Q3 2021 SiTime Corp Earnings Call
Okay.
Okay.
Hello to differ materially from those contained in any forward looking statements in light of these risks uncertainties and assumptions. The forward looking events discussed during this call may not occur and actual events could differ materially and adversely from those anticipated or implied neither the company nor any other person assumes responsibility for the accuracy and compete.
<unk> of the forward looking statements. The company undertakes no obligation to public up publicly update forward looking statements for any reason after the date of this call to confirm these statements to actual results or to change the company's expectations.
For more detailed information on risk associated with the business. We refer you to the risk factors described in our 10-K miles on February 16th 2021, as well as the company's subsequent filings with the SEC.
Also during this call we will refer to certain non-GAAP financial measures, which we considered to be an important measure of company performance. These.
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 us GAAP. The only difference between gap and non-GAAP results as stock based compensation expense. Please refer to the press release issued today for a detailed reconciliation between gap and non-GAAP final.
Actual results with that I'd now like to turn the call over to adjust for his opening remarks. Please go ahead.
Thank you Brett.
Good afternoon, and thank you for bringing us on today's call.
I'm pleased to say that Saipem continues to achieve tremendous growth with Q3 revenue up 42% sequentially and up 92% year over year.
Additionally, in every quarter for the past six quarters, we've consistently grown revenue in margins year over year.
It's clear to me now that we are in a new phase of sustained high growth and that time time is in the early innings of a long game.
Is the market of our choice.
A high performance high availability dymond.
Driven by adoption, the new applications across multiple and markets such as communications enterprise automotive industrial and medical.
As a result, we are focused on taking advantage of this unique opportunity through an aggressive customer acquisition strategy.
We're continuing to seize the initiative by accelerating development of new high value solutions for customers need.
While we never underestimate competition as of now Accretable competitive timing threat is not visible.
We believe sideline will continue driving high growth rate for years to come.
Looking back of the Covid driven disruptions over the last 18 months, we were challenged by the changes in our business and the overall market dynamics.
We now see this as a crisis, we multi this crisis as the trigger for a long term change and and markets.
One that is driving rapid adoption of new higher performance technologies that need precision timing the.
The automobil than data centre enterprise markets are great. Examples of this trend and we believe they could each become a 100 million dollar business for some time over the next few years.
Particularly the automotive market has recently latched on to the value proposition of our products due to the increased popularity of EV electrical vehicles, which used more electronics than the average car.
Highlighting that strength in this market is the fact that our largest automotive customer.
Is expected to emerge as a number two customer in 2022.
In data Center Davis under continues to be a fast growing and market for us a few years ago, we started winning designs and servers storage cards at pier one data central customers.
Since then we have one designs at 10 customers in ink high value applications like servers highspeed into the next smart mix and acceleration cards.
Additionally, the density of time design lines.
That is the number of design wins per unit system unit in data centers is increasing.
Previously I would reference or companion approach.
Where we had design them with one anchor Python products, such as an elite Super can see itself.
And then we get to sell additional products in the system that as a companion chips to that Super <unk>.
With this approach we believe that the customer gets a better solution and we increase of course the site I'm dollar content by sometimes up to three times three eggs.
Today, we have seven customers in the data center market each using a combination of two to four devices from sideline such a super <unk> clock differential oscillators and so on.
The opportunity that these customers are already work $30 million, an annualized revenue using this approach.
With a new role higher value products, we are accelerating a market penetration.
And the same time and 90 501 differential oscillator as an example of this.
We announced this product a year ago and have gained excellent tracks and data center optical and networking customers.
Well, we initially expected to have 15 design. When for example, we now have curving with an additional 50 opportunities.
This together makes up a funnel or $15 million, an annualized revenue far exceeding our expectations when we launched the product.
2022 forecast from this product is going four times are xxxx from the beginning of 2021 is the continuing to grow the opportunity pipelining These market.
We also see an emerging trend where technologies and products developed for one market are being adopted and others, which opens up of course additional opportunities for us.
For example, the data center architecture is now being used in Cu are centralized units and do use a distributed units in the Oran infrastructure and.
In the off opened radio access network structure.
This creates incremental demand for a high precision oscillators and plots.
And another example is the adoption of Ethernet connectivity or Ethernet based connectivity in cars.
Which in turn generates incremental demand for the ultimate mortal grade differential oscillators, which will not used previously.
In this application.
<unk> is a product innovation company.
And with these innovations will increasing the rate of a new product introductions again to accelerate customer traction.
In 2020, we introduced three new major products in 2022, we will double the introduction rate with six major products.
Our innovation rates will continue to grow in subsequent years and this will drive to a higher customer adoption across multiple segments and applications.
Regarding the supply chain environment, we expect current supply constraints to continue through 2022.
<unk> has been very successful at navigating this type situation with our close partnerships with wafer fab and a multi source of supply chain.
While this is increased product costs and these will increase over time.
Value has helped to sustain higher prices, which has of course favourably benefited our gross margins.
The need for customers to secure supply along with the advantages offered by our supply chain compared to the alternative technology using courts has continued to provide a favorable environment for the <unk> time to negotiate longer term customer contracts.
In summary, the world of timing is enormous there are many pieces that type and to date doesn't get touch or compete in <unk>.
Given the strong competitive mode of a precision timing solutions. We are acting now strongly to take advantage of this unique opportunity. This.
This includes investing in further expansion of a product portfolio.
And an aggressive customer acquisition strategy.
I look forward to many years of growth at Saigon.
With that I will now turn it over to our Chadwick our CFO Greg.
Great. Thanks address and good afternoon, everyone.
Today, I will discuss third quarter of 2021 financial results and provide some guidance for the fourth 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 the reconciliation of our gap to non-GAAP results, which excludes stock based compensation and related payroll taxes.
Well first of all we had another great quarter on multiple fronts, we had strong revenue growth and significant increases and gross margins operating margins net income and cash flow.
Revenue for the quarter was $63 million up 42% sequentially.
And up 93% year over year.
Sales into our mobile Iot and consumer segment, which consists of sales into mobile phones wearable devices and consumer products were $31.9 million or 51% of sales.
This was up 47% sequentially.
And up 53% over the same quarter last year.
