SITM - NASDAQ

Good afternoon, and welcome to SiTime's First Quarter 2025 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, May 7, 2025. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.

Thank you, Didi. Good afternoon, and welcome to SiTime's first quarter 2025 financial results conference call. Joining us today on the call from SiTime are Rajesh Vashist, Chief Executive Officer; and Beth Howe, 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 any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. Neither the company nor any person assumes responsibility for the accuracy and completeness of the forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform statements to actual results or to changes in the company's expectations. For more detailed information on risks associated with the business, we refer you to the risk factors described in the 10-K filed on February 14, 2025, as well as the company's subsequent filings with the Securities and Exchange Commission. Also during the call, we'll refer to non-GAAP financial measures, which are considered to be an important measure of company performance. These non-GAAP financial measures are provided in addition to and not as a substitute for, nor superior to measures of financial performance prepared in accordance with US GAAP. The GAAP to non-GAAP reconciliation includes stock-based compensation expense, amortization of acquired intangibles and acquisition-related expenses, which include transaction and certain other cash costs associated with business acquisition as well as changes in the estimated fair value of contingent consideration and earn-out liabilities. Please refer to the company's press release issued earlier today for a detailed reconciliation between GAAP and non-GAAP financial results. With that, it's now my pleasure to turn the call over to SiTime's CEO. Rajesh, please go ahead.

Thanks, Brett. Good afternoon. I'd like to welcome you as well as existing investors to SiTime's first quarter 2025 earnings call. SiTime is the leader in a dynamic new semiconductor category that we call precision timing, which is the heartbeat of modern electronics, whether it's in AI, datacenters, networking infrastructure, automated vehicles, personal mobility or IoT, SiTime's precision timing delivers better performance and reliability. Precision timing use semiconductor technology to reimagine time and transform the $10 billion timing market. SiTime is uniquely focused on high-value timing markets and applications and serving them with highly differentiated products that deliver exceptional value. With this strategy we're building a strong business that is diverse across industries, applications and geographies. This has served us well. And even in this dynamic environment it has enabled us to continue to grow rapidly. The numbers speak for themselves. Q1 2025 was a great quarter, where we delivered financial results well above our target. Revenue was 83% higher than the year ago at $60.3 million. Gross margins were 57.4% and EPS was $0.26 per share. This growth was driven by all of our segments. The comms, enterprise, data center or CED, business tripled year-over-year and both the mobile IoT consumer and the auto industrial defense customer segments grew double-digit percentages. Revenue from our largest customer grew over 75%. We expect this strength to continue in Q2. Our CED business has shown significant sequential growth for four consecutive quarters now, driven by the strength of AI. Our OEM and Cloud Service Provider customers continue to reaffirm their growth outlook, and we expect the Data Center business to continue to grow through 2025. We know, that AI Infrastructure needs higher network bandwidth, to improve GPU utilization rates, which directly impacts the consumption of SiTime's precision timing products. There are two trends that confirm this infrastructure upgrade. First, optical module and switch bandwidth is doubling, and we're shipping in high volume in 800G today. We're now seeing increased design activity for 1.6T modules, which we expect will become the mainstream in 2026 and 2027. SiTime has had success on 1.6T designs, and we have over 20 opportunities at customers worldwide. As a second trend, Active Electrical Cables or AEC, continue to replace passive cables within the data center rack, with two to 4x higher bandwidth. In both these applications, SiTime continues to be a highly differentiated solution where we deliver significant value in performance and resilient supply. Additionally, we are also very excited about our Clocking business, which is central to the strategy of solving customers' needs, across the timing subsystem. We continue to have a sustainable advantage because we uniquely have all the components required to make truly differentiated products. By integrating the oscillator with the clock and software, SiTime has created a new clock category that is a complete system solution, which delivers increased performance and simplified designs for our customers. This strategy has the potential to create the highest clocking revenue in the industry in the coming years across all the customer segments. SiTime has already launched three clocking products with higher ASPs and longer revenue streams, a trend that will continue for products in the future. Some examples are: in CED, our Cascade family offers the benefit of more resilient performance and has been designed into diverse applications -- from switches and NIC cards, Network Interface Cards in data centers, to 5G equipment and Fixed Wireless Access, FWA. In Automotive, our Chorus family has over a dozen high-value designs in ADAS or Automated Driving Applications, where it offers the benefit of integration and higher reliability. For the mobile IoT consumer market, we have recently introduced Symphonic, the industry's first integrated clock generator for 5G millimeter wave consumer products as well as asset trackers and GNSS or GPS receivers. Symphonic customers get high performance with environmental resilience, small size, system power efficiency, and also find homes in industrial applications. In these dynamic times our product differentiation, is key to continued success. I'm confident in SiTime's ability to adapt to the rapid changes in the world today, while continuing to grow revenue, profitability, and market share. With that, I’ll turn the call over to Beth, our CFO, to discuss financial results in more detail. Beth?

