Q3 2023 SiTime Corp Earnings Call
Good afternoon, and welcome to <unk> third quarter 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.
As a reminder, this conference call is being recorded today Wednesday November November 1st 2023.
Now like to turn the call over to Brett Parry with Shelton Group Investor Relations Brett. Please go ahead.
Thank you good afternoon, and welcome decided times third quarter of 2023 financial results Conference call joining us on today's call from sorry, <unk> Chief Executive Officer in Art Chadwick Chief Financial Officer.
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.
Get your operations the timing market in other areas of discussion.
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 fact 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 before looking events discuss during this call may not occur in <unk>.
The results could differ materially and adversely from those anticipated or applied neither the company nor any person that sense of responsibility for the accuracy and completeness of forward looking statements company undertakes no obligation a couple of the update forward looking statements for any reason after your date of this call to conform statements to actual results or the changes in the COVID-19.
These expectations.
For more detailed information on the risks associated with the business. We refer you to the risk factors described in the 10-K filed on February 27th 2023, as well as the company subsequent filings with the S. P. C. Also during the call will refer to certain non-GAAP financial measures, which are considered to be an important measure of company performance is not.
Financial measures are provided in addition to an artist a substitute for or superior to measures of financial performance prepared in accordance with U S gap you.
The only difference between a reported gap in non-GAAP results of stock based compensation expense. Please refer to the company's press release issued today for a detailed reconciliation between gap and not get financial results with that it's now my pleasure to turn the call over to <unk> protests. Please go ahead.
Thank you.
Good afternoon, I'd like to welcome you as well as existing investors to site times Q3, 2023 learnings call.
In electronics timing is ubiquitous and ensures reliable functioning.
<unk> created precision timing to serve the needs of applications like automated driving data center five G N D I.
We are early in a growth as we transform the 10 billion timing market.
<unk> 3 billion precision timing chips to 15000 customers.
In 300 applications.
Q3, 20 twenty-three was in line with our guidance.
Revenue for the quarter was 35.5 million.
non-GAAP gross margins were 58.2%.
non-GAAP EPS was 0.06 for sure.
Versus a loss of 21 cents in Q2 2023.
As we forecasted we continue to see a reduction of inventory in Q3, and an uptick in and demand, particularly in the mobile Iot consumer segment.
We expect these trains to continue in queue for leading to 15% to 20% sequentially higher revenue over two three.
In addition, the long term strength of our business continues as we as we have ambitions.
This is through the introduction of new exceptional products, leading to Sam expansion <unk>.
Solid Esp's increase design wins and continued strength in our single source business.
The second half of twenty-three all four factors continue to remain on track and I will touch on these now in more detail.
Mmm.
We continued to expand our Sam with high value products like epoch for the communications and data center markets.
Is a revolutionary product that beats legacy court, Oh see echoes on all key nine specifications that customers need.
Our customers are excited about this product and we built a robust final of opportunities.
A final continues to show a robust growth accumulative design wins to date and twenty-three have grown 75% over the same period in 2022.
And lastly in the multi sourced oscillator business, 85% of a Q3 revenue.
<unk>, which is an indication of the unique value of sight time.
In the past four years, we've grown from 60 to 150 unique oscillators and the price of the highest value oscillator has grown tenfold.
This strategy makes us the leader in the oscillator space.
And a trusted advisor to customers and are focused markets. Unlike our competitors.
This leverage is a strong balance sheet to accelerate our talking revenue in roadmap by several years.
Clocks now and another 20 by the end of 2024.
Additionally, by combining our men's and oscillators with these clocks, we believe that a whole new category of precision timing products will be created for our core markets of calm data Center Nai.
This continuous items trajectory your building unique timing products that brings us closer to the customer and enhances a trusted advisor status at the top electronics companies.
I'm deeply satisfied and convinced that this acquisition significantly advances vision.
I'd also like to give an update on changes to a management team. After four years of <unk> are Chadwick are CFO has decided to retire.
