Q2 2023 SiTime Corporation Earnings Call
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Good afternoon, and welcome to <unk> second quarter of 2023 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.
Mind you. This conference call is being recorded today Wednesday.
2023 I would.
I'd like to turn the call over to Brett Parry of Sheldon Group Investor Relations Bret. Please go ahead.
Thank you Chris Good afternoon, and welcome to <unk> second quarter of 2023 financial results Conference call.
Today's call from <unk>.
C E O and art Chadwick CFO 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 in other areas of discussion.
It's not possible for the company's management to predict all risks nor can accompany assess the impact of all factors on its business or the extent to which any factor 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 on assumptions before looking <unk> discuss during this call.
May not occur and actual results could differ materially firstly from those anticipated or implied.
Neither the company nor any person assumes responsibility for the accuracy and completeness is a forward looking statements.
Company undertakes no obligation to publicly update forward looking statements for any reason after the eight of this conference call to confirm the statements to actual results or to change the company's expectations.
For more detailed information on risks associated with the business. We refer you to the risk factor as described in a 10-K filed on February 27th 2023, as well as the company subsequent filings with the SEC <unk>.
Also during the call we refer to certain non-GAAP financial measures, which are considered to be an important measure if the company's performance is not <unk> financial measures are provided in addition to and not as a substitute for Nord superior to measures of financial performance prepared in accordance with U S gas.
The only difference between reported gap in non-GAAP results of stock based compensation expense.
Please refer to the company's press release issue today for a detailed reconciliation of gap and I'd get financial results with that I'd now like to turn the call over to address. Please go ahead.
Thank you for it.
Good afternoon.
I'd like to welcome you as well as existing investors to site times Q2, 20 twenty-three earnings call.
Q2 was in line with a guidance revenue for the quarter was 27.7 million <unk>.
non-GAAP gross margins 458.2%.
non-GAAP net loss was zero point 22 cents.
0.22 cents per share.
As forecasted we see a turnaround in a business. So we expect Q3 revenue to be higher than <unk>.
For those of you that are not familiar with <unk>. We are the leader a dynamic new semiconductor category called precision timing.
Electronic timing is ubiquitous and ensures reliable functioning <unk>.
<unk> created the category of precision timing to serve the needs of applications like automated driving data center five G. M E I.
Where early in a growth as we transform the $10 billion timing market <unk>.
<unk> has shipped 3 billion precision timing checks to 15000 customers and 300 applications.
And fast cause we noted the negative impact of higher than normal inventories at our customers is contract manufacturers or C. M's on our revenue.
For the past few quarters. These inventories have continued to decline.
Though the decline is at a slightly solar slower rate than previously anticipated we have factored into this into our guidance for now.
So looking towards Q4, we expect the quarter over quarter growth.
And over to three to continue.
Previously, we forecasted revenue should accelerate in 2024 and beyond based on four factors. These are Sam expansion from additional products.
Source business.
Design, when momentum and expanding a S. P's are average selling prices.
The fact that these trends continued into Q2 2023 is a good indicator of the fundamental health of our business, even though Q2 2023 was our lowest revenue quarter in recent history.
More on these trains now.
First we continue to grow or Sam from 1 billion in 2022, and a half billion by the end of this year.
Product strategy is consistent.
We solve our customers toughest timing problems by delivering compelling precision timing products, which are defined as products that deliver high performance in tough conditions.
Much of the Sam growth is a focus area of enterprise and communications automotive and aerospace defense, which gives us a bigger footprint at focus customers.
In Q2, we introduce a compelling new product.
S. I T 162 X that we believe enables greater safety in automotive applications, such as a D. A S automated driving.
As you May know the incumbent timing technology quarks is provided by around 40 companies worldwide.
Customers have a pattern of typically buying from multiple servers as they've been previously been impacted by variable levels of quality reliability performance and delivery and these quotes based timing products.
One can imagine that sole source physicians are uncommon in the <unk>.
<unk> timing business and that is in fact the case.
In contrast <unk>.
<unk> time is focused on building a timing business that is largely sold source because we make signing easy.
And our customers value of that.
Useful metric is that 83% of our queue to revenue is solid source, which is an increase from 79% in Q1 2023.
On the third factor a number of design wins, our momentum continues from previous quarters.
And Q2, we set a record for the total number of design wins closed.
In any quarter, which grew by 55% from the same quarter a year ago.
The number of design wins in each of these end markets.
Medications enterprise.
Castrale automotive aerospace and mobile Iot consumer also grew by more than 50% from a year ago.