Thanks, Rajesh. Good afternoon, everyone. Today, I’ll discuss first quarter 2025 results and then I'll provide our outlook for the second quarter of fiscal 2025. As a reminder, I'll focus my discussion on non-GAAP financial results, which are reconciled to GAAP in our press release. Our Q1 results highlight the momentum of our business. First quarter revenue increased 83% year-on-year to $60.3 million, driven by ongoing strength in our data center business, as well as growth in our mobile business. Sales to the communications, enterprise, and data center customer segment were $29.3 million, up 198% year-on-year. Sales into the automotive, industrial, and defense customer segment were $14.1 million, up 10% year-on-year. And sales into the mobile, IoT and consumer customer segment were $16.9 million, up 64% year-on-year, with sales to our largest end customer increasing 76% to $11.1 million. In terms of the mix of revenue, communications enterprise data center represented 49% of revenue automotive industrial and defense made up 23% of revenue and the mobile IoT consumer represented 28% of total revenue. Gross margins for the quarter were 57.4% with gross margin dollars increasing 81% year-on-year. Total non-GAAP operating expenses were $32.5 million flat sequentially and in line with expectations. For the quarter, R&D expense was $19.3 million and SG&A expense was $13.2 million. Q1 non-GAAP operating income was $2.1 million, an improvement of $10.3 million or 16 percentage points versus the same quarter a year ago. Q1 non-GAAP net income was $6.3 million or $0.26 per share. Turning to the balance sheet. Accounts receivable were $28.1 million with DSO improving to 42 days versus 50 days in Q4. Inventory ended the quarter at $82.6 million compared with $76.7 million in Q4 as we ramp production for key new products and continue to maintain strong wafer balances for assurance of supply. During the quarter, we generated $15 million in cash from operations up $1.5 million sequentially and up $13.3 million year-over-year. CapEx was $16.4 million in the quarter, driven largely by the purchases of production equipment and we paid $5 million to Aura Semiconductor. Our balance sheet remains strong and we ended the quarter with $398.9 million in cash and short-term investments and no debt. Now, I'd like to provide our outlook for the June quarter. For Q2, we expect revenue growth of 45% to 50% year-on-year, which is $64.7 million at the midpoint; gross margins to be approximately flat compared with Q1; operating expenses to be in the range of $33 million to $33.5 million; and interest income of approximately $3 million to $3.4 million. As a result, we expect second quarter non-GAAP EPS to be in the range of $0.25 to $0.31 per share. With that, I'll open it up for questions.

Thank you. [Operator Instructions] And our first question comes from Quinn Bolton of Needham & Company. Your line is open.

Hey guys. Congratulations on the nice results and outlook. I guess first question, Rajesh, you mentioned a significant design win back in March at the Morgan Stanley Investor Conference with your largest customer. That customer is up I think 76% year-on-year. Can you give us a sense do you expect that kind of growth to continue throughout the year? Just what should we be expecting as that customer launches phones with the internal modem where you have two timing sockets paired with that internal modem?

