Q2 2021 SiTime Corp Earnings Call
Welcome to <unk> second quarter, 2021 financial results conference call.
At this time all participants are in a listen only mode at the conclusion of today's conference call and instructions will be given for the question and answer session.
Anyone needs assistance at any time during the conference call. Please press the Starkey followed by the zero on your Touchtone phone as a reminder of this conference call is being recorded today Wednesday August for 2021.
I'd now like to turn the call over to Lee on Sievers Shelton Group Investor Relations Liane. Please go ahead.
Good afternoon, and welcome to <unk> second quarter 2021 financial results conference call on the call from side kind of a rejection of machine 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.
<unk> financial position strategy and plans future operations and the timing market and other areas of discussion. It is not possible for the company's management to predict all risks north and the company and assess the impact of all factors on its business or the extent to which any factor of combination of factors may cause actual results to differ materially from those contained and any forward look.
These 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 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 and the company's expectation for more detailed information on risks associated with our business. We refer you to the risk factors described in our 10-K filed on February 16th 2021, as well as the company's subsequent filings with the SEC.
Also during the 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 of provided in addition to and not as a substitute for or superior to measures of financial performance prepared in accordance with U S. GAAP. The only difference between GAAP and non-GAAP results of stock based compensation expenses.
Please refer to the press release issued today for a detailed reconciliation between our GAAP and non-GAAP financial results I'd now like to turn the call over to research. Please go ahead.
Thank you the yen.
Good afternoon, and thank you for joining on today's call.
We had accrued and the exceptional quarter.
Our results reflect the fundamental acceleration and our growth trajectory and I would say and forward by a year and a revenue.
Increasingly.
We have clear evidence of the conversion of the site and silicon men's timing solution.
Shifted into high gear with existing and new designs.
Over the past 3 quarters.
Year over year growth rate has increased.
For a more than 40% in the fourth quarter of last year for more than 60% in the first quarter of this year and now for more than double and this quarter.
We view this as the clear validation of the strategy.
The rapid adoption of new technologies that need precision timing and size and focus on the sector has accelerated market adoption of our products.
The programmability of of products.
Combined with the quality and Fabulous model the flexibility continue to bring back these customers, who now understand the value proposition even more clearly.
For example, and the automotive segment customer design and have taken off.
And there is an increased need for high performance starting solutions because of ease of electric vehicles a day.
And that automated driving and connectivity.
These views supporting the elements like radar Lidar cameras domain control units and those have surged in fact, the number of timing devices and the vehicle has increased dramatically to more than 50 devices today and continues to grow.
We now believe that automotive and cipher and could represent a 100 million business of $100 million business over the next few years.
We're also seeing similar adoption trends and data center and enterprise, which also has the potential to become a $100 million business and the next few years because of cloud vacation as cloud services providers expand and add new features and timing, particularly precision timing becomes key.
Critical for increasing bandwidth and lowering latency.
Increasing performance requires more of the economy, such as 100 G 400 gig optical modules and data centers, where our S. ICD 9 and 5 zero on families is being adopted at the very brisk rate because of its size and performance.
The need for lower latency is also driving new features such as time synchronization and servers, where elite and Emerald and families continues to be designed in.
To further quantify the enduring exploration of the <unk> business of design wins have doubled sequentially and the automotive industrial and aerospace markets and increased by 40% and the communications and enterprise segments.
As stated earlier, our unique systems approach to the timing delivers products that quarter on core just work customers like the fact that we're taking care of the precision timing needs, which are generally not their expertise.
The further appreciate site and programmable architecture that allows them to qualify of single part and configure it and multiple ways.
Last quarter I mentioned, how we've taken steps to reevaluate our pricing strategy and increased pricing on some products.
We can see those benefits here in Q2.
We've also secured long term pricing agreements with customers at a rapid pace in Q2, and I expect that this trend to continue as our customers focus on securing supply for the next 12 to 24 months.
The items Fabless semiconductor supply chain allows us to quickly respond to change and customer.