Arch guidance has played a strong role is items achievements. He has been a tremendous partner and a key strategic advisor to <unk> investors and our business partners.
We tank art wholeheartedly for his contributions and impact on our business.
I'm very excited to appoint a new member to <unk> executive team Beth how is joining site M. As our CFO on November 8th.
She comes to <unk> time, with proven financial leadership and deep experience driving performance in scale multinational organizations a wealth of experience will be valuable as we continue to build market momentum and drive <unk> future growth and success.
In conclusion. These are exciting changes to the company that advance our vision and take us to further success.
Thank you.
Well, thanks for Josh and good afternoon, everyone.
Today I'll discuss third quarter 2023 results and then provide some guidance for the first quarter.
I'll focus my discussion of 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 a gap to non-GAAP results.
Revenue in the third quarter was $35.5 million up 28% from you too.
Sales into our mobile I O T and consumer segment or $17.9 million or 50% of sales up from $10.4 million in queue to due primarily to higher sales to our largest customer.
Sales of that customer, we're $13.2 million up from $4.6 million in Q2.
Excluding sales to our largest customer sales into this segment or $4.7 million or 13% of sales.
Sales into our industrial automotive and aerospace segment, where $11.7 million or 33 per cent of sales down just slightly from 12.4 million and Q2.
Sales into our communications enterprise segment, where $5.9 million or 17% of sales up from $4.9 million into too.
non-GAAP gross margins were 58.2% essentially flat with margins and to you too.
non-GAAP operating expenses were $26.3 million down about 4% from two two as we continue to closely manage expenses.
<unk> for 15.8 million and R&D and $10.5 million.
Hey.
The third quarter non-GAAP operating loss was 5.6 million substantially better than the 11.2 million dollar loss last quarter.
Interest and other income was $7.1 million up from 6.5 million in Q2 due to higher earn interest on our T Bill investments.
Third quarter, none yet net income was $1.4 million or six cents per share compared to a loss of 4.8 million last quarter.
Accounts receivables were $25.2 million with Dsos of 65 days as compared to 15.8 million N. D. S. O is a 51 days in Q2.
Inventory at the end of the quarter was $64.5 million essentially flat with last quarter.
During the quarter, we consumed $11.6 million in cash from operations <unk>.
Invested $3 million in capital purchases.
And ended the quarter with $568.1 million in cash cash equivalents and short term investments.
I'd now like to provide some financial guidance for the fourth quarter of 2023.
There is still more inventory in the channel than normal.
But it is being worked down for.
For some customers, including our largest customer channel inventory is back to normal.
But for other customers it will take them until the end of this year or enter 2024 will get back to more normalized levels.
As <unk> mentioned, we are seeing an uptick in and demand.
And we now expect fourth quarter sales will be up 15% to 20% sequentially.
Whereas girls from Q2 to Q3 was essentially driven by increased sales to our largest customer.
Gross from two three to Q4 will be driven by customers other than our largest customer, especially in the comms and enterprise industrial an arrow markets.
We expect non-GAAP gross margins will be essentially flat with two three <unk>.
<unk> operating expenses.
Interest income will be approximately $6.5 million.
Our share count will be approximately 22, and a half million shares.
As a result, we expect non-GAAP E. P. S will be somewhere between 18 cents and 22 cents per share.
Now I'd like to make a few comments about or deal with or a semiconductor.
This is a very exciting and strategic deal precise time it's.
It's an all cash transaction comprised of six payments totaling $148 million 30.
36 million of which will be paid it close and expected $75 million will be paid in 2024.
And an expected $37 million will be paid in 2025.
All tied to product deliveries from Laura.
There are no payments will be based on various multiples of revenue generated from the required products from 2023 through 2028.
With a total cumulative earn out capped at $120 million.
This deal will clearly accelerated our o'clock in business, but it will take time to grow revenue.
<unk> first win design circus with our customers and then it takes time for those designs to go into production.
We therefore do not expect any material revenue or non-GAAP operating income in 2024.