Yes, I think we should expect to have continued growth. I don't know if it will be in the same percentage. Clearly there is strength. You mentioned those two design wins. I think those design wins are in good shape. What we -- what remains to be seen however as always is first of all as you know it's a consumer product. So, it typically cycles up and down a little bit more than others. The second is it's the first one of its kind in the phone paired to their own certain chips that they have. So, I think we've got to see where that goes. And finally we do live in a very dynamic environment where you -- we don't know what the impact of tariffs or not tariffs or lesser tariffs or more tariffs are going to have. So all that being said, we continue to expect growth, yes.

And maybe a follow-up for Beth. Beth, I think as revenue grows into the second half of the year, I think you were expecting margin expansion. Can you give us a sense, do you still expect margins to expand in the second half? And I guess as part of that, to the extent your largest customer, which is in the consumer space, continues to grow at a pretty healthy clip, would that potentially represent some drag on margins that we should be thinking about? Thank you.

Thanks for the question. So as we look at our gross margins, you indicated the two factors. So we do remain committed to the gross margin target for our core business of 60% that we've been working towards. As we've discussed, we're making improvements in our cost and yields for our new products as they ramp. In addition, as you mentioned, we do have this new consumer business, which does come at lower gross margins. And so while it does contribute incremental revenue and gross profit dollars, and also provide significant value to us over the long term, it does put some pressure on our gross margin rate. And so overall, we're working to offset and mitigate that pressure to deliver the 60% by the end of the year, and that's what we're working towards.

So the 60% is still the target?

That's still our target. Clearly, we're working on it. We've got a little more work to do now with the new products.

Understood. Thank you very much. I'll get back in the queue.

Thank you. Our next question comes from Tore Svanberg of Stifel. Your line is open.

Yes. Thank you, and congratulations on the strong results. So I know there's a lot of focus on your largest customer, but I mean, the data center segment continues to be very robust, Rajesh. So I was just hoping you could elaborate a little bit more on your growth profile there. You definitely talked about 800-gig upgrade cycle moving to 1.6. You talked about the AECs. But my understanding is that you participate in a lot of different parts of the AI data center. So how should we think about the continuous momentum here throughout the year?

Well, the continuous momentum is strong. So you rightly point out that while I have given in the optical module and the connectivity, there are other opportunities in switches in server racks, in the GPU, the CPU, accelerator cards and so on. And we are, in fact, in every one of those. We are also looking at new opportunities that are coming directly from GPUs that are being made by non-semiconductor companies, and we see that as a tremendous opportunity as well. So we stand pretty strongly behind continued growth, frankly, for years to come in the overall AI data center market because we see no slowdown in it.

Very good. Thank you for that. And as my follow-up, could you talk a little bit about which segments you expect to drive the sequential growth into the June quarter? And have you seen any sort of pull-in activity at all as related to potential tariffs?

Yeah. It's always hard to tell whether there is pull-in activity. But at this point, I would say it is minimal, if any. We haven't detected any pull-in activity. Our bookings natively just continue to be very strong and customers are looking well beyond the 90-day tariff mark for Q3, Q4 and onwards. So our outlook continues very bright and very solid. The growth will as we said, just like we look back on Q1 and see that the growth came from every one of those. Every one of those, whether it's CD or data center -- I'm sorry, our mobile IoT consumer or auto industrial defense, it will continue to come from all aspects. Might be a little bit lighter from the auto side. And -- but I think it's quite a uniform growth. And the reason for that, as always is because of our differentiated products. Our premium products, our products tend to be premium, and they get sold in our customers' premium products, which are generally less impacted by weaknesses of any kind in the market. So that's why we think we're in a strong position.

Great. Congratulations, again.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Chris Caso of Wolfe Research. Your line is open.

Yes. Thank you. Good afternoon. I guess, the first question is your outlook for the full year, and you had talked about, I think, 25% to 30% growth for the year. Given the differing landscape, both take into account perhaps some of the new design wins you spoke about but also some of the uncertainty in the market, is that still a valid goal for the year? Or is that too low of a goal, too high of a goal? And what do you expect to be the drivers for the year? How has that changed as compared to what you thought a quarter ago?