R. S. P depends on our end market next and product mix.
Q2, 20 twenty-three S. P decline from Q1 due to a higher business for mobile IP consumer and a decline in a comms enterprise revenues.
And insight is that despite the normal supply in the market. Today Q2, 20 twenty-three S. P was higher than Q1, 2022, which you may recall was at the height of an industry wide shortage, we believe that the higher S. P products that we introduced since Q1 22 and the increase in business from.
Aerospace defense contributed to this.
Our strategies of Sam expansion with higher ESP products and focus on and market our customers recognize the value of playing out well and we expect our esp's to remain stable for the rest of the year.
<unk> has maintained that ongoing macro trends driving the electronics industry automated driving electric vehicles Cloudification internet of things in a I.
Upon precision timing.
Most have seen the recent developments on the increasing role of AI we.
We believe that AI processors from chip companies and the top cloud service providers, a prime users of a timing solutions that delivered Lord sugar and high stability.
We've been working with these key players who are leading the charge any eye and expect to benefit from the macro trend for many years to come.
And confusion or salmon design wins continue to grow a sole source business is a strong indicator of a strong connection with customers and the value we delivered to them.
As in inventory is consumed and demand returns, we expect to be in a great position to take advantage and resume road.
We remain very confident inside times future success.
And I'll I'll turn it over to our great. Thanks for judge and good afternoon, everyone.
Today I'll discuss second quarter of 2023 results and then provide some guidance for the third quarter.
I'll focus my discussion of non-GAAP financial results can refer you to today's press release for a detailed description of our GAAP results as well as a reconciliation of GAAP to non-GAAP results.
Revenue in the second quarter was $27.7 million down 28% from Q1.
Sales were down and most of our major markets as customers worked through excess inventory.
Inventory in the channel is still high.
And they will continue to be consumed by our customers. It will likely take some customers much of the rest of the year to get back to more normal inventory levels.
Sales into our mobile I O T and consumer segment with $10.4 million or 38 per cent of sales that's up from 8.8 million in Q1 due to higher sales to our largest customer.
Sales to that customer for $4.6 million up from $1.2 million into one <unk>.
Excluding sales to our largest customer sales into this segment, where $5.8 million or 21 per cent of sales.
Sales into our industrial automotive and aerospace segment or $12.4 million or 44% of sales that's down from $18.7 million in Q1.
Sales into our comes in enterprise segment were $4.9 million or 18% of sales down from $10.9 million.
One.
Second quarter non-GAAP gross margins for 58.2% down from 61.8% in Q1.
Due to the lower overall sales level and to changes in product mix towards more mobile I O T and less Thompson enterprise sales.
Second quarter, non-GAAP operating expenses for $27.4 million essentially flat with Q1.
Expenses were 16.6 million in R&D, and 10.8 million and SG&A.
The second quarter non-GAAP operating loss was $11.2 million.
Interest and other income with $6.5 million up from 5.7 million in Q1 due to higher earn interest on our T Bo investments.
The second quarter non-GAAP net loss was $4.8 million or 22 cents per share.
Counts receivable were 15.8 million with Dsos at 51 days as compared to 21.5 million and Dsos 50 days in Q1.
Inventory at the end of the quarter with $64.3 million up from $60 million last quarter as we continued to make strategic wafer purchases.
During the quarter, we generated $3 million in cash from operations invested 3.9 million and capital purchases.
And ended the quarter with $574.7 million in cash cash equivalents and short term investments.
I'd now like to provide some financial guidance for the third quarter of 2023.
To begin with we are now confident that you too will be the low quarter for the year given that we are now seeing a rebound in our business.
We expect sales in the third quarter will be up approximately 25% from you too.
With growth coming from higher sales to our largest customer is.
As well as higher sales into calms and enterprise.
Though the higher revenue will help gross margins this will likely be offset by a change in product mix towards a higher percentage of mobile Iowa G sales.
We therefore expect third quarter gross margins will be relatively flat with you too.
We continue to manage expenses closely and plan to reduce third quarter non-GAAP operating expenses to between 26 and $27 million.
Interest income should be at least $6.3 million share count will be approximately 22 million shares.
And as a result, we expect third quarter non-GAAP net income will be approximately breakeven.
That we are not giving specific guidance for the fourth quarter. We do expect sales will be up sequentially from Q3.
As I mentioned before we are seeing a rebound in our business and believe that are recent downward trends are reversing we firmly believe that a longterm growth stories in tact, we continue to aggressively invest in our process and product development.
We have unique and superior technology that up dresses large and growing markets.