However, revenue and operating income should increase in 2025 and beyond.
Growing to 100 million dollar a year business in a number of years.
I would also like to note that from a reporting standpoint, we plan to exclude amortization of these acquired intangible assets and licenses when report future non-GAAP results.
Now on a personal note today, we announced that I've decided to step down as CFO and retire.
I have had an amazing four years here aside time helped.
Helped me take the company public raising capital and being part of this amazing management team.
But my wife, and I are now empty nesters, and we really want to spend more time on activities outside of work.
So I decided.
To pass the Baton.
I wanted to save <unk> and everyone here aside time for being so great to work with.
And I want to extend a special thanks to Sam sure Uhm, It's R V P of finance.
And our entire finance and accounting team, who do amazing work and who made my job easy.
Finally, I'd also like to welcome Beth is our new CFO.
I think she's gonna do great and I think the company is gonna do great.
On that note I'd like to end the call back to the operator for Q&A.
Thank you.
Time, we will conduct a question and answer session.
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Try your question. Please press start one one again please.
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Our first question comes from.
Mine is ture sandburg.
Your line is now open.
Yes, Thank you and congratulations on the continuous recovery here and art wish you all the best in your retirement and that that's welcome to the platform. My first question is on the growth that you are expecting for Q4, you talked about growth in your.
And the business, that's not related to your largest customer.
Hoping you could add a little more color there what are some of the sub segments that are expected to grow and and what are some of the sub segments that up or perhaps still plagued by inventories as we exit the year.
Sure No great question is.
As I mentioned in my commentary, there's there's a few sub segments that I did call out and we're gonna see relatively substantial growth quarter to quarter. One is comes in enterprise that I expect will increase somewhere around 55 zero percent sequentially from Q3 to queue for.
We're seeing strength in industrial that will also increase from Q3 to Q4, and we're seeing a lot of strength and aerospace and defense and we are projecting.
Some very significant sequential revenue increase from Q3 Q for in that segment.
For consumer excluding our largest customer that is gonna be flattish quarter to quarter.
And I think that kind of summarizes it.
Yeah that sounds great color and a question for <unk>, what address would be the old technology and sort of accelerating penetration into the.
Clocking market I know, there's not gonna be much of the financial impact in 24, but.
You did mention that these are higher margin businesses. So how does this change the financial profile for the company longer term both from a sort of 30 per cent growth perspective, but then also for gross margins over time.
Yeah on the gross margins are clearly these are high performance high and gross margins as I said before clocking has a few distinctive trades clogging products are relatively middle or you know middle of the road Esp's the asp's anywhere from.
$4 to $10, but the gross margin that typically around the 70 per cent range, particularly for the markets and calms enterprise AI that we're going for.
On having a material impact on our growth I don't think this I I think it's only positive to the extent, we get the design Windsor the sooner we get the design wins and start selling them along are oscillators. The sooner we get the girl, but in general will maintain are 30 per.
<unk> annual growth rate for the long term business that we've always talked about this can only help that.
Sounds good I'll get back in line. Thank you.
Next door.
Thank you one moment for our next question.
Our next question comes from the line of Quinn Bolton Needham and company. Your line is now open.
Hey, Thanks for letting me take Ah Ah ask a couple of questions in an art just wanted to say our best wishes to you and your wife and your retirement, it's been great working with you not only for the last four years, but also at cabbie M. So just really enjoyed the time in death welcome I guess my first question just following up on or a semiconductor it sounds like it's.
A product line sort of acquisition without any substantial opex or R&D that comes to the company and so I guess two questions. One can you confirm that too you know, we'll aura continue to be a separate entity that continues to generate these clock pro.
<unk> for you or at some point will you have to take over R&D for some of these you know future generations are derivatives of of these products. Thank you.
Yeah. So quinn on the expense side, we are going to hire a few of their folks in India and a few other locations, but it's not significant opex. So.