Yes. So we are of course, monitoring, like everybody else to the extent we can the dynamic environment and what we see going on in the world at large. But having said that, we would still reaffirm our growth prospects at that number we talked about 25% to 30% for the base business and additional growth based on the new design win that we have had. We again go back to the differentiation of our products and the breadth of our products. We go back to the fact that we are now in the system timing selling business with the clocking products, as I indicated in my prepared remarks, and finally to the fact that our design win funnel continues very strongly, which matches the product funnel. As far as where they come from, I'll reiterate the same thing I said earlier, which is it will happen in all segments. It's highly likely that CED led by data center will grow significantly strongly just as it did the last quarter, but all the others will also join in. So it's -- all boats will be going up, perhaps 1 or 2 higher than others.

Got it. And then a question for Beth and just to follow up with some of your comments on gross margins. So what are the levers that you can pull to get to that 60% target at the end of the year, while factoring in some of the lower-margin revenue? Is that a function of cost reduction on some of the products? Or is that a function of mix with regard to the rest of the business?

Sure, Chris. So as we look at it, it's a function of a couple of things. So one is that we are making progress in terms of the new product introductions and the ramp there, improving the cost of those new products and improving the yields as those ramp. And that's the work we've been doing, we've been talking about. We also expect revenue growth as we go through the year. And so that -- you'd expect to see some operating leverage or manufacturing kind of leverage as we have more revenue. And as I said earlier, the new business does provide incremental gross profit dollars but is a bit of a pressure on the rate. And so we'll be looking to take additional actions to improve the cost structure in order to overcome some of those headwinds.

Got it. And if I could ask one more, Rajesh, with regard to the data center business, you mentioned a couple of different trends within that business. Perhaps you could separate out your content going forward and things like 1.6-terabyte modules, active cables and that -- how does your content grow as some of these new technologies go in as compared to your penetration, just SiTime getting a bigger market share of some of these markets?

Yeah. So I think the dollar content doesn't increase -- let's look at our ASP doesn't increase as say going from 800 to 1.6 in any significant way. So that's one. That's not happening. Our dollar content remains steady in each of the design wins. The number of design wins increases for sure, because the need for precision timing gets continued to be spread out more and more. As an example, it was only a year ago that we started to see our first AEC or active electrical cables being used. And some of the accelerator cards didn't use any of our precision products two years ago and now, some of them are using some of our most valuable, highly differentiated products. The third way is a greater penetration into customers because we -- while we have done a reasonably good job at penetrating some of our customers in the OEM semiconductor module space, there's still more penetration to be had there, so the expand inside after landing strategy. And then there are new customers, particularly as CSPs that are still not directly meaningful customers of SiTime. So we really have a lot of levers to pull here. And there's also the change in architecture that happens in many cases. So one of them is for example going after a significantly denser architecture, with significantly higher use case of SiTime's precision timing products per unit or increasing the density of usage. So, all in all, we think that this is a big updraft for SiTime for some significant time to come.

Got it. Thank you.

Thank you. Our next question comes from Suji Desilva of ROTH Capital. Your line is now open.

Hi Rajesh, hi Beth. Congrats on the success here -- the progress here. Can you talk about the platforms you called out naming them Rajesh Cascade Chorus Symphonic and just how you're trying to portray the product portfolio and road map here? I think it's the first time I've heard those called out together as sort of your platform.