Design when activity continues to be strong and that coupled with new product introductions and expanding Sam should lead to renewed longterm growth.
And on that note I'd like to hand, the call back to the operator for Q&A. Thank you everyone.
Thank you.
Ask a question. Please press star one one on your phone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Compile the Q&A roster.
One moment please for the first question.
First question will come from tour sent Sandburg Stifel. Your line is open.
Yes, Thank you and congratulations on the turn around here.
As it relates to Q3, I I think the largest customer I mean that that's seasonal so I think that makes sense, but I think you also said communications to enterprise will be up sequentially could you just elaborate a little bit on some of the subsegments there because obviously the data points and some of those markets remain pretty pretty mixed and I all.
<unk>, that's where you know a I as in better. So so any for the color you can give us there that'd be great.
Territory. So to begin with it comes in enterprise was down pretty substantially from Q1 as I mentioned in my commentary.
Our largest customers in that segment again have built up too much inventory and so order rates from those customers were down substantially in queue too and that's why revenue decrease from Q1 Q2 as much as it did.
They are starting to work through that inventory. So we're seen something of a rebound there from Q2 Q3.
It's it's a cross both data center and our communications markets.
So it's hard for me to be more specific than that when we report our numbers at the end of Q3, we could probably give a little more detail, but it's it's primarily due to the fact that our customers are are are gonna start getting back to you more normalized purchase levels.
Great and that's my follow up question for <unk> or just the sort of 55 per cent I think is the word you at the number you used for increase in design wins year over year.
How should we think about that in relation to that 30 per cent you know longterm grocery that you have and then especially when we consider that now 83 per cent of your revenues is proprietary just hoping you could just you know put some more framework around that.
Yeah. So I think that 55 per cent gives us a lot of comfort that the guidance that we've given for long term growth of 30% is is a good guidance it solid, particularly since a lot of that is happening.
In the Comms enterprise.
Automotive aerospace defense areas the ones that we really want to although we should continue to get strong design wins across the board in consumer Internet of things extra as well as industrial.
As as as far as what was the second question was around.
Yeah, the 83 per cent, that's not yeah, yeah. The 83 per cent. So remember that Daddy to percent is I wanted to make a case for that it is holding steady or even marginally growing from 79 to 83. So the point that I wanted to make was that question, we get asked quite a bit is.
What happens when quote unquote things get to normal did you just enjoy a brief flurry in 21 and early 22 of shortage and my point that I'm, making is not doesn't have to do with shortage. It has to do with the specificity of the product. The fact that we make it easy to design and the fact that we.
<unk> easy to get information and data on a products and then of course that they are truly precision timing in other words high performance under tough environmental condition. So that's the point I wanted to make that we.
We continue to show that we are quite different from the existing technology as witnessed by the fact that multisource versus single sourced.
That's great perspective, congrats again.
Thank you.
Thank you.
One moment please for our next question.
Our next question will come from C. T Desilva, a rod capital your line is open.
Hi, Roger I aren't maybe can you talk about the the linearity of July it sounds like it's.
Just wanted to get the color, they're really the factors that gives me confidence.
Four Q you increase again are the customer forecast stable.
<unk> was that one of the things change my three months ago.
Yeah, well to go back to to our commentary, we've certainly seen a turn a positive turn.
As I mentioned, we we view Q2, two absolutely be the low quarter for the year order rates had been up nicely as we started the third quarter. We are very comfortable with our third quarter guidance being up 25% or so from Q2 S.
And if those trends continue then that will also help us later in the year, but the other thing that will help US also is the fact that our customers continue to work through this inventory that we've talked about and is more of that gets consumed will get back to more normalized shipment rates. So we're very comfortable with our Q3.
Guidance and we're also very comfortable the Q4 will be up from two three.
Okay, Great. Thanks, and then also just on the gross margin here it sounds like a mix of the primary driver, but what's the correlation with pricing.
<unk>, particularly in the mix continues to improve is that something that you can.
<unk> <unk> <unk> or is that something that uhm is.
Is kind of gross Martin across the <unk>, yeah. So for Q2 as I mentioned, you know higher revenue improves gross margin because of our manufacturing overhead absorption, but going from Q2 to Q3, there will be a higher mix of mobile Iot and consumer sales, primarily driven by our largest customer and that.
Has generally gross margins that are somewhat less in our corporate averages.
So that that will offset the benefit of the higher sales. So cute for the guidance for Q3, a relatively flat gross margins I think that's solid longer term, what we've always talked about and what I still firmly believe will happen is that all of our new products.
