SITM - NASDAQ

Good afternoon, and welcome to SiTime's Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, August 6, 2025. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.

Thank you, Shannon. Good afternoon, and welcome to SiTime's Second Quarter 2025 Financial Results Conference Call. Joining us on today's 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 forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this conference call to conform statements to actual results or to changes in the company's 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 14, 2025, as well as the company's subsequent filings with the Securities and Exchange Commission. During the call, management will refer to certain 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 U.S. GAAP. GAAP to non-GAAP reconciliations include 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.

Thank you, Brett. Good afternoon, everyone. Thank you for joining us today. We appreciate the continued support from our long-time investors and warmly welcome new SiTime investors. SiTime is pioneering a new category in semiconductors, precision timing, part of the broader $11 billion timing market. To drive growth, we are focused on high-value applications in AI data centers, automated driving, defense and industrial, and successfully delivered differentiated products with exceptional performance and reliability. This focus continues to pay off as we build a high- growth, diverse business across markets, applications and geographies. Q2 2025 was another exceptional quarter for SiTime. We delivered revenue of $69.5 million, which was a 58% increase year-over- year. Gross margin increased to 58.2%, and as new products contribute to a higher percentage of revenue, we expect to see gross margin expansion with revenue growth. EPS increased to $0.47, up from $0.12 a year ago, and every customer segment grew in Q2 2025. Exiting the quarter, we have robust bookings and a healthy funnel. In today's world of significant AI growth, it's no surprise that our data center customer segment continues to lead our growth significantly. In fact, it grew 137% year-over-year. Here, our Elite family of oscillator products, Elite, Elite RF, Elite X, continue to shine along with our Cascade clocking family. These products' performance drove strong design win momentum across the market, including switches, NIC cards, optical modules and AEC or active electrical cables. SiTime continues to be the only company that offers a full suite of precision timing solutions that includes oscillators, clocks and software, giving us architectural advantages. As we expand our offerings with new products, our dollar content in the application will grow. For example, in a cloud service provider's 102 terabit switch design, SiTime's dollar content increased by 125% with the addition of a customized lock. Similarly, in a silicon provider's network switch design, SiTime's dollar content increased by 100% with the addition of multiple clock chips. Already in 2025 in AI, we have added design wins worth several hundred millions of dollars. For SiTime, winning the AI data center market is important, and we will accelerate product development and customer acquisition to expand further in these markets. In this age of accelerated innovation and fast deployment of AI hardware, SiTime is very well qualified to meet the rapid growth in customers' demands. Our programmable product architecture works very well here, and our team and our suppliers have done a phenomenal job of keeping up with demand. One of SiTime's strengths lies in the diversity of our business. This was again evident in Q2 2025, where all markets and geographies demonstrated continued growth. Our revenue grew double-digit percentages year-over-year in both mobile, IoT, consumer and auto, defense, industrial as well as every region. In the automotive, defense and industrial markets, a growth theme is around fully autonomous operations playing directly to SiTime's strengths. Precision timing from SiTime is required for accurate positioning, sensing, motor control and synchronization for fully autonomous operations in L3+ and L4 ADAS vehicles, drones and factory robots. In automotive, robotaxis are gaining significant traction. In warehouses, millions of robots are automating tasks and defense spending is accelerating with NATO, for example, expected to spend at an 8x faster growth rate. We are designed in into the leading robotaxi, robot and defense equipment, and as these markets scale, so will our revenue. SiTime has significant experience with a decade of investments in these markets, and we have learned how to anticipate the needs and generate products and features that will drive revenue from these applications. Lastly, in the mobile IoT consumer market, our newly announced Symphonic mobile clock generator chip provides significant power and accuracy advantages to GNSS and 5G applications. It has already started to contribute to our revenue, and we expect its contribution to grow significantly in 2026 and beyond. As we move into the second half of 2025, we anticipate sequential revenue growth in each of Q3 and Q4, supported by a strong demand in AI infrastructure and continued momentum across markets. This is the second consecutive year where we expect to grow revenue by at least 40%. We also see that as more customers experience the benefits of our precision timing, more opportunities come to us. To seize them, we will continue to invest in both R&D and customer acquisition while improving operating leverage. To summarize, our success is being driven by both the depth of our engagement in AI, data centers and the breadth of our reach across diverse markets. This balance gives us resilience and positions us for sustainable growth. I'm confident in our trajectory and excited about what lies ahead. I'll now turn the call over to Beth Howe, our CFO, to discuss our financial results in more detail. Beth?