The demand, which is an advantage over courts, which is limited by the Capex heavy manufacturing.
And I'm pleased to note that we are well supported by our suppliers our strategy of close partnership with wafer Fabs has been rewarded as our partners use item is the growth opportunity and in addition to the Tam of total available market.
The continued to find more capacity to help us to meet our growth and our customer demand.
We've also expanded our partnership with the Assembly and test houses, where we have doubled of test capacity and all of the secure the capacity needed to meet demand for 'twenty, 1 and 2022.
As of last fit I believe we had and the Golden age of semiconductors and in particular.
Multi year high growth opportunity and the precision timing market with site on uniquely excels.
We have demonstrated our ability to execute on this need for high performance programmable timing solutions across the 300 applications and the past few years.
In summary, we're seeing the scaling of the items business.
And this forward shift is leading to a sustainable acceleration of our business.
We're on a waste of living up to our full potential and I am very excited about debt.
I'll now turn the call over to art to this kind of the second quarter results in more detail and provide the outlook for the third quarter of 2021.
Great. Thanks for Josh and good afternoon, everyone.
And I will discuss second quarter 2021 financial results and provide some guidance for the third quarter.
I'll focus my discussion on non-GAAP financial results and refer you to today's press release for a detailed description of our GAAP results as well as the reconciliation of GAAP to non-GAAP results.
First of all of Q2 was a very strong quarter on all metrics, we had exceptional revenue growth significant gross margin expansion and strong year over year net income growth.
Revenue for the quarter was $44.5 million up 25% sequentially and up 107% year over year.
Sales into our mobile Iot and consumer segment, which consists of sales into mobile phones wearable devices and consumer products were $21.7 million or <unk>, 49% of sales.
This was down 3% sequentially, but up 114% over the same quarter last year.
Sales into our industrial automotive and aerospace segment, which includes sales into automotive and industrial medical and aerospace military and broad based sales were $13.6 million were 31% of sales.
Up 88% sequentially and up 124% year over year.
Sales into our communications and enterprise segment, which consists of wireless infrastructure, including the <unk> datacenter and networking were $9.2 million or 20% of sales. This was up 58% sequentially and up 76% year over year.
Our largest customer accounted for 15% of sales. This quarter. This was down as a percentage of sales from Q1, which was the same pattern we saw last year.
As I've mentioned before we have a number of initiatives within the company to expand gross margins and the continued to pay off.
We had a significant step function increase in gross margin this quarter.
Non-GAAP gross margins were 61, 3% up more than 7 points sequentially and up more than 14 points over Q2 of last year.
Yes.
The sequential increase can be attributed to 3 primary factors first product mix was favorable sales into comms and enterprise and industrial and auto markets accounted for a larger percentage of sales than in Q1.
Second the current role for us.
Current robust pricing environment has allowed us to selectively raise some prices and lastly, the higher overall revenue provides more leverage on our manufacturing overhead.
Non-GAAP operating expenses were $17.6 million comprised of $9.1 million and R&D and $8.5 million and SG&A.
Non-GAAP net income was 9.6 million or 22% of sales.
With EPS of <unk> 46 per share.
This compares to $3.8 million or just 11% of sales in Q1.
Stock based compensation expense and related payroll taxes were $7.6 million essentially flat with Q1.
Trade receivables were $25.3 million with Dsos of 51 days down from 59 days last quarter.
Inventory was $18.5 million up from $15 million last quarter as we built inventory to support higher Q3 revenue.
During the quarter, we generated $4.3 million and positive cash flow from operations and invested $7.7 million and new capital equipment.
We ended the quarter, the $253 million and cash and no bank debt.
I would now like to provide some guidance for the third quarter of 2021.
I'll start by saying the transition from courts to Silicon has kicked into high gear as market trends continue to drive the need for higher performance timing solutions.
We are seeing a significant increase in demand, which will drive further sales growth and the second half of this year and beyond.
Additionally, customers are placing orders well into next year, which is giving us the best visibility we have ever had.