Sales into our industrial automotive and aerospace segment, which includes sales into automotive industrial medical aerospace military and broad based sales were $29 million or 33% of sales.
This was up 54% sequentially.
And up to 127% year over year.
Sales into our communications Enterprise segment, which consists of wireless infrastructure, including five G datacenter and networking where $10.2 million or 16% of sales. This was up 11% sequentially and up 90% over last year.
Sales to our largest and customer accounted for 20% of sales this quarter.
And of that business more than 90% was non phone.
We had another step function increase in gross margin this quarter non-GAAP gross margins were 66.9% up 560 basis points sequentially.
And up 1400, 80 basis points year over year.
Gross margins were up due to a strong pricing environment. Some high margin turns business and increased leverage on our manufacturing overhead.
Non-GAAP operating expenses were $21 million comprised of nine $9 million in R&D, and 10.2 million and SG&A.
Non-GAAP net income was $21.9 million or 35% of sales.
With earnings of one dollar three per share.
This was more than double Q2, non-GAAP net income of nine $6 million.46 a share.
Stock based compensation expense related payroll taxes were $8 million receivables were $32.5 million with dsos.
47 days down from 52 days last quarter and inventory with 19 6 million up slightly from $18 $5 million last quarter.
We generated $24 million in positive cash flow from operations.
And invested $10 5 million in Capex.
As a result, we increased our cash balance by 13.5 million and ended the quarter with $267 million in cash and no bank debt.
I would now like to provide some guidance for the fourth quarter of 2021.
The positive trends, we have been experiencing will drive further growth in queue for.
With sales increasing between 10 and 15% sequentially at.
At the midpoint that would be approximately $71 million.
And we expect sales to our largest customer will be about 20% of sales.
We expect queue for gross margins will be between $64, 66% down slightly from Q3 due to seasonally higher consumer sales.
Operating expenses will increase as we spend our workforce and invest in customer acquisition and new product development respect queue for non-GAAP operating expenses will increase between 10 and 15% sequentially.
Which at the midpoint would be approximately 22 $5 million.
The basic share count in Q4 will be approximately 19.4 million shares to dilutive effective employee are as usual at approximately 2.1 million shares taking the total expected diluted share count to approximately 21.5 million shares.
Based on this guidance, we expect fourthquarter non-GAAP EPS will be between one dollar five and $1.15 per share.
So we're not getting formal guidance for next year I would like to offer a few comments.
We believe the strong trends were experiencing this year will continue.
We plan to aggressively invest in customer acquisition product innovation and expanding our markets.
We are well positioned for significant growth and believe we can grow revenue next year by at least 30%.
We will continue to execute on expanding gross margins, but there will be some material cost headwinds wafer and back and manufacturing costs are going up for example, TSMC has publicly stated they are raising prices by 20% or more.
We also expect increasing assembly and test costs.
These higher manufacturing costs will likely depressed gross margins by up to $2 to three points all else being equal.
Over the last two years, we've managed opex growth at about half the rate of top line growth, which helped expand our operating margins.
Now that margins are closer to our target range, we will likely manage opex growth at a rate closer to our top line growth.
This will allow us to invest aggressively while still maintaining healthy operating margins.
I'd also like to make a comment about capex one of the impact of the pandemic is that it has limited manufacturing capacity at some of our assembly and test subcontractors.
In response, we've been purchasing some of our own manufacturing equipment, which we located at our subcontractors to add dedicated capacity tend to lower costs.
We plan to add additional capacity next year, increasing our capex budget from approximately $30 million this year to approximately $40 million next year.
So in summary, we are having a great year, our customers are clearly recognizing our value proposition our product portfolio continues to expand with differentiated products that address large and growing markets.
We have an enviable list of tier one customers.
Strong balance sheet.
And expect further growth in Q4 and beyond.
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 keypad again, if you have questions. At this time. Please press star one on your telephone keypad.
Yeah first question comes in the line.
Downgrade from Stefan Your line is now open.
Yes, Thank you and congratulations on the very stellar results.
First question for <unk>, you talked about oil, obviously being a very important market for your next year sounds like data center too.
Between those two and then I know this is a difficult question to answer but between those two which ones do you think that grow relatively faster for years and toy twitching.
Yeah. Thanks story.
I think data center is relatively easy answer it's also somewhat cautious answer.
Automotive as I indicated last time and this time was a bit of a surprise for us we didn't quite appreciate like a lot of people the surge in electric vehicles and the surge in timing solutions, specifically when that electric vehicles surge happened the data centre modest market enterprise.
Market is certainly well understood but.
And so because of that it's the clear safe and an obvious choice on the other hand as time goes on I expect that automotive will transition.
Continuing to transition to electric vehicles, as we know and so perhaps it's more of a short term long term.
Conversation rather than anything else.
Very good and as a follow up it just <unk>.
Elaborate a little bit on the gross margin so obviously.
It's an incredible number.
And you talked about that being driven by mix.
The mix, obviously approved away from some of your more consumer markets, but.
I would think that even within the mobile and Iot business that gross margin went up and then when you talk about next year.
Sort of to to to go to base much pressure just to clarify is that from the current level or would that be from the average gross margin in 2021.
While certainly from the average gross margin in 2021.
And that's all else being equal again, I mentioned that we still have a number of initiatives and the company to increase gross margins as you know our newer products are generally higher ESP higher gross margins.
Aspie higher performance higher gross margin so as those become a larger percentage of our sales over time that'll improve gross margins, we still get leverage on our manufacturing overhead as the top line increases.
We do have the headwind with.
Increasing material cost as I mentioned in my commentary.
Great and just one last one if I could.
You talk about at least 30% growth next year I assume you have already very good visibility towards that number for you.
Yeah. So we didn't talk about on this call, but in past calls we've talked about the fact that our customers are placing orders many quarters out.
So that has given us the best visibility we have ever had so we believe we've got.
Excellent visibility into next year, so we're putting a floor on what we think our growth rate is if things work well it could be higher but right now we're comfortable saying that we believe we can grow at least 30% next year with good visibility.
Sounds good and congratulations again to the whole team great victory.
Your next question comes from the line up on a hanger vaccine from William Blair. Your line is now.
