Q4 2020 SiTime Corp Earnings Call
Good afternoon, and welcome to sidelines fourth quarter 2020 financial results Conference call. At this time, all participants are in a listen only mode.
Today's conference call instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference call. Please press the star key followed by the zero on your Touchtone telephone as a reminder, this conference call is being recorded today Wednesday February three 2021, I would now like to turn the call over to Leann Sievers Shelton.
Group Investor Relations Liane. Please go ahead.
Good afternoon, and welcome to the site on fourth quarter and full year 2020 financial results conference call on.
From side time on Ritesh, Fishy, 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 is not possible for the company's management to predict all risks nor can the company assess the impact of all factors honest.
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 certainties and assumptions. The forward looking events discussed during the call may not occur and actual results could differ materially and adversely from those anticipated or implied neither.
The company, nor any other 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 date of this call to conform these statements to actual results or to changes in the company's expectations for more detailed information on risks associated with our business.
We refer you to the risk factors described in our 10-K filed on March 2nd 2020 as long as the company's subsequent filings with the SEC.
During this call we will refer to certain non-GAAP financial measures, which we considered to be an important measure of company performance. These non-GAAP financial measures are provided in addition to and not as a substitute.
Superior to the measures of financial performance prepared in accordance with U S. GAAP day.
On the difference between GAAP and non-GAAP results is stock based compensation expense, but please refer to the press release issued today for a detailed reconciliation between our GAAP and non-GAAP financial result, and now I'd like to turn the call over to Josh. Please go ahead.
Thank you Leann.
Good afternoon, and thank you to all those joining us on today's call site on continues to execute well.
The last quarter Q4, 2020 was another record with 43 million on revenue, which was above our updated guidance, which we provided on November 24th.
This revenue represents an increase of 23% sequentially and 43% year over year, driven by the broad based growth across all three of our end markets for the full year 2020. The total revenue grew by 38% over 2019, driven by increasing value and <unk>.
Our consistent execution in 2020, we also completed another milestone we surpassed 2 billion units shipped cumulatively.
<unk> will discuss our fourth quarter financials in first quarter 'twenty 'twenty one outlook later on the call.
We continue to focus on the communications and enterprise infrastructure market.
With timing performance is critical and our products solve difficult timing problems.
We have won 30 new designs in a variety of applications such as Orion remote radio heads servers optical module switches and routers, our ability to deliver superior environmental resilience and higher reliability was instrumental in winning these designs more specifically the rapid increase in <unk>.
<unk> is driving data center optical modules to move from 100 G to full on did you hear we are seeing many design wins with our recently announced 95 zero on the S. ICD.
90, 501 product. We are also engaged with the standards bodies and chipset vendors that are working on the next generation of 800 gig optical modules.
In the automotive market, we're seeing a similar growth trend with the rapid growth of electrical vehicle safety and driver assistance systems, we see a need for even more electric components in automobiles with up to 3000 Ics all kinds in an electric vehicle.
These electronic systems in the car all need by our estimate about 15 timing devices.
Our growth and success comes from delivering better stability resilience and reliability in the small size.
Even though we don't provide specific end market guidance generally I would like to share some numbers with us at this time.
The number of orders sold in 2020 declined by 34%, but all of our revenue guidance revenue from automotive increased by 55% and we forecast that it will continue to grow in 2021.
Our design win funnel value increased in 2020, driven by designs in a variety of cameras smart mirrors infotainment systems Ethernet EBITDA.
CPU active suspension, Lidar and EV battery management.
So you can see there is that these automotive designs have a life of five to eight years and so they'll provide further growth over the coming years.
One of the ways that we are trying to address the opportunities that come towards us is what we call our rapid product release strategy.
So our systems knowledge with continued investment in automation and the architecture, which is a programmable product architecture enables us to customize features bring them to market quickly and solve difficult timing problems with this strategy, we can deliver up to 15 derivatives 15 product derivative.
It's from one platform product. This strategy also allows us to address specific opportunities than supply constrained like it has been in the past few months on.
Newly released <unk> Phil.