That we have introduced over the past one in two years and we plan on introducing this year are generally much higher performance products, they're going into a higher performance markets, we get higher asp's and generally higher gross margins. So as these new products become a larger and larger percentage of our overall sales that is <unk>.
Merrill driver of higher gross margins going forward and I believe that that will that trend will continue. So that's that is positive for gross margins in the longer term.
Okay Alright.
Thank you.
Again, one moment. Please next question.
Next question will come from coin Bolton of Needham and company L. L. See your line is open.
Hey, guys you congratulations on on seeing that turn into business I guess, a few questions. One are you mentioned that sort of make shift T mobile I O T consumer driven by your largest customer in the third quarter do you expect that customer to get back to sort of more normalised run rates in the third quarter or is there still some inventory.
Consumed at that customers. So that you might see sequential growth again in the December quarter as that customer comes back to more normal purchases.
Sure. So they are clearly making progress in working through their inventory.
<unk> reported before our shipments to them or only $1.2 million back in Q1, and there were 4.6 million in queue to this is well below a normalised run right, we will be getting closer to a normalised run right in Q3, and I believe we'll probably get there by Q4, and so that would argue that ah sales to that customer.
And this is consistent with our internal forecasts would increase from two three to queue for.
Perfect and then last quarter argued mentioned <unk>.
Sort of an estimate that there might be about $30 million worth of inventory.
There was still out in the channel that that needed to be burned off obviously it looks like you've you've continue to make progress, but I think in the prepared script you talk to you about you know maybe that inventory taken a little bit longer to burn.
Did he think he made progress on that 30 million to have any update is that down closer to 20 million at this point or any thoughts on on how much inventory might be out there that still needs to get consumed in the in the back half of the year.
Yeah, clearly our customers are making progress.
What makes it a little challenging is it's different for every customer as I mentioned in some of our customers it'll likely take the rest of this year for them to work through their excess inventory other customers or through it before then.
So I don't want to put a hard number on how much. It was work down through the quarter. We're very confident that it is we have a turtle analyses and what we think that number is but that's not a number I Wanna put out there right now.
Understood if I can <unk> one one more in last four does he talked about some softness.
<unk> is still in the China market I think some of the others that have reported this or any cheese and you know maybe starting to feel a little bit better trend in the China market I think sometimes got some pretty good exposure. There are you guys seeing any turned into China E V side of the business.
Well, we certainly see more Ah designment activity in that business, we see some shortages popping up that we did some heroics to satisfy some customers.
So that's always a good indication because that hasn't happened for two three quarters.
But it isn't a full on big trend yet Quinn.
And but I will take it as a little bit of a positive there's other martinez around general growth in China from the headlines we probably see the same headlines you do I don't have any inside information, but that's what makes me a bit cautious. So the micro news is good fall at the macro.
Is a little less clear.
Understood. Thank you.
Alright, Thanks Gwen.
Thank you.
And one moment please for our next question.
Next question will come from the line of <unk> of Wolf Research. Your line is open.
Yeah. Thank you good evening with respect to you know some of the inventory that built on your customers over the last year can you give.
Give us some sense of how.
How much inventory do you think the customers may have built last year another set.
Set a different way perhaps.
How much do you think you may perhaps over ship the market last year and therefore, we have the under ship this year in order to normalize that.
Yeah, Great question, Chris So we've talked about some of this on our past calls clearly our customers over ordered last year, I think coming out of the pandemic and the shortages when there was supply and not just with US I think this is also applies to other companies out there most of our customer.
<unk> ended up ordering more than they ended up meeting last year, we put that number at somewhere around $40 million. So.
So it's hard to get an exact number because we would have to know exactly what our customers use rate was versus exactly what they bought and their timing differences. So it's a little bit of a squishy number but I think it's in that ballpark with an internal analyses and that's kind of what we come up with so that would mean, we over shipped to demand by about $40 million if.
We were to work through all of the excess inventory of our customers work through all the excess inventory this year than we'd be under shipping by that similar amount this year.
Alright, that's that's helpful and perhaps you could talk about what's happened with the.
The the traditional timing market as as well you know I think you know, perhaps one of the fears is that with product being plentiful. There that you know some of the customers that you may have signed up over the last two years when when product was tight with switchover, perhaps there would be adverse pricing in in the conventional market, which.
[noise] might spill over to your way.
You know I know that you would have some confidence that in the past, but I wonder if you can give us an update on that.
Yeah, we've always maintained that site is not in our market share game. We've always maintained that site Ms products are unique because we created the precision timing category, which is not the case with our competitors at 40 Quarts based competitors in this in this situation.
So therefore, what it means is that.