Right, right. Thank you for that. Our Cascade family of products is much more on the CED side. It's being used in communications and enterprise and data center. It's our most complex chip in the clocking business. It's probably our first chip that we did in clocking. There are versions of it that are integrated with oscillators. There are versions of it that are not integrated. So, there's a whole price performance level of it and it's in the higher end of the range. The second one is relatively new Chorus family of products is for some reason -- not for some reason, but for reason of integration and higher reliability is more attuned for the automotive market and the self-driving market, primarily because of a significantly smaller size and significantly higher performance in terms of jitter and phase noise. And the final one is the latest one. I think we just got the press release out on that a day or two ago, the Symphonic which is a SiTime generated -- all of these are SiTime generated except Cascade by the way, which comes from the Aura acquisition. But the Symphonic product is a multi-output clock generator more for the 5G millimeter wave which we think other than consumer products is also getting used significantly in industrial applications. And that's based on the phase noise, the resilience, the small size, the low power. So these are multiyear efforts at cracking the market. And the point that I wanted to make was that, with the launch of Symphonic in particular, we have increased our target revenue that we expect to get over the coming years. I've always said about $100 million in a few years from our clocking business and I can say comfortably that we are highly likely to increase it significantly in the coming years because of the launch of some of these products. So very, very pleased with that and very pleased with the traction that we've been getting.

Okay. And just to clarify, the strong growth you're having in data center and optical, should I think of that as being majority Cascade? Or is that the oscillator products and shifting to more...

All the oscillators yes, all the oscillators the Epoch product, the Elite RF, the Elite itself, the Elite TCXOs, the clocking products, even some of the buffers from Aura which are relatively undifferentiated, but higher number in use case. I think we are -- this is the the CED business is the classic case we have always maintained is the one which is the highest growth, the greatest value proposition that SiTime can bring the highest ASPs with the highest volumes that balance, and of course, very sticky or very long-lived business. So it's very much a business that we are very focused on.

Okay. great. Very clear. Rajesh, thanks.

Thank you.

Thank you. And we have a follow-up from Tore Svanberg of Stifel. Your line is open.

Yes. Thank you. Yes, Rajesh I know you've got a lot of momentum in the data center segment. I also know you have a lot of design wins in the telecom 5G communications market. Just wondering if that's starting to move or is that market still quite slow?

Yes. It's -- thank you for that question, Tore. Yes it is starting to move and it isn't particularly large right now, but we expect to keep on growing in that. There are some initiatives going on in fixed wireless. In overseas, there are others in the enterprise space that are looking quite good. So we think we'll acquire new customers in this. So, very enthused about it. And I briefly mentioned software and SiTime has for the last year or so been using the IEEE 1588 or synchronization software to add greater value to our customers. And that has allowed us to -- frankly to charge more for our oscillator and clocking products because customers need that full solution of oscillator clocks and the synchronized software altogether. It's another example of our system sell.

Very good. And as my last question a question for Beth. Beth the CapEx has been around $15 million $16 million in the last three quarters. I assume that's for maybe a combination of things. But could you give us any sense for how much longer it would be at this more elevated level?

Thanks, Tore. Yes we've been investing to build capacity for some of these new products that we've been talking about the ones we talked about today for example. I would expect we've got a little more to go in terms of Q2 at these levels and for the full year probably roughly in line with the total for 2024. So I would expect the total CapEx for the year to be kind of mid- to high 30s for the year.

Thank you. We have no further questions at this time. I'd like to turn it back to management for closing remarks.

Thank you, Didi. What I wanted to highlight here was that these are tough times somewhat from macro conditions. There are uncertainties in the market. It's highly dynamic. The news continues to change and evolve. And at SiTime we ask ourselves what is our role in all this? And our role in all of this is to navigate this with -- to the best of our ability. And where we can do a great job is focus and stick to the things that we can control. So what do we control? We control the cadence and value of our parts. We're doing that with highly differentiated product. We continue -- we can control the acquisition of key customers and greater penetration. We continue to do that in many of our new customers. We have acquired new customers new applications. We are obviously able to control our spending. And as you can see our spending continues to be flattish as we go. And we control increasing our gross margins. So we're doing that as well. So, in general, we are managing our own destiny with the cards that we've been dealt. And I think that I feel very confident that by sticking to all of these valuable leverage all of these valuable levers we can come out on the other end of it very, very strong. And thank you for your attention to this and listening into our quarterly results.