<unk> is such an example in this case, we improved stability by up to 10 times by optimizing their algorithms and address a particular customer need. This device is ideal for consumer and Iot devices, such as Internet connected audio video over the top screening devices.
Mark meters and other devices that use low power wireless connectivity.
And typically by adding this kind of value. We're also able to get a higher pricing than typical commodity products, which is also a key part of our strategy.
Another example of a rapid release strategy is when we recently announced a notable win with ADT.
As <unk> is deployed widely operators can free up spectrum by sunsetting, all technologies such as <unk>.
Or <unk>.
As it turned out.
However, their existing applications, such as home security systems that use the <unk> technology and that need an upgrade.
Bonds, which is a division of ADT needed a very stable signing solution that would enable the successful three to <unk> conversion of existing home security panels without expensive truck rolls to enable this conversion sell balances performance requirements with stringent, but we were able to rapidly optimize.
Our elite platform Super Tc XO to meet these requirements, resulting in a site on solution that delivers 10 times better performance than the existing solution.
On.
The state of the semiconductor business today I wanted to make a few comments on the industry dynamics and supply chain since that's top of mind for a lot of people.
The quartz industry has continued to be disrupted most recently by a fire at a supplier to the quartz industry.
This impacted supply chain and manufacturing capacity.
This market these market dynamics have created opportunities for some time, because because of our responsiveness, we've been able to secure incremental opportunities and wins across a number of new and existing customers.
Further on this are fabulous multi source supply chain continues to serve as a strategic advantage per site time, especially during periods of tightness in the broadest sense supply chain.
While we have seen lead times increase in recent months, we continue to work closely with customers to deliver products on the time that they need suppliers, where also the suppliers to the semiconductor industry in general view, Saudi times men's timing solutions as a growth opportunities that is in fact, the net add to the total available market.
On the Tam so basically our silicon timing solutions are bringing additional tam for the semiconductor industry as we are replacing our non semiconductor solution courts.
In conclusion, we continue to extend <unk> leadership in timing.
And we remain uniquely positioned to continue to disrupt the market with our ability to offer complete timing solutions timing itself. As I've said before is a critical function that is increasingly important as faster connectivity becomes more and more relevant more and more ubiquitous our systems knowledge and having.
The three product categories in house uniquely oscillators, Clarkston resonators allows us to better design products for our customers and solve the world's stuff timing problems.
With that I'll now turn over the call to art to discuss our fourth quarter results in more detail and provide our outlook for the first quarter of 2021.
Part.
Thanks, Jess and good afternoon, everyone.
During my review today, I will discuss fourth quarter 2020 financial results and provide some guidance for the first quarter of 2021.
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, which for us exclude stock based compensation and related payroll tax expense.
So to begin with the fourth quarter was a record quarter on multiple fronts.
We had strong revenue growth continued gross margin expansion and record non-GAAP net income.
We increased revenue guidance mid quarter and actual results exceeded that mid quarter guidance.
Revenue per the quarter was $43 million up 23% sequentially and up 43% over the same quarter last year.
Revenue for the full year was $116 $2 million up 38% year over year.
To provide some color on end markets, our reported sales by market group as I have in the past.
The first is mobile Iot and consumer which consists primarily of sales into mobile phones wearable devices and consumer products.
Sales into this segment were seasonally strong across many customers, including our largest customer.
Sales were $27 3 million or 68% of total sales.
This was up 31% sequentially and up 47% over the same quarter last year.
Sales in this segment for the full year were up 28% year over year.
The second is industrial automotive and aerospace which include sales of products into industrial automotive medical aerospace military and broad based sales.
Sales were $6 9 million or 17% of sales up 7% sequentially and up 31% over the same quarter last year.
Sales for the full year were up 31% year over year.
The third is communications and enterprise, which consists of wireless infrastructure, including five G data center and networking sales for the quarter were $6 $1 million or 15% of sales up 13% sequentially and up 45% over the same quarter last year.
This was the fastest growing segment for the full year with sales up 104% year over year.
Okay.
We had just one end customer during the quarter, where sales exceeded 10% of the total and sales to that customer were 48% of total sales.
We had continued gross margin expansion this quarter non-GAAP gross margins were 53, 5% up 140 basis points sequentially and up more than five points over the same quarter a year ago.