Hey, guys I echo that congratulations.
Just one question.
Given the large market sizes again for data center in auto mode and can you update us on how you are seeing the San now for men's oscillators that believes in the past few years.
Referenced it in a billion to $1.2 billion, just China, China think about the total opportunity there and what the market share could look like or what the sheriff said that as a percentage of overall.
Timing could look like.
When we went public we said that we saw the men's timing oscillator market, which excludes the resonator, which excludes the clocking to be 600 million.
And that's what the court.
Since then I would revise by number up to as of now the visibility as a billion, maybe a little bit more than a billion dollars.
But then at the same time, we see the resonator market also growing in future. We see the plucking market also going in the future.
Okay. That's that's helpful and.
Then.
Just in terms of the revenue break out.
For for next quarter.
I'm not sure if you can provide a little data.
Just color on the fastest growing versus many slowest growing and market I would assume yes, although iot's is the fastest but relative to seasonality what you expect.
Yeah, I didn't want to get too granular with that I will say that it will be increasing in all three market segments.
Certainly consumer is generally stronger in the fourth quarter.
But it is increasing in each and every segment.
And I will provide the detailed history once we finished Q fork.
Perfect.
With that I'll I'll go back and cute. Thank you very much and congratulations again, thanks out and.
Your next question comes from the line John from Credit Suisse. Your line is now open yeah. Good afternoon. Thanks, Let me ask the questions congratulations on the solid results.
We're just notwithstanding a lot of the secular drivers you have here I mean, clearly the entire industry is benefiting cyclically right now and I think a lot of us on this side of the world are trying to differentiate what cyclical driving the business versus structural so I'm wondering if you could just help us out as you think about price.
And year to date, how much is that benefited you to what extent has it been like for like ASP increases.
Versus maybe mix, adjusted which which might be.
More sustainable on a secular basis I think last quarter.
Talked a little bit about some of the courts supply constraints that were out there that we're opening up opportunities for you is that still the case and I think I asked this question 90 days ago, if and when the supply situation in courts changes would you expect some of these gains to reverse letting.
Let me.
Try and not answer a question in the first one minute. Let me give you the picture associating that will come and answer your question directly John.
The.
The.
Team in are one of the key teams in my present in my remarks prepared remarks is really about customer acquisition.
So we do see a constrained in the market in courts, we do see that.
On the other side, there's a boom in the demand for both things are true.
There is a significant increase in the demand and the supply continues to be constrained.
To the extent that is new capacity added, which I'm not an expert in I would say that it can take time, maybe well into next year.
Having said that.
The point that I want to make is that our view is that whether customers come to us for performance reasons.
Or they come to us for supply chain Programmability availability give me what I need when I wanted when I need it.
Customers I believe strongly I believe that will stay rather than go back.
Now.
Will the pricing piece of the pricing.
Ability change, yes, I think it will and it will go down, but remember that well before COVID-19 well before the tightness.
We were all of these single sourced in about 80% of our revenue.
Instantly that gives us a pricing advantage anyway, because by definition. The only time somebody get single source is because they absolutely positive you need the performance sweet the supply needs the quality and therefore pay the premium pricing for a premium product. So I think that's kind of baked into it as to the.
A larger question of how much of it as circular and how much of it is.
Fleeting shall we say.
I will say that in the <unk> case because.
Our solution is not well.
Understood before because they're a tiny company with a 200 million dollar company and.
$8 billion market are $7 billion market. So we are tiny by any measure. So by definition were not known as well we're not recognized as well because we are this shortage and this tightness and as demand has increased.
The search for alternative solutions, which happened to be better.
I think that our secular demand and are.
Cyclical demand will continue to go lockstep and I think we'll site will will sort of pretty seamlessly merge.
Without too much of a bump that's how I see it I don't see a big bump coming where woop, sorry. So many of our customers have evaporated because they didn't really need us that could happen now, but that's how I see it.
That's helpful. No maybe as my follow up or when you talk about the gross margin outlook for calendar year 22, I. Appreciate that you are going out further than you might normally would is there any price concessions that you're breaking into that and have a little bit surprised that you are talking about cost pressure not not not that you are talking about cost pressures, but that you are.
Not able to pass them, along but most of the companies, we're talking with our lease raising pricing to keep up with cost why don't you have that ability next year.
Yes, we do actually we.
We do have that ability, we just don't want to be egregious.
When our customers commit to us.
For being a single source customer even in those times are premium was not an egregious premium because a fair premium we all know semiconductor companies that I've taken.
Somewhat shall we say undue advantage of their pricing power and fast in the past and win.
When things change with a competitor shows up.
The customers can't wait to get away from them. We all know examples of those companies that we could share.
I don't want them to be that and we are not that we.
We have a fair price a fair premium for a premium product and we continue to have that now from time to time that changes and we pass on more of the costs, but generally we want to.
Modulate that a little bit.
Before we just pass onto it because we are very aware.
That.
Our customers on a very tight place and we want to be treating them with the respect that they deserve without putting us ourselves in.
In some tight.
Tight spots.
Yes.
Yes.
Add to that.
As I mentioned there are there are still a number of initiatives that will drive higher gross margins for us that I've mentioned.
Some of it is increasing prices.
The mix with our new products entering the market.
Manufacturing overhead leverage so those things are all positive trends and I mentioned the cost issue just because it's a real issue it will.
Depressed gross margins by I set up to $2 to three points, that's all else being equal so I'm not saying that gross margins are are going to go down two to three points from where we are today, but they're going to go down two to three points for more they would have been had we not had any cost increases.
I think I was ready to take one more quick one rejects just now that you're going to be growing opex and reinvesting in the business organically a little bit faster than you have any sort of color on specifically.
That dollar is going to go is it really just customer acquisition or should we expect.
The rate of new product introductions to increase it any color there would be very helpful. Thank you.
Yeah.
As I said in the in the <unk> about new products coming in we introduced in 2023 major new products, we have multiple derivatives that come off these but in 22 regular double it for.
We're going to go to fix each of these products as a major initiative immense in analog and systems and test and operations. So each of these takes up a lot, but I think we're going to get the benefit of that we're going to introduce.
A number of products for sampling next year and again, another number of products or sampling and the year. After so.
