg datacenter and networking. This was our highest growth segment this quarter with particular strength in data center.
Sales in Q2 were $5.2 million for 24% of sales up 20% sequentially and up 121% over the same quarter last year.
We had just one in customer in Q2 were sales exceeded 10% and sales to that customer were 26% of sales.
Non-GAAP gross margins for the quarter were 46.8% up 70 basis points from Q1.
Non-GAAP operating expenses were $11.9 million essentially flat with Q1.
Brides to 6.3 million in R&D, and 5.7 million NSG in a expense.
The non-GAAP operating loss was $1.9 million essentially flat with Q1.
Net interest and other expense was zero point $3 million.
This generated a non-GAAP net loss of $2.2 million or 14 cents per share on a fully diluted basis.
Stock based compensation expense and related payroll taxes were $3.4 million.
[noise] accounts receivable were 13.0 million down from 15.8 million in Q1 with Dsos at 58 days.
Inventory was 14.8 million up just slightly from 14.2 million in Q1.
We generated 3.6 million in cash from operations.
And used 3.2 million for the purchase of assets and taxes paid on RSU grants.
Our big financially than during the quarter was our follow on stock offering in June we sold 1.525 million shares of stock at $32 per share.
Getting $45.8 million after fees and expenses.
In addition, maybe chips sold 2.5 million shares of side time stock, putting those shares into the public float and this has increased our daily trading volume and liquidity of our stock.
Magnachip sale reduce their ownership percentage from approximately 66% to just 45% now.
In addition, we paid down $15 million of debt, reducing our debt from 50 million at the end of March to 35 million at the end of June.
In Q3, we plan to reduce debt, even more and may pay it off entirely.
We ended the quarter with $102.5 million in cash and equivalents.
[noise] [noise] I'd now like to provide guidance for the third quarter of 2020.
We believe the Kobin PEM pandemic, we'll continue to have some impact on our business this quarter, but even with that headwind we are expecting strong sequential revenue growth.
We expect revenue will be up 30% to 35% sequentially.
Which would put Q3 revenue of between 28 million and $29 million.
Driven in large part by strong demand in our mobile Aiotv consumer business.
In addition.
We believe there is a very good chance we may have additional revenue this quarter from a phone design.
We believe such a when would be for just one skew.
And shipments would not begin until later in the quarter.
However, any such revenue would be upside to the guidance I just provided.
In regards to gross margins with a number of initiatives within the company to expand gross margins and they're starting to pay off.
We expect gross margins in Q3 will increase to approximately 50% plus or minus a point.
So what that midpoint, there would be gross margins.
Three points higher than they were in Q2.
We're also aggressively managing operating expenses operating expenses will increase but at a significantly lower rates in top line growth.
Non-GAAP operating expenses are expected to increase between 2% and 4% sequentially.
Which at that midpoint would be approximately $12.3 million.
Net interest expense will decrease from Q2 to less than $150000 as we pay down debt.
Share count has increased as a result over recent stock offering the basic share count in Q3 will be approximately 16.8 million shares.
In addition, the dilutive effect of employee ours use will add approximately 2 million additional shares.
Taking the total Q3 share count use for non-GAAP EPS calculation to approximately 18.8 million shares.
Stock based compensation expense in Q3 will be approximately $4.5 million up from Q2 due to the higher stock price some new higher employee stock grants and the establishment of an executive performance stock bonus plan.
We expect non-GAAP EPS will go from a loss in Q2, two a profit in Q3.
Based on the guidance just given.
We expect Q3, non-GAAP EPS will be between eight cents and 12 cents per share.
So the coven pandemic still pose a certain challenges to how we run our business and to many of our customers. We believe we are well positioned for the second half of this year and beyond.
We have an exceptional workforce that is performing extremely well while sheltered at home.
We have differentiated products that address large and growing markets. We have a number of new products in the pipeline.
An enviable list of tier one customers.
And a strong balance sheet and with that I'd like to turn the call back to the operator for questions and answers. Thank you very much.
Okay.
At this time, if you like to ask a question I need to press Star then the number one on your Touchtone phone.
To withdraw your question press the pound Kim please standby goldblatt compiled the human a roster.
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And your first question comes from the line of Blayne Curtis with Barclays.
Hi, guys. They say my question and Great results, maybe a near term. One then a long term one near term can you just talked about the rebound in Iowa, you consumer mobile I know there was some uncertainty with Covidien you said, it's coming back.
But I also see the gross margins kind of coming up so just trying to understand the big move with the mix going to the.
Yes, lower margin part.
Good.
Pumps, you know just sheer volume driving margin better are you seeing better mix within segment.
So I mean all of that is good news blades right gross margins are improving for a whole variety of reasons. We've talked about some of these in the past you know we've been raising some some prices.
The mix obviously in Q2 was very favorable for us and that we hope will continue you're right. The consumer margins are generally somewhat lower than the corporate averages, but even within our consumer space. Our gross margins are expected to improve going forward.
Again mix within those products cost reductions that that are taking place, we're taking more sales direct and that cuts out middleman. So all the things that we've talked about to improve gross margins are happening taking place the higher volume also helps.