Non-GAAP operating expenses were $13 $2 million up 5% sequentially comprised of $6 $7 million on R&D and $6 5 million in SG&A.
Yeah.
Our strong revenue growth, coupled with expanding gross margins generated a record non-GAAP net income of $8 3 million or <unk> 43 per share.
Compared to $4 4 million per 23 per share in the third quarter.
Okay.
Stock based compensation expense and related payroll taxes were $6 $3 million up from $5. One in the third quarter due to the higher stock price new employee stock grants and performance stock bonus plan.
Trade receivables were $23 9 million up from $17 2 million in Q3 due to the higher revenue this quarter.
As always were 53 days.
Inventory was $12 4 million down from $15 2 million at the end of the third quarter due to the high volume of shipments in Q4.
We generated eight six excuse me, we generated $6 8 million in cash from operations and consumed $2 4 million with the purchase of equipment and assets, which gave us an ending cash balance of $73 5 million and no bank debt.
I would now like to provide some guidance for the first quarter of 2021.
We expect sales in Q1.
Will be between 32 and $34 million.
This is down from Q4 due to normal seasonality, but at the midpoint represents 50% revenue growth over the same quarter last year.
Non-GAAP gross margins are expected to be between 52 and 53%.
Which would be up more than five points over the same quarter last year.
Operating expenses are expected to be approximately $15 million. This is an increase from Q4, due primarily to new hires and beginning of the year payroll taxes.
The basic share count in Q1 will be approximately $17 3 million shares the dilutive effect of employee Rs use will add approximately $2 2 million additional shares taking the total diluted share count to approximately $19 5 million shares.
Stock based compensation expense will be approximately $7 million, an increase from Q4 due to a new employee <unk> grants and the higher stock price.
So based on the guidance just given we expect first quarter non-GAAP EPS will be between 10 and 14 cents per share.
So we are not giving full year financial guidance I would like to offer a few comments about the year.
First of all the trends that are driving the need for high performance timing solutions should continue to drive significant revenue growth in 2021.
In each of our major market segments.
We were expecting a very strong first half of the year.
Which means our usual seasonality will likely not be as pronounced as in past years.
In addition, our initiatives to expand gross margins should continue to pay off.
We expect gross margins for the full year to increase by at least 300 to 400 basis points over the prior year.
We are expanding our workforce as we increased investment in new products and technology, but we'll keep our opex growth rate less than our topline growth rate in order to drive increasing operating margin expansion.
Yeah.
So in summary, we have an exceptional workforce that continues to perform well while working from home.
Our product portfolio continues to expand with differentiated products that address large and growing markets. We have an enviable tier a tier one customers our strong balance sheet and we're looking forward to a great 2021, and with that I'd like to turn the call back to the operator for Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please stand by we compile the Q&A roster.
Our first question comes from tore Svanberg with Stifel. You May proceed with your question.
Yes. Thank you on congratulations on the very strong results.
First question is on communications and enterprise.
Just you talked about 30 new design.
Is there any way you could talk a little bit about that but the timing on when those will start ramping into production.
Yeah, I mean actually Terry Thank you.
We are ramping up on these right now it's a slow ramp it's not an overnight DRAM and as we've discussed in past calls.
They're not all just pure play <unk> some of them on satellite some of them are computing some of them are.
In the networking area and so as such the ramp is.
Spread out over time, it's not a.
It's not typically like communications that it takes 18 months for these to ramp up so I would say that theyre ramping through 'twenty one into 'twenty two.
Understood.
A little bit about 400 gig optical modules and that being an opportunity.
Based on our work that market is going to start ramping quite meaningfully in the second half of this year.
Would that be sort of when you expect those those design wins to start ramping.
Probably middle of next year is my is my forecast.
Because these are a lot of work that we're doing with <unk>.
The future standard bodies, I think theyre still in work, they're still influx, there's still some details that need to be ironed out. So I would say about a year from now maybe slightly more but on the year from now we should start to see.
Some of the Rollouts.
Great just one last question for art.
So our days are at 60 days.
Pretty pretty low, but I think all companies now have low levels.
Could you walk us through a little bit how you how you.