That's one place where they go as far as customer acquisition goes I think we have a very I think.
Ambitious strategy of growing our customer base.
First of all in the broad base, where as you know we have around 14000 customers, we would like to increase that over the next few years significantly ideally I'd like to double it if possible over the next five to seven years.
To do that we have to have the the support structure the software the infrastructure to go after that.
The OEM side, let's say 500, or so Oems I think we continued to do service technical support.
Segment analysis in marketing and delivering customer products that fit exactly the marketplace. So this is hard work because it's never been done before in the timing world and so we're coming out with products that span customer needs and so therefore harder to dislodge bye.
<unk> products that might show up at some time when a competition shows up.
Perfect. Thank you very much alright, thank you done that.
Your next question comes from the line of Pinball time from me down your line is now opening.
Hi, rejection art I'll offer my congratulations as well first wanted to start with the near term question Art. I think you said in your script that you'd seen are able to capture some high margin turns business, which sounds like it obviously not only helped revenue, but but perhaps helped gross margins as well and I'm wondering if you look into the descent.
Per quarter.
Or this is their opportunity or do do you expect to be able to continue to capture some of that high margin turns business or was that perhaps more of a.
One time in nature, and then for <unk>.
Look longer term you talked about 1 billion dollar Mems oscillator, Tam, where it's really no competition in sight. So when do you think you get to that billion dollars. Tam is that a 24 25 number and do you expect any competition and the manager timing market by the end.
And data that Tam.
Yes. So Quinn good question, yes, as I mentioned, some some of our higher revenue in some of our higher margin was a result of.
Hi margin turns business customers that needed product and was willing to pay a premium price for it.
And I expect the same to happen in queue for.
I actually.
Actually expect the same to continue into 2022, maybe not at the same level, it's hard to say at this point, but certainly through the end of this year.
And has that been factored into the roughly 71 million revenue guidance start at the midpoint.
Around that that has.
Some of it has but there could be some upside there.
Got it okay.
Yeah, So actually Quinn I believe that we are at that billion dollars Tam now are Sam now.
So we've expanded from what we said at the IPO two years ago in November.
602, I think up by 400.
When can we get to that I think.
As quickly as we can.
To be a little tend to be a little smart about it.
You know one of the observations is.
That in the networking telecommunications market, the or and the mid hall the backhaul the short haul the long haul the data center, if you put that altogether as I've said before.
There are significant number of opportunities that in my view alone in the next two years would probably be worth about $1 billion.
And we have that front and center in our sites.
So the more products, we can get into that market, the better off you're going to be.
Understood. Thank you.
Thanks.
Your next question comes from the lineup of Sushi yourself out from Roth capital of the Airlines now opening.
Hi, Richard Congrats on strong continued momentum here I Wanna try and put together some comments in the prepared remarks.
Correct me, if they were I heard them wrong, but I think you said your second largest customer who is going to be an auto customer in the next few quarters. They were gonna grow to that at the same time I heard that you are bullish about data center relatively to auto. So I just want to stand as I look ahead to mix maybe in two to four to six quarters relative to now would it be a more even split across the three and by those comments with data center.
B, a more dispersed across customers versus auto more concentrated.
Right. The data center will continue to be more dispersed suggested it much more mature industry, but many big players.
And it would probably be a bigger.
Segment, Subsegments sooner the automotive customer.
Segment is going to grow I just wanted to comment on the fact that.
I was surprised when I saw that a number two sides customer.
Globally for anything was going to be an automotive customer.
Was not what I would have said two years ago to you and when we did the IPO. So it's clearly a learning for <unk> time.
And of course, you want to do something with the learning and what we're doing is we're running as fast as we can towards these opportunities coming up with more products more support and looking for more customers. In this space. So this is one of those watch this space kind of thing and to extend on it it's probably a time Babe.
Data center get quicker.
Automotive gets a slightly behind.
But I think they're both continue to grow very very strongly.
Very strongly for the years to come.
Rejection is it too much to think that by the end of 2002, we can have an even split across the three segments more than the consumer wait it now.
No I think consumer you know.
Well and consumer and we have high precision products and consumer as well granted they are low ESP. There are sub dollar aspd's, but I think they do really well.
And it really works for us to have a balance I mean remember <unk> is one of the most diversified products companies customer companies segment companies Asp's diversification, so I'd like to keep it that way it gives us multiple legs towards too instead of just a few.
Yeah, and I, certainly don't undervalue a consumer.
And then just one other question I would help me and perhaps the investors. If you could just kind of take down to what the two or three reasons are you gaining content and auto and and data center if they're the same in both.
Anything that's kind of one click down to understand.
Why you're getting traction there.
Yeah, I mean, what happens is that it comes down to high performance.
And the data center, we know and.
Is looking at higher performance anyway, whether it is a large hyperscaler they might have a use for one of our products on the motherboard. They also may have a switch. These these are two different applications and a data center system, but combined they seem to solve the.
Problems that are facing in the business. Similarly, we might get a designed in on an optical module, we might get designed in at a horse board adapter, we might get designed in on a smart snake all at one customer.
So.
I think these customers are looking at the the Swiss Army knife of solutions at the high end that we provide whether it's differential whether <unk>, whether associate so whether it's small size standard external and they're taking the saying wait what why though that want to use this and they argue vineyard.
So I think that's really what's happening at the same time the performance levels. In these is increasing and as you know that's why we play a higher the performance hire the need for connectivity.
The more the more we win.
Okay. Thanks helps color.
Thanks.
I am showing new frame of your questions. At this time I would now like to turn the conference back to the management.
Well on that note, we'd like to thank everybody for joining us today I think that concludes our conference call. Thank you very much and have a great afternoon. Thank you all.
And this concludes today's conference call. Thank you also for your participation you may now disconnect.
[music].
[music].
[music].
Good afternoon, and welcome to five times, a third 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 instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference call.
Please press star followed by the zero on your attach telephone as a reminder, this conference call is being recorded today Wednesday November three 2021 I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Please go ahead.
Good afternoon, and welcome to <unk> third quarter 2021 financial results Conference call on today's call from Si time, a rejection Ashish <unk>, Chief Executive Officer, and Art Chadwick Chief Financial Officer.