Thanks, Rajesh, and good afternoon, everyone. Today, I'll walk through our second quarter fiscal 2025 results and then provide our outlook for the third quarter. As a reminder, I'll focus on non-GAAP financials, which are reconciled to GAAP in our press release. In the second quarter, revenue increased 58% year-on-year to $69.5 million, fueled by CED, which grew 137% year-on-year to $36 million. Our other markets grew double digits with sales into automotive, industrial and defense market up 11% year-on-year to $16.5 million, and sales into the mobile IoT and consumer market up 23% year-on-year to $17 million. Sales to our largest end customer totals $11.8 million. In terms of the mix of revenue, the comms, enterprise, data center market represented 52% of revenue, while the automotive, industrial and defense market as well as the mobile, consumer, IoT market each represented 24% of revenue. Non-GAAP gross margin was 58.2% for the quarter, up 80 basis points sequentially, driven by favorable product mix and improving product costs. Total non-GAAP operating expenses were $33.3 million, in line with expectations. For the quarter, R&D expense was $19.5 million and SG&A expense was $13.8 million. We remain disciplined in our approach to investing to drive future growth. Q2 non-GAAP income -- operating income was $7.2 million, an improvement of $9.9 million or 16 percentage points versus the same quarter a year ago. Q2 non-GAAP net income was $11.6 million or $0.47 per share. Turning to the balance sheet. Accounts receivable were $26.9 million, with DSO improving to 35 days versus 42 days in Q1 due to better revenue linearity. Inventory at the end of the quarter was $84.1 million compared with $82.6 million in Q1 as we ramped production for key new products and continue to maintain strong wafer balances for assurance of supply. During the quarter, we generated $15.3 million in cash from operations and invested $18.3 million in capital expenditures. I expect CapEx to step down from these levels in the second half of 2025. During the quarter, we completed a follow-on public offering of 2 million shares at $200 per share, raising $388 million in net proceeds. These proceeds strengthen our balance sheet and support strategic investments in innovation. Our balance sheet remains strong, and we ended the quarter with $796.7 million in cash and short-term investments and no debt. Now I'd like to provide our outlook for the September quarter. For Q3, we expect revenue of $77 million to $79 million, gross margins of between 58% and 59%, and operating expenses to be in the range of $34 million to $34.5 million. Reflecting the offering we completed in June, we expect interest income of $7.5 million to $8 million, and a diluted share count of approximately 26.8 million shares. As a result, we expect third quarter non-GAAP EPS to be in the range of $0.67 to $0.75 per share. In closing, our results demonstrate strong top line momentum and the meaningful operating leverage in our model as we scale. Our expanding product portfolio is delivering differentiated solutions in large growing markets and customer engagement continues to validate our value proposition. We believe we are well positioned to drive sustained growth, operating leverage and long-term value creation. With that, I will open it up for questions. Operator?

[Operator Instructions] Our first question comes from Chris Caso from Wolfe Research.

For the first question, if you could go through what your expectations are for growth by segment as you get to the guidance.

Sure. So I'll take that one, Chris. As we think about the different markets, again, I would expect that our CED led by AI continues to be our strongest growth area. In addition, as we get to the second half, we typically see stronger seasonality in our consumer markets and so we would expect that as well. And then our auto, aero, industrial, we've seen some strong growth in several applications in that area, better traction in aerospace, for example, as well as good traction in industrial. And so we expect growth in all 3 markets there. But I would focus on CED, it's probably our strongest grower in the back half similar to the front half.

Okay. Great. That's helpful. Just as a follow-up, I guess one question would be anything extraordinary of note in your guidance with regard to the mobile segment for the third quarter? And I guess in the past, within that segment, you've had sort of a policy of not including new design wins in guidance unless the products have actually shipped and you confirm you've been in there. I guess, one is anything extraordinary to say within the guidance? And then secondly, is that still your policy with regard to the mobile segment?