Whatever revenue and gross margins, we do drive that'll cover the Opex. So you know I basically guide that from a non-GAAP operating income standpoint is essentially neutral next year, and we're suggesting folks not really change their expectations are there models for 2024.
Because it will take time to get these design wins and then for those to ramp over time.
Oral will continue as a company absolutely for the next few years the products that they will continue to develop a part of this deal and we will have complete ownership.
The technology associated with those products.
We will absorb them into our technology, and which a complete control of management of those projects going forward. So in the future. If we're to cease to exist that I don't believe that's going to be the case. We're gonna we are totally self sufficient with that technology and too.
Add to that one other thing I think of it is a two step we get to start selling clocks as is.
Maybe three step clocks as is then we get to add either virtually or literally our men's oscillator technology. Just like we have in Cascade Ah current shipping product into it and then the third is we get to use this technology and build something that's even.
Greater as we go forward. So all three of these are going to come to bear in Unspooling a roadmap.
Got it and then just sort of outside of your largest customer. It sounds like you are starting to see it better order environment. Just wondering I know orders had been pretty choppy and generally at low levels over the <unk>.
Last couple of quarters, but but can you describe the order trends that you've seen sort through the third quarter into the fourth quarter or have they improved is that what's giving you sort of this confidence in in a pretty substantial growth rates, you're talking about for <unk> enterprise industrial in any A&D segments. Thank you.
Yeah. So clearly we've seen an uptick we mentioned in our commentary we've seen an uptick in end user demand. So that is a piece of it. It is still a little choppy you know some days our order rates are great [laughter] by our standards and some days, they're not as great. So it is still a little bit choppy.
Out there, but clearly the order rate has increased that's what's driving this sequential increase in those market segments.
Described and we are very confident in our queue for guidance. So you know that says something about how we're seeing changes in the market here.
And and part of it I'll add to this.
Is that you know we've had this inventory issue all year and his customers work through their inventory and get back to more normalized order levels that helps improve sales and we're seeing some of that also.
Great. Thank you.
One moment for our next question.
Our next question comes from the line of C. G. <unk> N K and your line is now open.
Rejection art best of luck on your transition here and.
Welcome to the team so.
Sure. So are you talked in pirate calls us here about under shipping number of about 30 million. This year is that it's still a good number to think about as a baseline going into 24 to model growth off of just understanding if that inventory you know die.
Digestion kind of works back in the next year.
Yeah again, those are not hard numbers because it has to do with the information we get from the subcontractors and how much quote excess inventory they have but it's in that ballpark 30 to 40 million dollar on your statement I think this year is in the ballpark.
Okay, Great and then the other question is on the <unk> acquisition Uhm you guys seem to have known about this company for awhile and it seems like it's going to kind of accelerate the adoption of oscillators, along with clocks and date of certain times.
Why why not do this transaction earlier why why the timing of doing it now and no pun intended.
Well, it's a good question.
As you know we have been very consistent that our acquisition. The first one would be in the clocking space. So I am deeply gratified that we are living up to that promise of the last few years and we're doing it exactly the clocking area and exactly in the networking.
Columns enterprise AI space, which is the highest value part of the business.
Sometimes the timing is just <unk> the plan, it's a line and in this case, we've been dealing with them for a while as I said earlier, we have we have already launched the Cascade product line in 2020, and we saw the high quality work that the guys that are a semiconductor did.
We saw the level of.
Off of technology that brought to bear and we think that while we could do that it would take us time and by connecting with these guys and bringing these products in we're accelerating by several years <unk>.
Revenue and does just seem to be the right time, because we were also done with bringing a lot of new oscillator products C. D. <unk> launch to the market. So it just seemed like almost the perfect time and this is one of those times when the planets align then aura themselves or.
More open to this.
And we built a great relationship with them to the team in Bangalore.
India and we're very pleased with what they have done.
Sure enough thanks, guys.
Thanks.
Thank you as a reminder to ask a question you'll need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please.
<unk> one one again please.
Please stand by for our next question.