But it's really all those things combined so yet even with a higher expected mobile aiotv consumer mix next quarter, we're still expecting gross margins to improve.
More than.
Three points give or take from Q2 to Q3.
Thanks, and then just longer term you you mentioned the first clock product and that the primarily sold off later today and just kind of curious with it I think you said it can be five you. When you look at that Tam for clock trying to kind of equate that how much of that and you can address them I think youre going to.
I think it's maybe more of a next year event, but I'm just kind of curious you can be a perspective as to where you are in Boston and right what that address will cabinet.
Right, Yeah, you're absolutely right. The revenue is out in the future. It's a it's a almost diminimus amount this year, but next year. It starts to ramp up nothing substantial but it's all over the coming years that it's really going to make an impact.
As far as you know as we've said before that the total market fault blocks is about a billion growing to about 1.2 1.3 billion in the next five years.
We continue to look at the communications market as the best place for these clocks [noise].
And so I would say that with this particular product with the Cascade product. We are going put about a tam of around 20 to 30 million. So I think particularly large.
But what it is notable for is the fact that we as we said we are going to be during the IPO. We said that we are going to be full level systems player in the timing markets and we're going to be focusing on every aspect of signing so in a sense its fulfilling a promise to or invest.
Testers that we will be in blocking and I think it what it does is it changes the kind of conversation that beacon have right now when we go in with the high end product and oscillators like an elite toward Ambrose we are able to bring in the cascade as as a as a part of the system.
Solution.
As we go forward and as we introduce more products next year and the year. After we'll be able to also reversed the products the process, where we lead with the locking products and we'd be able to bring the oscillators in into those customers. So we think it's a highly strategic move and a few years from now.
Well, we think that revenue of this for this product could be a very high indeed.
And we think it's very promising market.
Thanks.
Thanks, Mike.
And your next question comes line of Tories Fundraise with stifle.
Yes. Thank you first question on the phone design win I know you only guide one quarter out but sounds like this is going to be sort of a late quarter event. So should we infer that that would be material enough that perhaps growth again sequentially in the December quarter.
[noise] so [noise].
Yeah. So we we have we had to thread the needle on this one right.
Because we've we've obviously been working towards getting such a design win as as you know and expansion of our business.
Well, we've also said that we don't want to bake it into anybody's numbers until we've shipped enough production parts that were confident that is real interesting.
And as of today August step, we're not at that point, but we do believe that there is a very good chance that we will have that design win it will be for we believe just one skew.
Shipments would would begin later this quarter and we're not including it in our guidance as I mentioned, so this would be incrementally positive to our guidance in Q3 and of course, we haven't given any guidance for Q4 yet.
Okay, that's fair and regression on the clock product or Cascade that first of all I assume this is five that would your main foundry partner and then should we assume the profitability of this platform to to be quite a bit higher than your corporate average.
Just given the amount, though a content you can get from a club like that.
Yeah. So we generally don't comment on where our products our fab.
So I won't comment on that but basically what I'd say is that.
It is in line with our corporate guidelines.
For our particularly going forward.
We viewed this first product.
As a more of a strategic a foot in the water products. So that we can start the conversations going with key customers.
We have a lot more of these coming up different versions and different architectures coming. So we just wanted to get connected to a customer's instructor get design wins, which we have.
Yeah.
Very good congratulations again.
Great. Thanks, sorry.
And your next question comes for line, Chris Caso with Raymond James.
Yes, so thank you.
Just another question on a on the phone win and then just maybe pardon me clarify why you chose not to put it in guidance is that.
Still some question of whether or not.
You've actually secured the socket or perhaps that's a question of how much revenue comes in within the quarter, because I guess, we know that.
In some cases until second half the timing of some of these launches have been affected my Colgate and I suppose that would affect how much revenue comes in the September quarter as compared to the December quarter.
Yeah, So Chris very very fair question, but my answers, we'd be very similar to a how he answered any minute ago.
We until we start shipping.
Production parts.
To at least a certain level, where we're comfortable that the design win is solid and we'll continue we've chosen not to included in our numbers.
And that's where we are today so.
Three months from now when we report Q3, we may have more to say about that but as of today I think it's very good news that we believe there is a very good possibility or in fact, a probability that this will happen, but until we start shipping production parts, we're not going to count it yet.
Got it okay. That's clear thank you.
A follow up question is just regard to Ah Ah you know the other segments and what you see through the second half in general.
And up you know, perhaps you could separate out some of the covert effects of some of the other markets against some of the design what affects and you suggested that are you expecting strong growth across all segments. As you go through the that second half maybe could you give some some color of of what's your thinking for those other segments.
Yes, so obviously the Oh go ahead go ahead and yes.
So obviously the the.
The most significant growth from Q2 to Q3 will be in a mobile aiotv, we we pretty much have the bookings. So we know what that looks like.
And in Q4, we would expect that segment to just drinking even more.
Just because it's the holiday season, and historically Q4 would be stronger in that.
Our other segments, we've got a number of design wins that continue to ramp and in the second half of the year, we would expect sales or those segments to be higher than they are in the first quarter.
I think [noise].