Expect to increase your capacity on your inventory throughout the year.
Sure, Yes, our inventory is up.
Mentioned in my commentary it actually went down during the quarter, even though sales went up and of course those two are somewhat related.
We will start to build inventory back up during the course of 2021. So you should expect it to increase in Q1 and beyond.
We are ordering ahead on wafers, both Mems and RF Cmos wafers. So that we do have adequate supply to satisfy this pretty strong demand that we're seeing.
Certainly in the first half of this year and hopefully for the entire year.
Sounds good congratulations again.
Great. Thanks.
Thank you. Our next question comes from Quinn Bolton with Needham <unk> Company. You May proceed with your question.
Hi, guys. This is Michelle on for Glenn Thanks for taking the question and congratulations on the nice results.
My first one.
In terms on the positive present.
Third quarter guidance.
Can you just walk us through what changes on the few weeks that when you provided your guidance.
Guidance for the fourth quarter on your September earnings call and just any color there on on what drove the upside would be helpful.
Are you talked on the upside from when we gave guidance early in early November to later in November or from later, yes on branch off now.
Yeah exactly.
I guess the overall, but on.
Both both time periods would be helpful. Sure. So I'm actually going to walk us back to Q3 per minute because it's the same trend that we saw in Q3 going into Q3, we provided guidance with had pretty substantial sequential revenue growth going from Q2 to Q3.
So we felt good about that we gave that guidance order rate just was extremely strong through the course of Q3 and we increased our guidance.
At the end of August because of that and we ended up beating that number kind of the same scenario going into Q4, we raised our number going into Q4 order rate has been extraordinarily strong we had by far.
The largest record bookings in Q4 than we've ever had by a large margin.
And so we did raise guidance at the end of November and we beat that.
Modestly by the time, we finished the quarter. So I attributed to basically overall strength in our market and again order rates have been extraordinarily strong for us.
Okay.
Great. That's helpful. Thank you.
And from my follow up with the supply chain issues that have taken place.
Last year in the quartz industry.
Is that leading your customers to change how they view and assess the diversity within their supply chain.
Just kind of wondering if there was any opportunities.
For you guys just based off of our customers trying to.
First of all by more.
Went from these core industry.
Yes.
So we had a very specific event that we talked about earlier, which was.
Constriction in the supply of courts.
That was of course, a kind of a very.
Short term event, but it was very pronounced.
But what it led to was many of the consumers of the quartz products did not for example, no that they were.
For example, they may have been getting products from five different vendors of course, but they did not know that the analog component was coming from one factory. So what looked like a diversification was really on all coming to them. So I think it was a bit of a.
A wake up call for some people in the industry and so there was a short term impact.
And then there was a longer term impact on the long term impact I think is going to continue for a while if you overlay on top of that a general tightness in the semiconductor industry.
Then you have.
<unk>, where it's a little bit of a perfect storm and as art has already indicated we had a very very good bookings quarter in Q4.
And we were a little bit.
Cautious in making sure that they werent any double bookings going on double booking going on and we're pretty satisfied that there were none or non debt made it through to our system, but of course, you never really know, but in general I think we've been very assiduous.
And making sure we have a very clean.
Bookings overall.
The other thing I'll point to make is that we are.
We do solve tough timing problems, we are not a commodity supplier so.
We do charge a premium so as such.
Those who use our products.
Recognize the value of our product whether its in performance on supply chain or on quality and so they tend not to move away once they want to adopt the <unk> solution.
Okay. That's very helpful. Thanks, again, guys and congrats once again on the nice quarter of results.
Great. Thank you Michelle.
Thank you. Our next question comes from <unk> Desilva with Roth Capital You May proceed with your question.
Hi, Josh Hi, art micro Grad, so congrats as well on a strong 20 there.
Following up on the last question about the ordering and visibility can you talk about if I missed this what are the lead times, you're pointing to customers on whether you've been able to keep them under check by ordering wafers aggressively.
Yes, I think one thing we have done is we have sort of played it wisely for the company both ways.
While we have been.
Very good at ordering and giving our supply chain.