Yes. First, let me address the policy, Chris. The policy is that generally, as you know, consumer products, but particularly, mobile products tend to be very volatile. So we only give guidance when we can see it. When we talk about the 40% growth in my prepared remarks, that comprehends the mobile because we now have enough visibility this year to be able to say that. When it comes to the next year, we'll probably do what we did at the beginning of this year, which we'll carve out that portion of the business, simply because we wait till greater visibility, and we get visibility. We start to give you pass through that visibility to you. So hopefully, that helps.

Right. So to summarize, for product launching this year, you would include that in your guidance because now you do have that level of visibility?

Correct.

Our next question comes from Tore Svanberg from Stifel.

Congrats on the strong results. I mean, not to sort of pick on a very good trend, but I was a little bit surprised to see your mobile, IoT, consumer business kind of flat sequentially, and I think your largest customer was just barely up sequentially. So just curious if there's some puts and takes there in the business, especially given your sort of new content and some of the devices there.

Yes. So as we look at the mobile, IoT, consumer business, I think there's -- as you know, overall, our main focus is in our comms, enterprise, data center or CED market, both because of the extraordinary growth opportunities we see there as well as the fact that we're investing in new products for that market because it is often the tip of the spear in terms of extensions into aerospace, industrial, automotive and some of those other markets. So that's where the majority of our investments and our focus is. We do see some opportunities in mobile, IoT and consumer, and so we will kind of surgically go after those where they exist, including kind of a recent win that we've had this year with that customer. Looking at the consumer seasonality, as you can imagine, when you launch a product, there's -- that initial quarter, there's the sell-in kind of as you're filling the channel with that new product that you see in the first quarter of launch. In addition, consumer typically has seasonality where the second half of the year and particularly in Q3 and Q4 tend to be stronger versus the first half of the year. So I think that's what you're seeing in our results today.

And Tore, Rajesh here. I wouldn't look too much into it. It's the consumer business. It's dynamic. We know it. It's up, it's down. So I wouldn't read too much into that.

No, that's fair. And I guess as my follow-up for you, Rajesh. As we go into the second half of the year, I think SiTime has a pretty unique view into all end markets given your diversified revenue base. Obviously, the data points remain very, very strong on data center. But I would say in sort of more traditional analog markets like industrial and auto, the data points are quite mixed, especially because of tariffs. So I'm just curious, what are you seeing in some of your non-data center segments, not just in Q3 but even into Q4?

Yes. I think there is a little bit of softness in automotive. We see that, but we still grow. We definitely see strength in industrial. We see significant strength, no surprise, in aerospace, military, defense. I mean it's not a very large business for us, but it's going to grow very rapidly, and we have high expectations and hope for it. But even in the automotive market, if I look out to the design wins that we are getting out into the -- and hence, my reference to L3+ and L4 and ADAS, if I look into that and robotaxis, I think we see significant growth in the coming years, perhaps not in '26 because many of them may not be launching in high volume, but further out in '27 and '28. We see a tremendous opportunity in automotive. And as far as industrial goes, we singled out robots, industrial robots, all kinds of robots for mention. But they're all really being driven by this need for autonomy, by this need for being synchronized and aware, presence aware. So the whole sensing, the motor control, synchronization piece, that's where we really shine, and that's common across all 3 of these industrial, automotive and military aerospace defense. So it's a very unique place, and we like that quite a bit, and we intend to make significant investments in that.

Sounds good. Congrats again.

Our next question comes from Suji Desilva from ROTH Capital.

You talked about gross margin tailwinds coming in the next quarters from new products increasing in the mix. Maybe you can help us understand where new products are as a percent of revenues now by that designation? Where they were a year ago? And what would be the pace of the increase in the next year or 2 to help the margins?

Well, the -- I don't know if I can give you regular percentages, but I can give you some indications. And the indications are that I referred to the Elite family of products. Those are definitely all our new products, Elite, Elite X, Elite RF, and the Cascade family. And in fact, our whole clocking family, whether it's the Chorus and so on. Definitely in the area of data centers, even in enterprise and communications, so the whole what we call CED, we expect more of the new products than of the older products. It's certainly true that the new products are significantly higher ASP. They are -- as I've mentioned before, they're anywhere from $3, $4 to $10, $12. And so they're significantly valuable in that regard. The design wins coming out in the military, aerospace, defense as well as in the automotive and industrial are also significantly in the new areas. Consumer tends to lag a little bit. And as you know, we have spent most of our R&D in the first 2 that I said. But consumer, mobile, IoT, we have a bunch of products. And of course, the Symphonic product, we have a lot of high hopes for in this year, the second half as well as in the coming year. So I think it's going to be pretty evenly spread in these markets, but I expect that 2026 will be significant in the new product space. I think this is definitely a transitional year.