There will be an impact because the pandemic, we know a few of our customers that are delaying some of their rollout as result of the pandemic.
But we have factored that into our guidance.
With the numbers that we provided for Q3.
[noise] [noise] that's great. Thank you.
Yes.
And your next question comes from the line of Suji de Silva with Roth capital.
Hi, Rich I art, congratulations on the progress here and the momentum so entity in the third quarter timeframe, just the the non consumer mobile segment, <unk> industrial and communications.
Do you expect communications to continue to lead the growth here with the ramp up of additional programs is that the way to think about the percent growth leadership.
So for Q3 again I mentioned, we've got a couple of specific customers that are slowing some of their programs down in Q3, because of the Pandemics and again I have factor that into the overall guidance.
I think that the growth rate the sequential growth rate in Q3 in those segments will likely be less than they were going from Q1 to Q2.
Okay, but I also would affect them.
And without going into guidance for Q2, Q4, I expect those two to two.
Go very nicely from Q3 Q4.
The segments outside of the mobile Aiotv, so both industrial and and the comps space again.
Basing that comment on specific knowledge of specific customers and where they are with different programs. So I think the growth rates for those two segments slowed down some queues June acute three but I think they they accelerate again from Q3 to Q4.
Okay. That's helpful and a relatively quick follow up question here on the smartphone when can you say if that the customer that's new to side time or an existing customer.
Yeah, we.
We're not going to say, it's it's a phone design win so.
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That's that's how we're going to last of either [laughter] fair enough art Congrats again on the progress.
Great. Thanks, a lot Susie.
And your next question comes on line of Quinn, Bolton with Needham and company.
Hey, guys. Congratulations on the result, so I'll try one.
There you get it could you talk about who is there something that the value that you guys brought the competitors could bring that allows you to win that socket is this is it safe, perhaps millimeter wave where.
Your solution is performing better than tentative alternatives or if there's any you know what do you think technically allows you to secure that socket.
Yeah, I mean broadly speaking.
We have two categories reasons for people choosing us one is the performance area and in performance, we put in things like size.
And and quality reliability our into that mix.
The other up portion of it which we think is having.
The bigger impact overtime now.
Is the the supply chain value. So as you know we are always site time is always a fabulous company and our competitors in the courts World are in fact have to be factories have committed fabs and decide to feast or famine for them I think that.
Portion of the fact that in todays business in today's call bid. So there are a few companies in the Crystal was that have had significant issues with production either shutting down plans or flow or basically I'm not being able to open plants and so on that as we think put in.
And constrained in the world supply and it comes and goes so it's not a it's not quantifiable yet by us, but the supply constraint comes and goes so I think through an abundance of caution some of our customers are using us significantly for supply chain reasons, and just putting us into the make.
And that's why.
The getting the smaller skewed rather than getting the whole phone is part of the reason why attribute this to so we always get it because of performance reasons. There's always a performance reason to buy from site time, but in this case the supply chain is having a greater impact than.
Previously.
Got it and for your teaching just I missed it but could you reiterate the gross margin guidance for the third quarter.
Yes, so gross margins are improving very nicely from Q2 Q3.
I guided in Q3 to be at 50 percentage points, plus or minus a point so at 50% that would be a little over a three point improvement from Q2.
Got it okay again or is it sounds like I know, you're not giving guidance for the December quarter, but I think in answer to today you said all three segments look like they will grow again in the December quarter. It sounds like the gross margin trajectory should continue to increase into the fourth quarter on.
There are some real significant mixed shift, but coms enterprise and.
Natural auto Andy Reaccelerate in Q4 that doesn't sound like mix becomes an issue. So should we be thinking that gross margin continues to trend higher into the fourth quarter.
Oh, yes, without getting too far ahead of ourselves I think you know we're setting ourselves up for good gross margin expansion overtime I think going from Q3 to Q4, it will at least be at Q3 levels and likely a little bit higher.
Great. Thank you.
Thanks, Blayne I just.
And Blaine I just wanted to say one thing that on the Cascade Tam.
I looked at it a little carefully and it's up 15 million just for the communications portion of it.
And your last question comes from the line of Alessandra Vecci with William Blair.
Hi, everyone not congratulations on the excellent results just on the Indura platform, which I believe was launched in Q4 I was wondering if you could sort of update us on design win traction there part that you know in aerospace and defense and potentially if that's been pushed out a little bit as well.
Well I do decoded.
Actually we see no we see no stopping in in the design win activity in fact in some cases, it's been very.
Very strong and that's why I mean, I made a point of trading the numbers up 300.
Total design wins, including 50, an elite and and Emerald some of the elite.
In emeralds.
We're in good the Indura line. So I think we have a very strong broad based demand for into euro grade products and there's been no push outs in that market. In fact, as I said, we were gaining even more traction as we go and as it becomes a better.
The value of products that we bring.
Okay, great that that was very helpful and that's it for me.
Great. Thanks, Alex.
There are no further questions at this time I'll now turn it back over to our topic for any closing remarks.
Great I just wanted to I. Thank all of you for spending the time listening to our call.
We really appreciate it and we hope everyone has a great rest of the afternoon. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect. Thank.
Thank you.