Our next question. Our next question comes on line of Dead Douglas Laughlin.
Located knowledge your line is now open.
Hey, Josh.
And.
Can you, you're you're sounding a little bit muffled Doug.
Let me <unk> <unk> Hello can you hear me much better yes, much better okay, well. Congrats congrats are welcome to the <unk> I just had a question on the columns segment, you said five zero quarter over quarter does that imply gross margin is crossing.
This quarter given that historical historically, you said that <unk> is your highest gross margin segment and then I guess I have a follow up on the web.
Yeah. So I I did say that the comes the enterprise revenue will increase approximately 55 zero percent sequentially.
Still not large dollars that generally is higher gross margin for us, but we also have some other offsets throughout the rest of the business, which is why I had to guide relatively flat gross margins from Q3 to two four.
Okay, Perfect and then I guess this one's more for address could you kind of walk us through how how long a customer or would get him a tax rate for something like an order of semiconductor clock product with an oscillator and you know I know the details are going to take a long.
Time, but just kind of walk us through the logic and the reason of why together. This is you know a much better deal for you guys. Just I think it would be helpful for us to understand and quantify and understand the impact of how big or it could be for you and maybe even a celebrate your off later business.
Exactly so our business in columns enterprise is the one that we believe is a very important one priest high time and this offering of truck based products.
Comes front and center into that it takes us from a Sam a $50 million to an additional $450 million. So really you know yeah increases at 10 fold. So if you look at a remote radio unit.
In that we today supply boats, the oscillators that Gordon goes into auto use our our ages.
Now along side that are typically clocks, which use at the clock generators. Our network synchronizes of buffers that go into the same box, which heretofore. We <unk>, we did not possess and while we've been building. Some of these internally it just takes a lot longer.
So with this product right away, we would have four slots in the are are you ready to go in another example in the core router business.
That's very heavy on clocking in relatively light and oscillators. So we have an opportunity for one oscillator, which we do supply, but there's an opportunity for up to eight clocks that distribute that are digital cleaners buffers and Ah network synchronized or is that a <unk>.
Needed in that and now we would have these opportunity to sell eight more chips in that one core router and finally in the data Center for example in in a in a server we already have opportunity for four oscillators, a couple of those but now we would have an opportunity to sell up.
Two four different kinds of clocks in that market. So these are the three key markets. The first one was in the radio access networks. The second one was in the core edge and access networks and the third one is in the data center. So we have really fulfilled our clocking opportunities.
And products not partially but wholly in other words it allows us to compete with the other clogging company's full front and center that have taken them decades to build these Martin these products were able to do that overnight gives us a unique opportunity because of course none of them.
He was talking companies possess the site I'm men's based technology with all its superior attribute. So this gives our customers are very unique.
Way to come to us to solve the entire clogging needs entire timing needs and we think that that's a very very important place to be.
Perfect would this be like some kind of integrated package unit that would be sold as like you know one one piece that contains all these these pieces of silicon and maybe you know versus another vendor. It's it's an integrated solution.
Right. So first as I said, it's the first step would be for us to sell these products as is so we get quickly to design wins in in the market. The second one would be to do a virtual value creation. So two chips not in one ship two separate trips that are sold particularly.
In connection with our epic product in connection with the elite R F and I need to X products, but then the third time around is to do what we've already done with Cascade or Cascade family of products has an oscillator from site I'm integrated into it and that's being very valuable to our customers, we would do that for the plot.
And readers, we would do that for the <unk> cleaners, and we do that for the network synchronized. There's so it has the opportunity to take our product asp's significantly higher and make our product significantly more valuable either through the virtual integration or the actual physical integration and we're going to do.
Both.
Throughout.
Perfect looking for for the next the next call take care guys.
Thank you Doug Thanks.
One moment for our next question.
Our next question comes from the line up to our standard of <unk>. Your line is now open.
Yeah sure. It's default just have two quick follow ups first of all.