Pricing normally doesn't come into the equation very much, particularly an existing design wins in other words existing design wins do not disappear if somebody shows up with a lower price. We have evidence of that because we have tried this out ourselves to see if we can take away our market share.
By taking down price aggressively and it's never worked so I think that it just doesn't work for anybody because once design wins are made then they remain stable and they ship.
What we I, specifically made a point of sharing the fact that our asp's have continued as demonstrated by the numbers I shed.
Regardless of whether it is a tight supply or whether it's a no more normalised, which is what is current supply. So the fact that we could still keep on drawing verses Q1 22 in price is a testimony to two things one is our mix shift which is continues to occur.
And will continue to occur going forward and the second is the value proposition that gets our customers to value our product and remain in single source significantly we mentioned 80, 83% and that's what helps us. So I think that's a fundamental I think we are waiting.
<unk> for the world to start to understand more clearly how differentiated.
Differentiated site time is from all other players in this market would also unique in the fact that we are uniquely focused only on timing, whereas most of these other people are either not focused on timing or does it focus on timing their focus only some specific parts of it not at all.
Parts of it which would be oscillators clocks and resume theirs.
Alright, so helpful. Thank you.
Great. Thanks, Chris.
Thank you.
As a reminder to ask a question. Please press star one one on your phone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
And one moment. Please next question.
Next question will come from Douglas Mcglaughlin, Oh Laflin.
Fabricated knowledge your line is open.
Hey, guys I just wanted a question about even with some meaningful sequential revenue growth into the back half and some growth next year.
You've raised operating costs significantly and it doesn't look like you're going to be quite a bit of 2021 level of eat it is that the right way to think about that business. As you continue to reinvest in the long run and then I have a follow up after.
Yeah, Hey, Doug So to answer your question and operating expenses. We yes, we grew operating expenses over the last few years, but we've held them absolutely flat for the last four quarters or so and we're actually ratcheting them down a little bit more in the back half of this year I mentioned that.
You know our guide for Q3 is operating expenses between 26 and $27 million, that's slightly less than when we were in queue too. So we are managing that very closely.
But we've invested a lot in the team at <unk> time, right most of our expense or invested in people and even though our revenue has declined because of this whole inventory issue out there in the last couple of quarters. We did not think that it made sense for us to make radical changes to our spending patterns. So.
We're gonna hold a bladder squeeze them down just a little bit.
Going forward will increased expenses only when our top line revenue rose sufficiently.
So to answer your question, yes, they've they've increased over the last few years, but we're holding the line on it and we're gonna continue the hold the line on our on our Opex right now.
Perfect. Thank you for answering my question. My next my fault question is mostly about the design when timing each quarter you talk about how you know record new levels of design wins is there any kind of visibility Wayne a design when his production because that's like.
In theory is 2024 2025 come along you have the single source deal. So it's just you guys. These design when should move to revenue any kind of timing on when this you know cliff of new.
Design wins will royalty or is it just just can be many many years I mean, you don't really have any kind of disability.
No I think you've got it right Doug. It's it's 24 25, there are some that are particularly in the aerospace defense that are further out actually been an automotive. There's some that are out in 26, but 24 23 26 with a peak being in 25 is probably a good way to think about it.
The other way to think about it is that as you know we service multiple markets and the longest design when psychos are probably an automotive although that's not a given if it's an infotainment audits and some of the E V companies that move very fast the new companies that.
We all know about that are not the traditional relatively slow moving companies on the other hand incumbent companies in automotive move a little bit slower. So that's one thing. The second is that in the consumer side. We may find our industrial we may find a design when paying off in revenue with.
Then a few quarters, maybe as little as six sometimes six to nine quarters, we've seen that happen as well.
So it's hard to get much more specific on that other than to say we're building for the future for a highly diversified differentiated product line, which would start paying off in 24, particularly second half of 24, and 25 and 20.
Six so we're pretty focused on <unk> on going in that direction.
Perfect can I sneak one in real quick I didn't get that <unk> sequential growth a little bit witch and market have you are you wanting to comment on where you think the inventory is better or worse by the end markets that you guys talk about or is that not at school that you wanted to do.
Yeah, I I think that's more detailed and then we can go into right now.
Okay, how about on the queue alright, thanks, guys alright, Thank you Doug.
<unk>.
M T. No further questions in queue I will now I'd like to turn the confidence back to art Chadwick So closing remarks.
Alright, well I just wanted to say, thank you to everybody that listen to the call. We appreciate your interest I am sigh time and hope everybody has a great day. Thank you.
Thank you very much.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
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