We expect sales in Q3 will increase to between $56 million and $60 million.
And which is about 30% sequential growth at the midpoint.
We expect sales to our largest customer to increase and Q3 to approximately 25% of total sales for the quarter.
We expect continued gross margin expansion due in this case, primarily to the current robust pricing environment.
Q3, non-GAAP gross margins are expected to be between 61 and 63%.
Operating expenses will increase as we continue to expand our workforce and invest and new product development Q3, non-GAAP operating expenses will increase approximately 15% sequentially to about $20 million.
The basic share count and Q3 will be approximately $19.2 million shares the dilutive effect of employee of <unk> will add approximately 2 million additional shares taken the total expected diluted share count to approximately $21.2 million shares.
Based on that guidance, just given we expect third quarter non-GAAP EPS.
Will be between 70 and 80.
<unk> per share.
We are not giving detailed guidance for Q4, but we are comfortable saying that we expect Q4 revenue will be at least 10% higher than in Q3.
And which will drive revenue for the full year to 75%.
Or higher growth rate.
On the topic of ESG, we continued to develop our company culture and line with basic ESG principles as I mentioned on our last call, we promote and inclusive environment by valuing the contributions of all employees and work to ensure our employees feel seen heard valued and respected.
We believe diversity makes us stronger of diverse workforce supports creativity and problem solving and better decision making.
We also believe it's important to minimize the environmental impact of our products and operations to ensure a sustainable future.
We continue to enhance our sustainability practices by developing and implementing policies to reduce our carbon emissions and consumption of energy and water.
So in summary, we are having a truly great year, our customers see our value proposition and are willing to pay for it.
Our product portfolio continues to expand with differentiated products that address large and growing markets.
We have an enviable the list of tier 1 customers the continues to expand and.
And we have a very strong balance sheet and with that I'd like to turn the call back to the operator for Q&A.
As a reminder to ask the question you will need the press star 1 on your telephone and again that is star then the number 1 on your telephone to withdraw your question press the pound key.
The standby, while we compile the Q&A roster.
And your first question will come from Quinn, Bolton with Needham and company.
Okay.
Alright, guys I was on mute hopefully you can hear me hey, guys. Congratulations on the on the great results and <unk>.
Particularly you saw on the gross margin.
Wanted to start there with your sort of pricing strategy it sounds like.
And you really only recently begun to implement selective price increases and so I guess to use the baseball analogy.
And in our U in <unk>.
With respect to price increases and.
Yes.
How long can and cannot continue.
Yeah.
I think we're kind of in the middle of it.
Haven't quite reached the last few innings, but we are well past. The early part we then come to price.
And we think of pricing and the following way.
As we had mentioned before and 70% or 80% of our business depending on how you count it were single sourced.
And we want to respect that with our customers.
And therefore, we are very very judicious with our price increases.
<unk> and the amplitude of the price increase and the frequency of it.
So we for example have many customers who may not have seen any price increases we may have some of the small customers, who don't see some of the bigger ones may see it, especially if they are.
Looking at it from a supply chain point of view.
As well so we're sort of in the middle of it I think of the taper off towards the end of this year.
And I think we'll be in good shape exiting this year and I'll just add to that and my guidance I did guide that our gross margins are going to continue to expand and Q3 and the reason for that and Q3 is primarily because of pricing. These are prices debt in some cases, we raised our core.
<unk> ago and.
There are stepped in over time.
It is a very robust pricing environment out there and we are right in the middle of that so.
We will see continued gross margin expansion in Q3 and Q4 because of that.
Great. Thank you for that additional color and then I wanted to follow up my second question.
You I believe mentioned that you have locked in the capacity for not only 21, but also 2022 I guess, if I were to step back for the beginning of 2021 and my guess is your 2021 outlook has improved dramatically relative to 6 years ago, and so I guess when you talked about 2022 and <unk>.
Talking and supply can you give us any sense of what kind of sequential increase that might encompass and and how much upside to the extent that you see another acceleration and demand.