Before we begin I'd like to point out that during the course of this call. The company may make forward looking statements regarding expected future results, including financial position strategy and plans future operations, the timing market and other areas of discussion.
It's not possible for the company's management to predict all risks nor can the company assess the impact of all factors on its business or the extent to which fact any factors or a combination of factors may cause actual results to differ materially from those contained in any forward looking statements.
In light of these risks uncertainties and assumptions the forward looking events discussed during this call may not occur and actual events 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.
Publicly update forward looking statements for any reason after the date of this call to conform these statements to actual results or to change through the companys expectations.
For more detailed information on risks associated with the business. We refer you to the risk factors described in our 10-K filed on February 16, 2021, as well as the company's subsequent filings with the SEC.
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 only difference between GAAP and non-GAAP results of stock based compensation expense. Please refer to the press release issued today for a detailed reconciliation between GAAP and non-GAAP.
<unk> results with that I'd now like to turn the call over to <unk> for his opening remarks. Please go ahead.
Thank you Brett.
Good afternoon, and thank you for joining us on today's call.
I'm pleased to say that Saipem continues to achieve tremendous growth with Q3 revenue up 42% sequentially and up 93% year over year.
Additionally, in every quarter for the past six quarters, we have consistently grown revenue and margins year over year.
It is clear to me now that we are in a new phase of sustained high growth and that <unk> is in the early innings of a long game.
This is the market of our choice.
High performance high availability timing driven by adoption of new applications across multiple end markets, such as communications enterprise automotive industrial and medical.
As a result, we are focused on taking advantage of this unique opportunity through an aggressive customer acquisition strategy with.
We're continuing to seize the initiative by accelerating development of new high value solutions that customers need.
While we never underestimate competition as of now a credible competitive timing threat is not visible.
We believe <unk> will continue driving high growth rate for years to come.
Okay.
Looking back at the Covid driven disruptions over the last 18 months, we were challenged by the changes in our business and the overall market dynamics.
We now see this as a crisis, we now see this crisis as a trigger for a long term change in end market. One that is driving rapid adoption of new higher performance technologies that need precision timing.
Automotive and data center enterprise markets are great. Examples of this trend and we believe they could each become a $100 million business for some time over the next few years.
Particularly the automotive market has recently latched on to the value proposition of our products due to the increased popularity of EV electrical vehicles, which use more electronics than the average car.
Highlighting the strength in this market is the fact that our largest automotive customer.
Is expected to emerge as our number two customer in 2022.
In data Center data center continues to be a fast growing end market for us a few years ago, we started winning designs in servers storage cards at tier one data center customers.
Since then we've won designs at 10 customers in a high value applications like servers high speed into the next smart mix and acceleration cards.
Additionally, the density of tight time design wins that is the number of design wins per unit system unit in data centers is increasing.
Obviously I had referenced our companion approach, where we have design win with one anchor size on products such as our new Super can see itself.
And then we get to sell additional products in the system that the companion chips to that Super <unk>.
With this approach we believe that the customer gets a better solution and we increase of course, the <unk> dollar content by sometimes up to three times or three eggs.
Today, we have seven customers in the data center market each using a combination of two to four devices from sidelined such as Super <unk> clock differential oscillators and so on.
The opportunity that these customers are already work $30 million in annualized revenue using this approach.
With our new higher value products, we are accelerating our market penetration.
And the sideline and 90 501 differential oscillator is an example of this we announced this product a year ago and have gained excellent traction in data center optical and networking customers.
Well, we initially expected to have 15 design wins for example, we now have 30 with an additional 50 opportunities.
Together makes up a panel of over $50 million in annualized revenue far exceeding our expectations when we launched the product.
Our 2020 to forecast some of this product is growing four times, our forex from the beginning of 2021 as we continue to grow the opportunity pipeline in this market.
We also see an emerging trend where technologies and products developed for one market are being adopted and others, which opens up of course additional opportunities for us for.
For example, the data center architecture is now being used in Cu or centralized unit and do use a distributed units in the Oran infrastructure in.
In the off open radio access network structure.
This creates incremental demand for our high precision oscillators and Clarks.
And another example is the adoption of Ethernet connectivity, our Ethernet based connectivity in cars, which in turn generates incremental demand for our automated motor grid differential oscillators, which were not used previously.
In this application.
<unk> is a product innovation company.
And with these innovations we are increasing the rate of our new product introductions again to accelerate customer traction in.
In 2020, we introduced three new major products in 2022, we will double the introduction rate with six major products.
Our innovation rate will continue to grow in subsequent years and this will drive to a higher customer adoption across multiple segments and applications.
Regarding the supply chain environment, we expect current supply constraints to continue through 2022.
<unk> has been very successful at navigating this tight situation with our close partnerships with wafer fabs and our multi source supply chain.
While this has increased product costs and these will increase over time.
Value has helped to sustain higher prices, which has of course favorably benefited our gross margins.
The need for customers to secure supply along with the advantages offered by our supply chain compared to the alternative technology using courts has continued to provide a favorable environment for the <unk> time to negotiate longer term customer contracts.
In summary, the world of timing is enormous there are many pieces of tightened to date doesn't get touch are competing.
Given the strong competitive moat of our precision timing solutions. We are acting now strongly to take advantage of this unique opportunity.
This includes investing in further expansion of our product portfolio and an aggressive customer acquisition strategy I look forward to many years of growth at <unk>.
With that I will now turn it over to art Chadwick our CFO.
Great. Thanks, Josh and good afternoon, everyone.
Today, I will discuss third quarter 2021 financial results and provide some guidance for the fourth 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 our GAAP to non-GAAP results, which exclude stock based compensation and related payroll taxes.
Well first of all we had another great quarter on multiple fronts, we had strong revenue growth and significant increases in gross margins operating margins net income and cash flow.
Revenue for the quarter was $63 million up 42% sequentially.
And up 93% year over year.
Sales into our mobile Iot and consumer segment, which consist of sales into mobile phones wearable devices and consumer products were $31 9 million or 51% of sales.
This was up 47% sequentially.
And up 53% over the same quarter last year.
Sales into our industrial automotive and aerospace segment, which includes sales into automotive industrial medical aerospace military and broad based sales were $20 9 million or 33% of sales.