A lot of transparency into our needs I think we've done a very good job of debt, whether we are dealing on a men's wafers or TSMC wafers or indeed, the backend. We've also gone the other way a little bit and make sure that.
We tell our customers and our distributors that lead times are in fact going up because I don't think theres any any walking away from that fact that lead times have gone up because there is a tightness a lot of our products come from TSMC 118, nanometers, which is one of the biggest.
One of the biggest capacity that they have at TSMC, but it's also one of those debt is very popular and.
And so we have recognized that debt.
Continuing trend through this year, 'twenty, one and maybe well into 'twenty, two and perhaps even beyond that so we have quoted longer lead times, but they are well within customers.
Requirements.
And we do a good job of managing debt.
Okay I appreciate you're working through the same challenges the whole industry is.
And then art if you talked about this already the first quarter outlook can you talk about what that is by segment.
To get some color around the guidance.
So I'm not going to refine my guidance that precisely for Q1, but what I will say is.
The decrease from Q4 to Q1 is all in the mobile Iot and consumer space, We're expecting segment growth in industrial and comms and enterprise going from Q4 to Q1.
And the deep in the decrease in mobile Iot and consumer that is just kind of on normal seasonality and its even less seasonality than we've seen in past years.
Okay last quick question, perhaps from a casual why do you think you're doing well and it's just going to add I was just going to add one thing to that sorry and.
Our largest customer as I mentioned in my my discussion was about 48% of our sales in Q4 based on my current internal forecast that drops to probably about 35% of total sales in Q1, plus or minus so you can see what's decreasing from Q4 to Q1 kind of based on those those.
<unk>.
That's very helpful Art and then last quick question for Josh in optical.
It's impressive you're winning there what are the factors that are helping you win designs you think versus the competition as that market starts to come on line.
Yeah, I mean, it's a very specifically, it's the bandwidth, but its bandwidth with size and temperature. So I think those are very very important pieces in there and the fact that we have.
Also performance factors like jitter and stability to go with it I think it's.
I'm very gratified with that Wayne designed those design wins, because the product was introduced relatively recently last year on I think around the Q3 timeframe.
And has done very well for us and we're very happy with it and continues to do well.
Great. Thanks, guys.
Great. Thanks.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Alex <unk> with William Blair. You May proceed with your question.
Hey, this is Jake on for Alex Congrats on the great quarter. So you talked a lot about ordering ahead on wafers and some other materials. Just curious if you have any view on the impact on the supply constraints on the gross margin trajectory in both the near and kind of longer term.
Well, we think there may be in future, we havent seen anything yet, but most of our gross margin is pretty it is.
Not based on.
Our increase in gross margin not based on either increasing prices because of shortages or decreasing gross margins because of costs because of.
Costs from our supply chain, but I think it's possible that in future.
The increasing cost me.
May happen, but we have no evidence of it. It's just that we are careful that.
We're in new territory here, because I think this is not.
A quarter or two quarter or one year shortage I think this is sort of a secular shortage because.
People forget that semiconductors are desperately needed for all the Adas all the automotive the fight G. The healthcare the computing all of that and I think this is a wonderful Renaissance Stein wonderful Golden period.
For semiconductors in general so we have our eye on supply chain.
But as of now unlike some people that we have heard anecdotally, we're not raising any prices.
Yes, so Jacob I'll add to that also yes, just to make it clear.
Gross margin expansion that we have had and that we expect to continue in 2021 is not coming from reduced wafer pricing at this point.
The gross margin expansion is coming from new products, which generally have higher asps higher gross margins and as that becomes a larger percentage of our sales that increases gross margins. We're starting to take more sales direct so that bypasses the distributors that improves gross margins, we get great leverage on our manufacturing overhead as overall.
Sales go up and we've got a number of other initiatives internally, we've got a list of 10 initiatives.
Debt, we are working on that have expanded our gross margins and that we expect will continue to expand our gross margins.
That sounds great. Thanks for the color and congrats again on a great quarter. Thanks.
Thanks Jake.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to art Chadwick for any further remarks.
Great. What there are no further questions. We will conclude the call. This afternoon on when I. Thank everybody for joining us today have a great afternoon. Thank you.
Thank you guys.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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