Do you think you would be able to to support debt. If 22 plays out like <unk> seen and 21 play out.
Right.
So first of all I wanted to ensure that we are talking here about the capacity that's locked in on the back and on the test and Assembly side, which is also very important for us not on the wafer side on the wafer side, we continue to see tightness.
Just like everybody else does we added 180 nanometers, that's a very very tight node at TSMC and maybe even the world but.
Generally speaking our wafer fab partners have been very.
Helpful. Because of we have continued to pursue of solar partnership strategy, because we have long relationships with both Bosch as well as for TSMC.
But.
1 way of thinking about the site on the <unk> I want to make sure I leave with everybody with is that this is not an average growth jump quarter. This as we as I said at the beginning I see sort of a sea change I see a pull in of a year's worth of growth if you will.
And so.
And if we continue off of this at a $25, 30% growth rate for the coming year.
For the force be even greater but thats always been our stated goal and we're not walking away from that 25% 30%.
Understood. Thank you.
Thanks Glenn.
Our next question will come from the <unk> the silver with Roth Capital. Your line is open Hi, Josh Hi, art congratulations on the on the progress.
I mean, you guys have talked about the strong growth and.
Auto industrial and Thompson, and <unk>, and just I mean without kind of simplifying and I mean is that kind of growth sustainable or if not what kind of growth sequentially. What drove that kind of growth sequentially that allows that kind of growth to have upside to happen in a given quarter.
Right so.
It's 2 different things that are driving it but let's talk about what is.
What is sort of key but has a similar thing and both of them and in fact and other markets as well and that is that the need for high precision timing is growing because the world that we listened to the world that we purvey to which is the world of networking timing.
Hi, and communications and high end cars high and industrial military and aerospace that that growth is is very very high.
So that's taking us up the second is the density per device the density per and product of device, which could be.
Radio and.
And Oran or it could be of car <unk> or it could be.
Our military product.
And the density of timing precision timing is going up and finally, the functionality is going up as well, which means that the ASP goes up significantly for each of those units. So that's the sort of of the secular move up beyond that now inside that.
1 of the reasons I believe that we have been accelerated is because there is.
And acceleration and our end markets and the final sort of Cherry on top is the shortage and semiconductors, and particularly and timing. So that has brought customers to us that did not come to us sooner.
And once they come we have noticed that most of them tend to stay they stay for the performance. They stay for the service the stay for the technical capabilities of the product. So it's just a customer discovery.
And that has been going on at a faster rate on the back off of faster adoption of and products.
Okay. That's helpful color certainly with Josh and then just understanding I appreciate the <unk> outlook on top of the <unk> and if I could try and dig in a little deeper there just to understand your larger customer and consumer and general might have a stronger <unk> than <unk>. So of that the expectation. This year is there something running against that or are the other segments growing enough to allow for Q overall debate.
Up with the consumer with the the.
And the consumer customer typically having the typical back half profile, it's the other customers.
The other customers, Okay, alright, great Thats helpful. Thanks, guys, congratulations and thanks, Susie and thank.
Thank you.
Our next question will come from Alessandro Vecci with William Blair. Your line is open.
Hi, everyone and I Echo everyone else's, congratulations on unwillingness of the quarter.
Just to expand on <unk> question.
And it was fully understanding the need for high performance timing and the density for device going up.
And the strong growth rate over the last couple of quarters as well, but.
Do you really think flick the switch for for customers this quarter.
And that caused the inflection point, there's a little bit also the supply chain dynamics and the recognition of.
That's sort of the trials and tribulations and courts over the last year or if you could just help me sort of understand really what and when.
What's caused the watershed.
And that to happen this quarter.
I would say that the strong streak of customer adoption.
Precision timing and customer market strong growth very strong growth I mean, just to just we could not have imagined the growth in evs, Adas and connectivity and automotive for example, a year ago.
And would not have given those kinds of numbers at all so the end customer market growth is the big tide on which.
