SiTime Corporation

Good afternoon and welcome to SciTime's 3rd Quarter 2022 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 then be given for the question and answer session. As a reminder, this conference call is being recorded today, Wednesday, November 2, 2022. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.

Thank you, Bella, and good afternoon. Welcome to Sidetime's third 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, and actual results could differ materially and adversely from those anticipated or implied. Neither the company nor any person assumes a 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 risks associated with the business, we refer you to the risk 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 for or 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 this afternoon. for a detailed reconciliation between GAAP and non-GAAP financial results. I'd now like to turn the call over to CyTime's CEO. Rajesh, please go ahead.

Thank you, Brett. Good afternoon. First, I'd like to welcome new as well as existing investors to the CyTime Q3 2022 earnings call. For those of you that are new to our business, CyTime is the leader in a dynamic new product category called Precision Timing. In electronics, timing is ubiquitous and ensures reliable functioning. SciTime created precision timing to service the accelerating need for higher performance, smaller, lower power, and more reliable timing chips for applications like automated driving, 5G, and data centers. We are early in our growth trajectory as we transform the $10 billion timing market. We have shipped 3 billion units of our precision timing chips to 20,000 customers in 300 applications across all electronics. As many of you have heard from others in the semiconductor industry, the current market conditions we are experiencing are unprecedented. In 40 years of industry experience, I have not seen a downturn as rapid or as deep as this one. We see this as the result of multiple unusual and simultaneous macro events, making it more difficult to forecast than ever. Last quarter, we saw a significant change in market conditions, which has reduced expectations for the year. While our Q3 revenue, gross margin, and EPS were all solidly within our guidance range, we have seen end customer demand slowing, first in consumer, then in industrial markets, and now in comms data center for fourth quarter 22 and first quarter 2023. This is because while we continue to see normal inventory levels at our distributors, it appears that customers have built inventory at their contract manufacturers. We expect that in all segments, our customers will need to spend the next two quarters working through this buildup. Despite this, our long-term growth story in precision timing and Sitem's leadership remains intact. I'd like to discuss four key points. Design win growth, increasing ASPs or average selling price, increasing our single source business, and higher quote activity, all of which give us confidence in the future. First, our funnel of design win continues to grow. Design wins are central to the growth of our business. When customers commit to our products, it gives us visibility into their deployment and thus our future revenues. As we stated before, SciTime's unique feature of programmability allows us to give customers the exact function that they want. In Q3 2022, we doubled the number of design wins over the same period last year. Not only is our number of design wins and dollar value significantly higher than in 2021, our focus segments, automotive, comms, aerospace defense, constitute the large majority of these design wins. We expect that these design wins will start generating revenue in 2023 and beyond. The second bright indicator is ASPs. average selling prices. CyTimes Precision Timing products offer premium performance at a premium price, and our product's performance cannot be matched by legacy quartz-based competitors. This is reflected in the consistent increase of our average selling price Q3 2022 was our eighth consecutive quarter of ASP increase. Additionally, ASPs have been rising consistently and significantly throughout 2022 and will be higher in Q1 2023 than a year ago. Note that we are not seeing any loss of business to competitors of business that we want, even though availability of the competitors has increased, lead times have shortened, and quartz prices are lower. A third indicator of a long-term growth is the strength of our single-sourced business. Eighty percent of Sitem's business is now single-sourced. That is, customers buy only Sitem solutions in that design and will buy only from us. We see this as a unique position of trust, And so it's a relationship that we value and spend a lot of time strengthening. A point to note is that this single source position exists independent of segments, excuse me, that it exists across all types of customers, including, for example, the consumer segment. A fourth and final positive indicator is a rise in our quote activity, which is another indicator of our future business potential. We provide price quotes on our products based on the function and estimated annual usage to our customers. Our quote dollar value in 2022 is an average of three times higher than 2021. We believe that this is a consequence of highly differentiated and category-creating products that we launched in this period and a greater reach with larger number of customers. While these positive indicators are indeed quite positive, we're still striking a cautious tone with respect to near-term sales results due to the challenges and headwinds we have seen. We believe that the inventory buildup at customers' contract manufacturers, for example, will take a couple quarters to return to normal. As we have stated before, to capture the tremendous opportunity in the timing market, we have set a target to expand our SAM, or served market, from $1 billion in 2021 to $4 billion in 2024 with the introduction of new timing products, and we are on track for this. With the changes in market conditions, We are still continuing to be prudent about our spending while ensuring that our product rollout remains on track. By the end of 2022, we will have introduced six new products which will expand our SAM in automotive and comms. In 2023, we expect to introduce at least five new products in both oscillators and clocks with the same end market focus. To summarize, our continued strengths in design, wind funnel, ASP growth, single-source business, and increased quote activity give me tremendous confidence in the future of Cytan. We're delivering strong value to our customers, and there are significant opportunities ahead of us. We're building at an even stronger and resilient organization and are committed to building a bright future for Cytan. I will now turn it over to Art Chadwick, our CFO.