Okay. And then maybe kind of digging into the data center content that you've gained, just maybe 1 level down. Like when you have the opportunity to win a higher dollar clock in some equipment, but other equipment, maybe it's less content. Can you just help us distinguish what gets you that higher content and whether you have upgrade opportunities in other places where you have content or how that lays out across the data center equipment, the switches, the AECs and so forth?

Yes. I think what is unique for SiTime is the fact that we sell a full system, right? We are the only company which has natively produced oscillators and natively produced clocks. So we can bundle them together, not as a bundled unit, but as a system because at the end of the day, the customer needs, the timing needs to be fulfilled, and going to one kind of supplier, typically a quartz crystal supplier for oscillators and going to a clocking company for clocks is a challenge in these very high performance, low latency, high throughput, challenging environmental conditions. So for example, in the terabit switch design that we did get, the addition of the dollar content came through adding a very customized clock. Most clocks are customized. In the addition of the networking, we just added multiple clock chips and made that come through. So it's a system play. It's solving the customers' problems at the architecture level. And this is the same playbook that we are using in all the other areas. Frankly, we use that same one in higher-end consumer products as well. I mean the Symphonic product is part -- is a unique product, which has clocking and an oscillator built into it. So that systems approach is one that might be helpful to think about.

Our next question comes from Quinn Bolton from Needham & Company.

Rajesh and Beth, let me offer my congratulations on the nice results and outlook. I guess I wanted to start, Rajesh, I think in the past, you guys have addressed your content opportunity on some of the GPU rack platforms that have been announced over the past, say, 6 to 12 months. But wondering if you have similar content opportunities on the hyperscaler ASIC-based platforms? Do you tend to see similar opportunity on those ASIC platforms as the merchant GPU platforms? And then I've got a follow-up.

Yes. So the hyperscalers -- the short answer is yes. But we are variously penetrated, right? We are not equally penetrated in all the key hyperscalers. Some of them a little bit more, some of them a little bit less. So the places where we are, we do have significant penetration in the same way, but it's also a little bit behind because at the end of the day, semiconductor companies that we -- that do GPUs, CPUs tend to be a little bit faster moving ahead of the curve. And so we, connecting with them, we get a better lead in into the use case and into the market. And there are also the ones who typically they -- the semiconductor companies are typically the ones that are more focused on not just the CPU and the GPU accelerators, but also the NIC cards and the switches and even the pluggables. So it's no surprise that we go there more, though we are cracking in more and more into the hyperscalers. But I would say the architectural advantages come greater because we can go after a larger market with the merchant silicon guys, if that makes any sense.

Yes, it does. It does. And then a follow-up on the Symphonic product. I guess a couple of questions. I believe that targets more of the mobile, consumer, IoT segment. Wondering if there are particular applications where you're seeing success with Symphonic. And you mentioned it's a clock plus an oscillator. Does that meaningfully increase your ASP in some of those mobile IoT product categories? Or does it come in at similar ASPs to products that you already sell into that end market?

Yes. No, it definitely comes at a higher ASP simply because, as I said, it's a system-level approach. So we're solving multiple problems. It's not just that we are integrating, oh, here's the cost x and a price x and price y of an oscillator plus a clock, you put them together, you don't get x plus y, you get something more than that because when you do it as a system, you solve many, many other problems on the board, on the bill of materials that the customer now doesn't have to use, whether it's discrete, whether it is the way the clocks are laid out and so on. When we did Symphonic, we were looking at the 5G market. We were looking at the GPS market. We were looking at the millimeter wave market. And those markets will come, but we don't see them happening today. I think they'll come maybe in a year or so, particularly in the area of IoT, particularly in the area of factory and enterprise-based IoT that will use 5G private networks, and we see that coming. But it's a little bit of ways, but we are going to be ready for the market and we'll be there well ahead of anybody else.

[Operator Instructions] Our next question comes from Thomas O'Malley from Barclays.

