SiTime Corporation

Good afternoon, and welcome to Sidetime's first 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 a question and answer session. As a reminder, this conference is being recorded today, Wednesday, May 3rd, 2023. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Brett, please go ahead.

Thank you. Good afternoon and welcome to Sitem's first quarter 2023 financial results conference call. On today's call from Sitem are Rajesh Vashish, 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 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 factors 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 may 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 risks associated with the business, we refer you to the risk factors described in the 10-K filed on February 27, 2023, as well as the company's subsequent filings with the SEC. Also during this call, we refer to certain non-GAAP 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 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. Kindly note, non-GAAP measures for the first quarter of 2023 only exclude stock-based compensation, whereas non-GAAP measures for all periods prior to the first quarter of 2023 also exclude stock-based compensation expense-related payroll taxes. Please refer to the company's press release issued today for a detailed reconciliation between the GAAP and non-GAAP financial results. With that, it's now my pleasure to turn the call over to CYZAM's CEO. Rajesh, please go ahead.

Thank you. Good afternoon. First, I'd like to welcome new as well as existing investors to Sitem's Q1 2023 earnings call. For those of you new to this, Sitem is the leader in a dynamic new semiconductor category called precision timing. In electronics, timing is ubiquitous and ensures reliable functioning. Sitem created precision timing to service the needs of applications like automated driving, data center, IG, and IoT. We are early in our growth as we transform the $10 billion timing market, and SciTime has shipped 3 billion precision timing chips to 15,000 customers in 300 applications. We delivered Q1 results in line with our guidance. Revenue for the quarter was $38.3 million. Non-gap gross margins were $61.8 million. and non-GAAP EPS was 0.09 per share. Previously, we had expected Q2 revenue to be equal to or modestly higher than Q1. We now expect Q2 revenue will be lower than Q1. However, the previous guidance for lower first half 23 and higher second half 23 remains intact. This revenue drop in Previously forecasted demand is in three areas, data center, automotive, and broad-based. We believe that the slowdown in macroeconomic conditions has had an impact on all of these three areas. Cloud service providers have reduced their capex spending, which has reduced demand for networking and storage equipment. In automotive, Chinese EV makers appear to have significantly reduced their 2023 forecast. Our broad base segment, which represents 300 diverse applications and 15,000 customers, has also exhibited lower demand. While inventory continues to decline, because of lower demand, it has not declined at the rate that we previously expected. We now forecast that customer and channel inventories will return to a normal level by the end of 2023. Second half revenue will be higher because of higher demand, though likely not of the magnitude that we previously believed. We continue to forecast an acceleration in 24 and 25 based on four key indicators. SAM expansion from new products, design wins, continued single source business, and expanding ASPs or average selling prices. These indicators continue to be healthy, and I'll now spend a few minutes talking about them. In 2020, our SAM was a billion, and we are now on track to grow it to 2.5 billion by the end of 2023. As the only company focused on all aspects of precision timing, our strategy is to bring to market compelling products that offer significant benefits, solve tough problems, and make us trusted advisors. Our increasing product portfolio gives us a bigger timing footprint in the customers' systems. As an example, in the past few months, we introduced two new products in the automotive and aerospace defense markets. We continued our momentum in design wins. The number of design wins in the first quarter of 2023 grew 35% quarter on quarter and in every market segment. Another source of continued strength is our sole source business, which reflects the value of Sitem products. 80% of Q1 2023 revenue was sole sourced and 85% of Q1 designs in 2023 were sole sourced. Average selling prices or ASPs reflect Sitem's value to the customer. Despite lower revenues and better availability, from quartz competitors, our ASPs have remained stable. Now I'd like to give some color on 2024. We expect 2024 to be a solid recovery year. We're expecting the business that was already in production to get back to levels closer to real demand once customer and channel inventory is consumed by the end of 2023. Additionally, our continued design win momentum will translate to new revenue in 2024. For example, in communications enterprise, we forecast that 65% of 2024 revenue opportunities are already in production right now. From 22 to 27, AI is expected to drive significant growth in high-speed Ethernet, and we are well positioned here. The situation is similar in aerospace defense. we forecast that 60% of our expected 2024 revenue will come from opportunities in production today. Here, 10 applications drive our revenue and we are shipping to seven out of the top eight U.S. defense contractors where we have an average of 50 design wins per customer. In automotive, we forecast that 70% of our expected 2024 revenue in this segment will come from opportunities that are already in the early stages of production, primarily in ADAS, which is automated driving assistance systems. In this segment, we're engaged with all U.S.-based PurePlay electric vehicle customers that are shipping in volume. In China, we're engaged with most major EV manufacturers and their OEMs. In conclusion, design wins continue to grow, as does our SAM. Our connection with customers is strong, as evidenced by our stable ASPs and sole source business, as well as the fact that we did not lose any meaningful business to our competitors. As inventory is consumed and demand returns, we expect to be in a great position to take advantage and resume growth. We continue to remain very confident in CITAM's future success. Thank you.