This was up 54% sequentially.
And up 227% year over year.
Sales into our communications and enterprise segment, which consists of wireless infrastructure, including <unk> G data center and networking were $10 2 million or 16% of sales. This was up 11% sequentially and up 90% over last year.
Sales to our largest end customer accounted for 20% of sales this quarter.
And of that business more than 90% was non phone.
Okay.
We had another step function increase in gross margins. This quarter non-GAAP gross margins were 66, 9% up 560 basis points sequentially.
And up 14, 180 basis points year over year.
Gross margins were up due to a strong pricing environment. Some high margin turns business and increased leverage on our manufacturing overhead.
Non-GAAP operating expenses were $20 $1 million comprised of $9 $9 million in R&D and $10 2 million in SG&A.
Non-GAAP net income was $21 9 million or 35% of sales.
With earnings of $1 three per share.
This was more than double Q2, non-GAAP net income of $9 6 million and EPS of <unk> 46, a share.
Stock based compensation expense related payroll taxes were $8 million receivables were $32 5 million with Dsos.
47 days down from 52 days last quarter and inventory was $19 6 million up slightly from $18 5 million last quarter.
Okay.
We generated $24 million in positive cash flow from operations.
<unk> invested $10 5 million in Capex.
As a result, we increased our cash balance by $13 5 million and ended the quarter with $267 million in cash and no bank debt.
I would now like to provide some guidance for the fourth quarter of 2021.
The positive trends, we have been experiencing will drive further growth in Q4.
With sales, increasing between 10% and 15% sequentially.
At the midpoint this would be approximately $71 million.
And we expect sales to our largest customer will be about 20% of sales.
We expect Q4 gross margins will be between 64, and 66% down slightly from Q3 due to seasonally higher consumer sales.
Operating expenses will increase as we expand our workforce and invest in customer acquisition and new product development. We expect Q4, non-GAAP operating expenses will increase between 10% and 15% sequentially.
At the midpoint would be approximately $22 5 million.
The basic share count in Q4 will be approximately $19 4 million shares the dilutive effect of employee Rs use will add approximately $2 1 million shares taking the total expected diluted share count to approximately 21 5 million shares.
Based on this guidance, we expect fourth quarter, non-GAAP EPS will be between $1 five and $1 15 per share.
So we're not giving formal guidance for next year I would like to offer a few comments.
We believe the strong trends we are experiencing this year.
We'll continue.
We plan to aggressively invest in customer acquisition product innovation and expanding our markets.
We are well positioned for significant growth and believe we can grow revenue next year by at least 30%.
We will continue to execute on expanding gross margins, but there will be some material cost headwinds wafer and backend manufacturing costs are going up for example, TSMC has publicly stated they are raising prices by 20% or more.
We also expect increasing assembly and test cost.
These higher manufacturing costs will likely depress gross margins by up to two to three points.
Else being equal.
Over the last two years, we've managed opex growth at about half the rate of top line growth, which helped expand our operating margins now.
Now that margins are closer to our target range, we will likely manage opex growth at a rate closer to our topline growth.
This will allow us to invest aggressively while still maintaining healthy operating margins.
I'd also like to make a comment about capex one of the impacts of the pandemic is that it has limited manufacturing capacity at some of our assembly and test subcontractors.
In response, we've been purchasing some of our own manufacturing equipment, which we located at our subcontractors to add dedicated capacity and to lower costs.
We plan to add additional capacity next year, increasing our capex budget from approximately $30 million this year to approximately $40 million next year.
So in summary, we are having a great year, our customers are clearly recognizing our value proposition.
Our product portfolio continues to expand with differentiated products that address large and growing markets.
We have an enviable list of tier one customers our strong balance sheet.
And expect further growth in Q4 and beyond.
And with that I'd like to turn the call back to the operator for Q&A. Thank you.
Okay.
As a reminder to ask a question you will need to press star one on your telephone keypad again, if you have questions. At this time. Please press star one on your telephone keypad.
Your first question comes from the line of tore Svanberg from Stifel. Your line is now open.
Yes. Thank you.
Congratulations on the stellar results.
First question for <unk>, you talked about auto obviously being a very important market for you next year it sounds like the data center too.
Between those two and then I know this is a difficult question to answer but between those two which ones do you think that grow relatively faster for us in 2020.
Yeah. Thanks Terry.
I think data center is relatively easy answer it's also somewhat cautious answer.
Automotive as I indicated last time and this time was a bit of a surprise for us.
We didn't quite appreciate like a lot of people the surge in electric vehicles and the surge in timing solutions, specifically when that electric vehicles surge happened the datacenter modest market enterprise market is certainly well understood.
And so because of that it's the clear safe and an obvious choice on the other hand as time goes on I expect that automotive will transition.
Continuing to transition to electric vehicles, as we know and so perhaps it's more of a short term long term.
Conversation rather than anything else.
Very good and as my follow up can you just.
Elaborate a little bit on the gross margins obviously.
It's an incredible number.
And you talked about that being driven by mix.
The mix, obviously improved away from some of your more consumer markets, but.
I would think that even within the mobile and Iot business that gross margin went up and then when you talk about next year.
Two to 200 basis points pressure just to clarify is that from the current level or would that be from the average gross margin in 2021.
Well certainly from the average gross margin in 2021.
And Thats all else being equal again, I mentioned that we still have a number of initiatives in the company to increase gross margins as you know our newer products are generally higher asps higher gross margins higher ASP higher performance higher gross margin. So as those become a larger percentage of our sales over time that will.
Improved gross margins, we still get leverage on our manufacturing overhead as the top line increases but.
But we do have the headwind with <unk>.
Increasing material costs as I mentioned in my commentary.
Great just one last one if I could.
You talked about at least 30% growth next year I assume you have already very good visibility towards that number.
One of them.
Yes, so we didn't talk about it on this call but in past calls we've talked about the fact that our customers are placing orders many quarters out.
So that has given us.
The best visibility we have ever had so we believe we've got.
Excellent visibility into next year, so we're putting a floor on what we think our growth rate is if things work well it could be higher but right now we're comfortable saying that we believe we can grow at least 30% next year with good visibility.