Congrats on the nice results. So if I look at last quarter where you kind of let things off, at the high end of guidance, you kind of talked about 30% kind of plus growth for the full year. You're clearly indicating a stronger growth profile now of greater than 40% versus where you were 90 days ago. You're obviously highlighting CED strength as one of the reasons for the uptick. But more specifically, could you talk about what inside of CED is getting stronger? And like, did you just take some conservatism when you were standing there last quarter? Or have things materially improved in the last kind of 90 days?

Yes. I mean it's a tail of all the segments, Tom. The CED, we're talking particularly with data center. In data center, we're talking about the networking, the accelerators, the switches in particular. We have, no surprise, greater visibility because 90 days have passed, as you said, and we can see better into the second half of the year. So we see that. We see continued strength. We see continued growth. We see continued demand from our customers, and we're building up a very nice backlog and a very nice funnel. On -- having said that, back to the earlier question that was asked, we also have greater insight into our consumer, mobile, IoT business where -- which is typically higher, as you know, in Q3, Q4 to fulfill demand at that point. We see that -- we can see that growing nicely as well. And then the rest of the business just continues to grow, as we have said, at a nice little pace. So yes, it's just -- last year around this time, also, it took us some -- a little while to get to that 40%, at least 40%, but now we have line of sight to that.

Helpful. And then just something on kind of the trajectory of the year. So you obviously have the consumer portion, particularly the one customer that's stronger in the second half. And you've said that CED is leading the growth in the second half. Does that mean CED is up the most sequentially in Q3 and in Q4? Or does it mean CED is up the most in aggregate between those 2 quarters? I'm just trying to understand because it looks like you should see a really big pickup in that consumer bucket into the September quarter. Just maybe help me understand that a little better.

So Tom, this is Beth. When I was looking at that, I was thinking year-over-year in terms of -- in aggregate, as I look to the year. We expect the strongest growth in CED for the year. As I also said, the consumer, we expect to pick up in second half, and we expect some acceleration there, and that's more of a sequential comment and the seasonality that you would expect with the consumer business and with that customer.

Our next question comes from Tore Svanberg from Stifel.

I just had a few follow-ups, if you don't mind. First of all, Rajesh, on data center architectures, I'm just curious if there -- because of rack level infrastructure now, obviously, you participate in a lot of different applications. But I'm just wondering if something is going on there from a timing perspective. I mean, clearly, you're trying to sell oscillators and clocks. But just wondering if there's anything else going on there that you could potentially participate in a bigger way?

No, I think the -- it's just that these systems are getting way more complicated and complex. As I reflect, I look back on the last 2 years or 2.5 years of watching this grow. I mean the pace of innovation in this space is astonishing. And I've been doing this for a long time, and this is just an absolutely astonishing speed of innovation of trying to get more throughput at lesser heat, smaller size, lower latencies, greater performance. I mean it's absolutely amazing. And that is what is driving an overall need, which says, we do need the timing products from SiTime to be even more advanced. For example, when we started in this business, the jitter requirements were something at the order of 70 femtosecond. As we look out into the future, we're targeting something which is lower than 20 femtosecond, and that's just in 3 years. And that's -- this is just one metric of jitter out of like 15 different metrics that we could talk about that includes synchronization, that includes stability, that include phase noise, that include temperature and so on and so on. So it's just the innovation rate of our customers is astonishing. Therefore, our innovation rate has also become more faster, more. And no surprise, it tends to be at a higher ASP and it tends to be a collection of products rather than one spot product. But yes, give me this one spot product and we'll be done. So perhaps if I can answer your question stepping back the way you asked it, I would say there's more need for system-level solutions. There's more need for higher innovation and, therefore, higher ASP solutions needed in timing.

Yes. That's great color. And then just one last one. I know you have still quite a bit of design wins in the 5G space. I know a lot of the focus here near term is still on data center in CED. But just curious if that communications revenue basis is starting to move a little bit.

Yes, it is. And we expect more in the coming year. We expect deployments in the coming year. There are geographical deployments outside the United States, they're looking pretty good. India comes to mind. And I think we should be seeing that. I know we -- there's a bright object here in the AI data center space, but we do call it communications enterprise because there's plenty happening in enterprise as well, not just in communications and classic, yes, end customers.

I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.

Well, thank you all for this. All I'd like to say is that these are wonderful times, and we're very happy to be rolling out our products and delivering the solutions to our customers. So thank you for joining us along in this journey.