And this 1 factor of supply tightness has brought customers to us, but once they come to us. The fact that we of programmable. The fact that the qualified and the shortage time, the quantify of 1 part and they get.
Hundreds of different part numbers out of it.
And the quality the reliability and our focus on delivering these products has brought has.
Got them to stay with us. So we don't think that this is a flash and the fan adoption.
And that goes away when and shortages evaporate and this is a customer discovery for our mutual discovery of pipeline and by them of the suppliers us, which we think is going to continue to say, that's why we call it and acceleration.
Buys of by a year of growth.
That was incredibly helpful and makes a lot of a lot of intuitive sense.
And then similarly on the gross margin from an.
In terms of.
And the price range, how much of that is the like for like price range and how.
How much of the is.
On the.
The updrafts from from the mix shift change and some of the higher value products.
Yes, so Alex I'm not sure of quite understand the question.
Well I guess I think you said a quarter of Q ago that you had sort of raise pricing on.
And some of the legacy products as well.
And then sort of under undervaluing the products sort of I guess part of my question how much of the of the gross margin improvement is due to the price raises on.
And absolute basis on a like for like the.
First is just the general mix shift change, yes, certainly in Europe platform and the <unk> platforms.
Yeah, So I'll try to answer it in a different way so our gross margin increased substantially from Q1 to Q2 and I gave 3 primary reasons.
1 was mix 1 was pricing and 1 was leverage on our manufacturing overhead and I think each of those play and kind of equal weight. So that means pricing added a couple of points of margin this quarter and each of those other points added a couple of points of margin from Q2 of the Q3.
Again, I am guiding up and I think all of that guide up is due to pricing.
That makes sense.
Okay.
Thank you for that clarification.
Great. Thanks.
Great. Thanks, Alex.
And your next question will come from John Pitzer with Credit Suisse. Your line is open.
Good afternoon, guys. Thanks for let me ask the question on my first of all the clarification I know you guided revenue up sequentially in Q4, I thought I heard and answered. The Quinn's question that you also expect gross margins to be up again sequentially in Q4.
Did I hear that correctly.
So again.
I would sign away from giving detailed Q4 guidance I did say that we are comfortable saying that revenue in Q4 will be at least 10% higher than what we expect revenue to be in Q3, So revenue is going up and and.
Not just because of our largest customer is more broad based and that.
The answer a couple of questions ago, and then on gross margins are guided very specifically for Q3 that gross margins would be between 61 and 63%.
I think debt without quantifying it I think there'll be some additional gross margin expansion from Q3, the Q4, but.
I don't want to put a number on that today.
That's helpful. Thank you and then.
Just going back to your comments on your prepared comments about court's capacity, just being more capital intensive and.
Still trying to come fully up to speed with the businesses. You're in can you help me understand how long it takes to bring on quartz capacity and I guess importantly, you've done a good job.
Planing why customers once they come to you stay but I'm kind of curious how we should think about the pricing environment as the courts guys inevitably respond to the strong demand.
By building capacity.
Right so on.
Non expert and this so I'm going to venture to say its of 6 months too.
Between 6 and 12 months to build a factory for ex factory. That's 1 the second is that even when that happens.
I don't see a problem because the debt.
The sweet spot of the parts companies is of course resonate in other words, just the plain courts packaged and ceramic and sold.
Site and sweet spot is starts and the oscillator and other words men's plus and analog circuit and then it growth in that 2 of the highest performance of operators.
Whether its highest performance around capacity around stability around <unk> around phase noise around the temperature stability and.
Environmental stability.
So even if they were to come up we think that they are not strong, particularly this was not the native business to build analog circuits and combine them with.
With the.
Forest products.
And even when the do it their performance doesn't match, where we are so.
It's just the fact that it increases the customers coming to us because customers.
And are looking for support and are unable to find these products.
And they come to us not just for new design wins, but also where the current shift where they are and some significant.
Duress, where the current shift there and product and the need.
The products from <unk> in particular, and after we generally tend to take care of them because we have of flexible.