Sounds good and congratulations again to the whole team great. Thanks George.
Your next question comes from the line of Alessandra Vecchi from William Blair. Your line is now open.
Hey, guys I Echo the congratulations.
Just one question.
Given the large market sizes again for data center and automotive can you update us on how youre seeing the Stan now for men's also leaders I believe in the past you referenced it in the 1 billion to $1 2 billion, just China trying to think about the total opportunity there.
The market share could look like or what the share of that.
Debt as a percentage of overall.
<unk> to look like.
Right. When we went public we said that we saw the mens timing oscillator market, which excludes the resonator, which excludes the clocking to be $600 million.
And Thats, what we thought.
Since then I would revise by number up to as of now the visibility is a $1 billion, maybe a little bit more than $1 billion.
But then at the same time, we see the resonate a market also growing in future. We see the plumbing market also growing in the future.
Okay. That's that's helpful.
And then.
Just in terms of the revenue breakout.
For for next quarter.
I'm not sure if you can provide a little bit.
Just color on the fastest growing versus any slowest growing at market and we'll just see.
Iot.
Fastest but relative to seasonality what you expect.
Yes, I didn't want to get too granular with that I will say that it will be increasing in all three market segments.
Certainly consumer is generally stronger in the fourth quarter.
But it is increasing in each and every segment.
And I will provide the detailed history once we finished Q4.
Perfect.
I'll go back in queue. Thank you very much and congratulations again.
Thanks, Alex.
Your next question comes from the line of John Pitzer from Credit Suisse. Your line is now open yes. Good afternoon, guys. Thanks for let me ask the questions. Congratulations on the solid results.
Notwithstanding a lot of the secular drivers you have here I mean, clearly the entire industry is benefiting cyclically right now and I think a lot of us on this side of the world are trying to differentiate whats cyclical driving the business versus structural so I'm wondering if you could just help us out as you think about pricing.
Year to date, how much has that benefited you to what extent has that been like for like ASP increases.
<unk>, maybe mix, adjusted which which might be more sustainable on a secular basis and I think last quarter, you talked a little bit about some of the quartz supply constraints that were out there that we're opening up opportunities for you is that still the case and I think I asked this question 90 days ago, if and when the supply situation in corn.
<unk> changes would you expect some of these gains to reverse.
Let me.
Try and not answer your question and the first one minute. Let me give you the picture of the <unk> that will come and answer your question directly John.
The.
The.
Team in our one of the key teams in my present in my.
Remarks prepared remarks is really about customer acquisition.
So we do see a constrained in the market in courts, we do see that on.
On the other side there is a boom in the demand so both things are true.
There is a significant increase in the demand and the supply continues to be constrained.
To the extent that there is new capacity added, which I am not an expert in I would say that it will take time, maybe well into next year.
Having said that the.
The point that I want to make is that our view is that whether customers come to us for performance reasons.
They come to us for supply chain Programmability availability give me what I need when I wanted when I need it.
Customers I believe strongly I believe that will stay rather than go back.
Now.
Will the pricing piece the pricing.
Ability change, yes, I think it will.
And it will go down, but remember that well before COVID-19 well before the tightness.
We were all of the single sourced and about 80% of our revenue.
Instantly that gives us a pricing advantage anyway, because by definition, the only time somebody get single sourced because they absolutely positively need the performance suite the supply need the quality and therefore paid the premium pricing for our premium products. So I think that's kind of baked into it.
As to the larger question of.
How much of it is secular and how much of it is.
Fleeting shall we say.
I will say that in the <unk> case because.
Our solution is not well understood before because we are a tiny company with a $200 million company.
Sure.
Up $8 billion market, our $7 billion market. So we are tiny by any measure so by definition, we're not known as well were not recognized as well because we are this shortage and the tightness and as demand has increased.
A search for alternative solutions.
Happen to be better.
I think that our secular demand and our.
Cyclical demand will continue to go lockstep.
And I think we will cite will sort of pretty seamlessly merge.
Without too much of a bump.
That's how I see it I don't see a big bump coming where whoops, sorry, so many of our customers have evaporated because they didn't really need us that could happen now, but that's how I see it.
That's helpful. And then maybe as my follow up or when you talk about the gross margin outlook for calendar year 'twenty two.
I appreciate that Youre going out further than you might normally would is there any price concessions that you are baking into that in a little bit surprised that you are talking about cost pressures not that youre talking about cost pressures, but you are not able to pass them along most of the companies, we're talking with our lease raising pricing to keep up with cost.
Why don't you have that ability next year.
Yes, we do actually.
We do have that ability, we just don't want to be egregious.
When our customers commit to us.
For being a single source customer even in those times are premium was not an egregious premium it was a fair premium we all know semiconductor companies that I've taken.
Somewhat Michel we say undue advantage of their pricing power in past in the past and win.
When things change, we had a competitor shows up there.
Customers can't wait to get away from them. We all know examples of those companies that we could share.
On one side and to beat that and we're not that we.
We have a fair price a fair premium for a premium product and we continue to have that now from time to time that changes and we passed on more of the costs, but generally we want to.
Modulate that a little bit.
Before we just bought onto it because we are very aware.
That.
Our customers on a very tight plays and we want to be treating them with the respect that they deserve without putting us ourselves in.
In sum.
Tight spots.
Yes.
Yes.
Add to that.
As I mentioned there are there are still a number of initiatives that will drive higher gross margins for us that I've mentioned.
Some of it is increasing prices it's.
It's the mix with our new product entering the market.
If manufacturing overhead leverage so those things are all positive trends and I've mentioned the cost issue just because.
It's a real issue it will.
Depressed gross margins by up to two to three points, that's all else being equal so I'm not saying that gross margins are going to go down two to three points from where we are today, but theyre going to go down two to three points were more they would have been had we not had any cost increases.
And then guys if I could sneak one more quick one in just now that youre going to be growing opex and reinvesting in the business organically a little bit faster than you have any sort of color on specifically, where the dollar is going to go is it really just customer acquisition or should we expect.
The rate of new product introductions to increase or any color there would be very helpful. Thank you.
Yeah.
As I said in the in the <unk> about new products coming in we introduced in 2023 major new products, we have multiple derivatives that come off these but in 'twenty, two we're going to double it.