Alright, I noticed D. D. S. So went up quite a bit is that because of our revenue next or our customer starting to ask for extended terms at this point.
No. It has nothing to do with customers asking for extended terms. It has to do with the fact that this particular quarter for a particular some manufacturing reasons with a little more back end loaded. So when you ship more of your quarter near the back end of the quarter. It raises dsos cause you ship it and you can't collect it within the same.
Border I expect Dsos would drop back to more normal levels in Q4.
Understood and my other follow up coming back to our so.
It sounds like with the earn out the total.
Total cost could be as much as 268 million you mentioned, a potential 100 million dollar business. So I'm, just hoping you could shed a little bit more of the mask you know that the management team went through two two determined this this type of the price.
Yeah, well first of all I think your numbers are correct.
You have to remember that the payment that we're making both the fixed payment and earn out payment are being paid over a number of years.
So that obviously impacts kind of the present value of the deal, but if we can grow this to 100 million dollar a year business and a number of years and grow beyond that you know put a reasonable multiple on that revenue and a multiple line you know we should be able to run this at at our target operate any more.
Origin of 30%.
<unk> drives a lot more value than the $268 million that that will end up paying them, if we pay out the full or no.
Sounds good thanks again.
Thanks to art.
Please stand by for our next question.
Our next question comes from the line of Chris <unk> of Wolf Research. Your line is now open.
Yeah. Thank you good evening I guess, just a question on gross margins.
And how we should look at them you know going into next year, you know what what what are the steps and what's the visibility on on getting the gross margins back to more normalised levels as the market starts to come back.
Sure what we've talked about this before at a very high level as a revenue increases are.
Fixed manufacturing overhead becomes a lower percentage of the.
The cost of sales and so that improves margins.
My Simple example is if we can double revenue from the current run rate that improves margins by about five percentage points, because our overhead is running about 10 points.
Of margin. So that is one way that our margins will improve again. It's also one reason why our margins are down from where they were a year ago and the other is mix.
The middle of this year, if you recall, our constant enterprise customers had way more inventory then they needed our sales in that segment where down dramatically.
And that makes should improve over time, if you recall you know a year and change ago that segment was almost a third of our business and over time, if we get it back up to a third of our business that helps blended margins substantially. So right now we think that margins will move back up into the sixties next year.
<unk>, probably low sixties earlier in the year and increase sequentially through the course of the year.
So that's that's that's how I see it right now.
Okay. That's helpful.
I guess it was next question is it's on China, both kinda sure determined and more broadly also and you know there's been a lot of talk about incremental weakness in China because of the economic conditions. There uhm to what extent is that contributing to what you're seeing here and then on your chairman China, maybe you could talk about the opportunity.
Geopolitical tension right now you know that at least.
Desire to ensure some more product obviously, there's there's no men timing sources within China right now, but you know does does the geopolitical situation impact your your opportunities in China going forward.
In general are China business is a robust meaningful part of our revenue much of it comes from industrial and from automotive. So we're not subject to the same restrictions that we see in columns with some of the bigger guys in China.
Nor are we in the consumer segment in any meaningful way. So we think that China business will continue to grow even though some of the macro conditions continue to be somewhat choppy as we see in the headlines I think our China business next year grows over.
China business. This year is sibley, if I look at the design and the design when right. There is some you know we don't we don't do any production in China. So we don't have any restrictions when it comes to the so called China free requirements. So we are.
Good they're some of the people are talking about Taiwan free so to some extent we have to pay attention to that but in general we think that China continues to be an important part of our revenue source and and business source and and we support it with with with with <unk>.
Success.
That's helpful. Thank you.
Thanks, Chris.
At this time I'm showing no further questions I would like to now turn it back to management for closing remarks.
Great. So first of all I want to say thank you for all the kind comments from them all you folks that ask questions.
We have nothing else on our end so we want to thank everybody for joining us for the call today and have a great evening. Thank you very much.
Thank you guys.
Thank you for your participation in today's conference does does conclude the program you may now disconnect.
Mmm.
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