Supply chain, we can go to Bosch, we can go to TSMC, we can go to ASC and increase our capacity with them, it's not easy it's not a given but we can do it. Unlike court's capacity, which is let's say of 100 million units per month. It's done it's done and there is no flexibility in debt.
The increase and then once we get the design win customers typically tend to use 1 part but in many different configurations, where again, we shine, which is not the case with the fixed frequency fixed performance fixed configuration of course products.
We've adjusted that leads into my last question and maybe you already partly answered it but I'm curious if there is a lot of end markets you play into with relatively short design cycles, but theres also a lot with relatively long design cycles and I'm curious are you just seeing better demand for designs that you thought were coming or is the programmability.
Of your offering just allowing you to pick up sockets at a much faster rate even in sort of long design in and markets like perhaps auto and industrial.
Yes, all of the above and in fact the added.
Sure the of the added sprinkling on top of Niceness is the fact that and auto the people that we're dealing with are not necessarily the legacy people who have very.
Different views than a person and building a high volume of electric electric cars, who tend to see their electric car of the system and they don't have the 3 year qual cycles. They don't have the same degree of of rigidity.
Rigidity around thinking in those places and that's where the radar lidar. The camera is the domain control of the EC use the debt that is where we are shining not necessarily in 70, making.
Pickup trucks for example.
And even though I guess theres, a new electric pickup truck coming but so we have that we have new ways of our chips. The news we have people coming to us for all design and we have people coming to us for long legacy design and and that is why it based on the long.
Typical networking telecommunications for 5 year lifecycle, and that's why we continue to be so bullish about the future and Thats why I say debt for timing. This is this is a wonderful time to be so to speak and timing.
Right now, especially the high end of the precision and the timing not not and the typical lower and part of it.
Very helpful. Thank you.
Thanks, John.
Again, if you would like to ask the question that is Taiwan on your telephone keypad.
Okay.
And your next question will come from Saree Swedberg with Stifel. Your line is open.
Hi, and good afternoon, and this is Jeremy calling for Tori and just let me add my congratulations to everyone on office here on a fantastic quarter.
I guess first question in terms of the end markets.
And your guidance can you give us the breakdown and that in the past in terms of any of the growth expectations for each of these.
Yes, we were.
We're not that specific and our guidance for Q3, obviously, it's up substantially it's going to be and all of our major markets.
At the midpoint of the guidance.
We are expecting revenue to grow 30% sequentially from Q2 to Q3. So obviously, we had a great Q2, and Q3 is going to be even better but it's across all of our major markets.
Great.
And I guess in terms of.
And you're seeing such strong robust growth is there are there any like what's the gating factor right now in terms of.
And it's great growth of any of that Youre seeing but are there things of that.
And you see whether it's on your end markets, whether it's in your supply chain on why this and your customer supply chain, which 1 is like the critical of bottleneck at this point.
Yes at this point I only see of world events.
World events as gating factors for where we are we feeling pretty good shape otherwise.
Got it and maybe.
And if you can just give us a quick update on your new position resonator line.
How are.
The design is going there and maybe anything in terms of revenue expectations.
Yes, frankly, we havent been pushing.
Pushing that very hard right now we've been busy with the growth and the clocking business and the oscillator product lines. So as you can imagine that the resonator product line is significantly lower and ESP.
It generally does not exceed 2000 and.
Whereas all of the other products can go up to $7.510, even $15 for it.
It makes sense for us to focus and on the higher Asps and higher gross margin revenue.
Dollars.
And so we're focusing on debt.
Because this level of growth requires a very close and focus.
For not just volume units, but also the dollar units dollar revenue.
Got it thank you very much and convey alright, thanks, Jeremy debt.
Excluding the speakers I'm showing no further questions at this time you may continue.
Alright, and that case, we want to thank everybody for joining us on the call today have a great afternoon. Thank you. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
And.
[music].
Ladies and gentlemen.
[music].
And.
[music].
[music].
[music].