We're going to go to six <unk>.
Each of these products is a major initiative in Mems and analog and systems in tasks and operations. So each of these takes up a lot, but I think we're going to get the benefit of that we're going to introduce.
A number of products for sampling next year and again, another number of products or sampling and the year. After so.
That's one place where they go as far as customer acquisition goes I think we have a very I think.
Ambitious strategy of growing our customer base.
First of all in the broad base, where as you know we have around 14000 customers, we would like to increase that over the next few years significantly ideally I'd like to double it if possible over the next five to seven years.
To do that we have to have the the support structure. The software the infrastructure to go after that on the OEM side, let's say 500 or so Oems.
I think we continue to do service technical support.
<unk> analysis, and marketing and delivering customer products that fit exactly the marketplace. So this is hard work because it's never been done before in the timing world and so we are coming out with products that span customer needs and so therefore harder to dislodge by point.
Products that might show up at some time when our competition shows up.
Perfect. Thank you very much alright, thank you John.
Your next question comes from the line of bolt on from Needham. Your line is now open.
Hi, Richard and Art I'll offer my congratulations as well first wanted to start with a near term question Art. I think you said in your script that you had seen or we're able to capture some of high margin <unk>.
<unk> business, which sounds like it obviously not only helped revenue, but perhaps helped gross margins as well and I'm wondering as you look into the December quarter.
Is there opportunity or do you do you expect to be able to continue to capture some of that high margin turns business or was that perhaps more of a one.
A onetime in nature, and then for Jeff as you look longer term you talked about $1 billion of Mems oscillator Tam with really no competition in sight. So when do you think you get to that $1 billion Tam is that a 'twenty four 'twenty five number and do you expect any competition.
Tommy market by the by the end date of that Tam.
Yes, so good.
Good question, yes, so as I mentioned, some some of our higher revenue and some of our higher margin was a result of <unk>.
High margin turns business customers that needed product and was willing to pay a premium price for it.
And I expect the same to happen in Q4.
I actually.
Actually we expect the same to continue into 2022, maybe not at the same level, it's hard to say at this point, but certainly through the end of this year.
And has that been factored into the roughly 71 million revenue guidance at the midpoint.
Sure.
Some of it has but.
Could be some upside there.
Got it okay.
Yeah, So Ann.
Actually Quinn I believe that we are at the $1 billion Tam now our Sam now.
So we have expanded from what we said at the IPO two years ago in November.
602, I think up by 400.
When can we get to that I think.
As quickly as we can.
To be a little trying to be.
Smart about it.
Okay.
You know one of the observations is.
That in the networking telecommunications market the Oran mid haul backhaul the short haul long haul the datacenter if you put that altogether as I've said before.
There are significant number of opportunities that in my view alone in the next two years would probably be worth about $1 billion.
And we have that content center in our sites.
So the more products, we can get into that market. The better off you are going to be.
Understood. Thank you.
Thanks, Ken.
Your next question comes from the line of Rajiv de Silva from Roth Capital. Your line is now open hi.
Josh Hi, art Congrats on the strong continued momentum here.
I'm trying to put together some comments in the prepared remarks.
Correct me, if I heard them wrong, but I think you said your second largest customer was going to be an auto customer in the next few quarters that we're going to grow to that at the same time I heard that youre bullish about data center relatively to others. So I just wanted to and as I look ahead to the mix maybe in two to four to six quarters relative to now would it be a more even split across the three and by those comments with data center.
A more dispersed across customers versus auto more concentrated.
Right. The data center will continue to be more dispersed suggested much more mature industry with many big players.
And it will probably be a bigger.
Sure.
Segment subsegment sooner the automotive customer.
Segment is going to grow I just wanted to comment on the fact that.
I was surprised when I saw that our number two size customer.
Globally for anything was going to be an automotive customer.
That's not what I would have said two years ago to you when we did the IPO. So its clearly a learning for Si time.
And of course, you want to do something with the learning and what we're doing is we're running as fast as we can towards these opportunities coming up with more products more support.
And looking for more customers in this space. So this is one of those watch this space kind of thing and to extend on it it's probably a time base.
Data center getting quicker.
Automotive gets us slightly behind.
But I think they're both continued to grow very very strongly.
Very strongly for the years to come.
Rejections of too much to think that by the end of 'twenty. Two we can have an even split across the three segments more than the consumer weighted now.
No I think consumer.
We're doing well in consumer.
And we have high precision products in consumer as well granted they are low ASP.
There are sub dollar ASP means.
But I think they do really well.
And it really works for us to have a balance I mean remember <unk> is one of the most diversified products companies customer companies segment companies Asp's diversification, so I'd like to keep it that way it gives us multiple legs to a stool instead of just a few.
Yes, and I, certainly want to undervalue of consumer.
Correct and then just one other question it would help me and perhaps investors. If you could just kind of dig down to what.
Two or three reasons are you gaining content in auto and in data center, if they're the same in both and just about anything.
One click down to understand.
Why are you getting traction there.
Yes, I mean, what happens is that it comes down to high performance.
And the data center, we know and.
Is looking at higher performance anyway, whether it is a large hyperscale or they might have a use for one of our products on the motherboard. They also may have a switch to different applications in the data center system, but combined they seem to solve the <unk>.
<unk> that you are facing in the business.
Clearly we might get it designed in on an optical module, we might get designed in at the host Board adapter, we might get designed in on a smart mic all at one customer.
So.
I think these customers are looking at the the Swiss Army knife of solutions at the high end that we provide whether it's differential whether it's super to <unk>, whether it's <unk>, whether it's small sized standard external and theyre saving saying wait why don't I want to use this and they are using it.
So I think that's really what's happening at the same time the performance levels. In these is increasing and as you know that's where we play a higher performance higher than need for connectivity.
The more we the more we win.
Okay. Thanks helpful color. Thanks.
Thanks.
Okay.
I am showing no further questions at this time I would now like to turn the conference back to management.
Well on that note, we'd like to thank everybody for joining us today I think that concludes our conference call. Thank you very much and have a great afternoon. Thank you all.
And this concludes today's conference call. Thank you all for your participation you may now disconnect.