SiTime Corporation

Good afternoon and welcome to CTIME's second quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's call, instructions will be given for question and answer session. If anybody needs assistance during the conference call, please press the star key followed by the zero on your touchtone phone. As a reminder, this conference call is being recorded today, Wednesday, August 3rd, 2022. I would like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.

Good afternoon, and welcome to Sidetime's second quarter 2022 financial results conference call. On today's call from Sidetime are Rajesh Vishis, Chief Executive Officer, and Art Chadwick, Chief Financial Officer. Before we begin, I'd like to point out that during the course of this call, the company may make forward-looking statements regarding expected future results, including financial positions, 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 in 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 the statements to actual results or to changes in the company's expectations. For more detailed information on risk associated with the business, we refer you to the risk and factors described in the 10-K filed on February 25, 2022, as well as the company's subsequent filings with the SEC. Also during this call, we'll refer to certain non-GAAP financial measures, which we consider to be an important measure of company performance. These non-GAAP financial measures are provided in addition to and not as a substitute nor superior to measures of financial performance prepared in accordance with U.S. GAAP. The only difference between GAAP and non-GAAP results is stock-based compensation expense and related payroll taxes. Please refer to the company's press release issued 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 Rajesh. Please go ahead.

Good afternoon, and thank you for joining us on today's tie-time call. While the focus of today's discussion is on Q2 results and Q3 forecast, I want to begin with the transformation of site time as a result of the acceleration in electronic macro trends, such as high bandwidth communications, cloud, EV, and IoT. Here, precision timing products are defined as high performance, small size, and far efficient under demanding environmental conditions such as vibration, shock, and temperature are becoming the solution of choice. While precision timing is used significantly in comms enterprise, their use is growing in automotive and certain mobile IoT consumer applications. As a creator of the category of precision timing, SciTime plays a central role in this transformation. As we transition from our legacy non-precision timing products and design wins into this transformation, Sitem will get significantly higher ASPs, more design and stickiness, and a discussion of architecture with our customers. On Q2, Sitem had a banner Q2. We delivered record revenues of $79.4 million, non-GAAP gross margins of 66.7%, and non-GAAP EPS of $1.11, all exceeding our previous guidance. This was our 11th consecutive quarter to do so. In Q2, we had the highest ASPs in the history of the company, 30% higher year on year and 10% higher quarter on quarter. This came from the role of greater precision timing products in our revenue. While multiple segments contributed to this growth, our comms enterprise business was a standout. It grew 60% over Q1 and was a segment with the highest growth rate. Multiple customers in this application, such as network interface cards or NICs, data center servers, and 5G wireless contributed to this growth, and we believe that the trend will continue in the second half. A common theme amongst these customers and applications was the use of our precision timing products to get a better system performance. As an example, one of these products, Elite, doubled in unit shipment from Q1 to Q2. And additionally, our precision timing opportunities have now grown to be 70% of our funnel. Automotive was the segment with the second largest growth, despite some customer push-outs due to industry-wide supply chain issues. Cytan's previous success in ADAS computers, domain controllers, and cameras continued, and we have begun to see volume ramping from newer applications as well, such as driver monitoring systems and LIDAR. As we know, the automobile is being transformed and new functionality in sensing, computing, and communications is continuously being added. Getting this functionality to work in the presence of vibration stock temperature extremes is a difficult challenge, but one that can be solved and is solved by precision timing products from Cytan. This is a natural place for Cytan to deliver value and grow, and we remain on track to deliver $100 million in annual automotive revenue in the next few years. In May, when we increased our guidance from 35% to 50% annual growth, we did not anticipate the subsequent conditions, financial downturn, supply chain disruptions, and political turmoil, all of which made it difficult for our customers to see the magnitude and the speed of decline in their own business. This is evident in our mobile IoT consumer segment, that is, those that place lower value on the benefits of precision timing. Excluding our largest customer, the mobile IoT consumer segment is expected to be down by more than 30% in the second half of 2022. Considering our end customer's visibility, We are therefore now comfortable with our earlier guidance of 35% annual growth for 2022. In line with that, we will manage our expenses prudently in the second half of this year. But our original thesis remains intact. We firmly believe that our longer term top line growth will be 30% or more driven by the SAM expansion to 4 billion, the greater need for precision timing, and fulfillment of those needs uniquely by side time. We also continue to see a long-term financial model of 65% gross margin and 30% net income as being intact. We continue to invest significantly in the development of new precision timing products. In 2022 itself, we will sample six of these oscillators and clocks. These address the macro trends that are referred to that are transforming electronics, high bandwidth communications, cloud, TV, and IoT. With these, we're confident in our ability to transform the electronics industry driven by greater adoption of these products. We expect that the stellar comms enterprise performance will continue into the second half with the volume ramping up of applications like 400G, 800G optical modules, and data center switches. In our last call, we talked about a clock family with 200 customers by the end of 22, and that strength continues. 60% of the cascade, the clock family, revenue in 22 and 23 will now come from NIC cards, 5G RRU, and backfall. Our investment in this segment is working. In 2022, comms enterprise is expected to grow to over 25% of our revenue, compared to 16% last year in 2021. For example, again, our elite product is expected to go three times in revenue over 2021. The value and uniqueness of SITEM products is also clearly on display at our largest customer, which is in the mobile IoT consumer segment. Our revenue here continues to grow strongly in the second half of 2022, and the design wind funnel continues to grow strongly as well in a previous call we've spoken about the strength of aero defense business we're now engaged with the top defense contractors worldwide and our funnel continues to grow as they discover the strength of our unique precision timing products the uniqueness of these site and products comes from the uniqueness of site and technology we've always maintained There are MEMS, analog circuits, and the systems putting it together to deliver a system solution is hard to do. In the past decade, we have not seen a credible competitor that is using similar technologies, and we don't see one on the horizon currently. A great advantage for Sideline during the turmoil of the past two years has been the flexibility and the solidity of our supply chains. We've made great inroads at customers because our supply chain has been proven to be superior to that of the existing suppliers in the market today. That strength continues due to the support of TSMC, Bosch, and our OSAT partners. Given that a majority of our customers are single sourced, our supply chain strength continues to be a competitive advantage for Cython. In conclusion, as a category creator of precision timing, SITEM is uniquely positioned to transform this industry. We believe that our long-term growth and market share gains will continue unabated in the future. With that, I'll now turn it over to Art Chadwick, our CFO.