SiTime Corporation

Good day, and thank you for standing by. Welcome to SciTime's first quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Leanne Sievers, President of Shelton Group. Please go ahead.

Thank you, James. Good afternoon, and welcome to today's conference call for Sitem's first quarter 2026 financial results. Joining us on today's call from Sitem are Rajesh Vasheest, 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 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 company's annual report on Form 10-K for the year ended December 31st, 2025, as well as the company's subsequent filings with the SEC, including the company's quarterly reports on Form 10-Q. During the call, management will 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 or superior to measures of financial performance prepared in accordance with U.S. GAAP. This 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 earn-out liabilities and accretion of acquisition consideration payable. Please refer to the company's press release issued earlier today for a detailed reconciliation between GAAP and non-GAAP financial results. Unless otherwise specifically noted, all comparisons made during this webcast are year-over-year comparisons with a corresponding year-ago period. With that, it's now my pleasure to turn the call over to Sightime's CEO. Rajesh, please go ahead.

Thanks, Leanne. Good afternoon, and thank you for joining us today. We had a very strong start to 2026, driven by AI infrastructure and the significantly increased demand for precision timing. In 2010, SciTime saw an opportunity in the highly fragmented, commodity-oriented timing industry. We forecasted then that timing would grow rapidly and become even more critical. We approached the problem from a systems view and built differentiated platforms delivering high performance, resilience, and reliability. In other words, we created the category of precision timing, which has become important in hundreds of applications. I'm deeply satisfied with how successful precision timing has become, as seen by the scale of our growth and the speed at which we have achieved it. Today, with precision timing, SciTime addresses a $4 billion SAM in the $11 billion timing total available market in the high growth areas of physical and infrastructure AI, autonomy, mobility, and high-speed communications. I believe that these achievements have established SciTime as a key player in semiconductors. As far as our financial model goes, we can say promises made, promises kept in all key financial metrics. Our long-term financial model was 25 to 30% of annual revenue growth, and we have significantly exceeded it. We also set targets of 65% gross margin and 30% operating margin, which we expect to achieve in second quarter Q2 2026. I believe that these metrics are sustainable as they come from highly differentiated products that deliver high value and therefore high ASPs and gross margins. Moving on to the numbers, we delivered 113.6 million in Q1 2026, up 88% year over year. Earnings per share increased fivefold from $0.26 to $1.44. Gross margin reached 64.5%, up 7.1%, and operating margin was 28%. Growth was strong across all the regions, ranging from 30% to 140%. It's no surprise that our CED business unit led growth in Q1 2026. CED grew 158% year over year, marking our eighth consecutive quarter of triple-digit percentage growth, and we see this high growth trend continuing. Our book-to-bill is growing. We've pulled through from the channel, keeping inventories at their desired target. Here are some details. CED benefits from the deployment of inference infrastructure, and increased networking bandwidth within the data center. On inference infrastructure built on newer XPUs, it needs two to four times more timing content per system than in training infrastructure. GPU utilization in inference workloads is now 20 to 40% and is target to get to 50 to 60%. Here, time synchronization plays a critical role in achieving higher GPU utilization and site time benefits from its products being used in this application. This emphasis on synchronization is driving demand for high ASP and high margin products. Elite and Elite RF Super TCXOs are widely deployed in AI infrastructure, and we have recently exceeded and extended our leadership with the new Elite 2 Super TCXO family. This newer Elite 2 delivers up to three times better synchronization performance compared to Elite, which was already significantly better than quartz oscillators. With increasing demand, this class of product addresses a $1.5 billion of cumulative FAM over the next five years. As hyperscalers increase networking bandwidth within the data center, we expect to see meaningful adoption of 1.6 terabit optical modules in 2026. Higher frequencies and the need for more resilient performance are driving demand of our advanced oscillators at a higher price than those used in 800G. At the same time, we expect to see continued strong shipment for oscillators for 400G and 800G for at least the next two years. On CPO, or co-packaged optics, in our discussion with customers, we see even greater strength. For example, in CPO switches, where timing content can be up to three times higher. Finishing up on the telecom part of CED, we see increasing convergence between AI and advanced telecom infrastructures, especially in 5G RAN or radio access networks, and demand from new applications such as FWA or fixed wireless access. AI-enabled telecom designs contain three times higher timing content, primarily from high ASP oscillators and clocks. Our aerospace and defense business is another good example of the need for precision timing. Our success in LEO, or Low Earth Orbit Satellites, enables global connectivity, navigation, and broadband access. LEO satellites have up to $2,000 of site content per satellite, and we expect 7,000 to 10,000 LEO satellite launches over the next three years. With up to 50,000 LEO satellites deployed over the next 10 years, we see a strong outlook on this business. Defense P&T, also known as positioning, navigation, and timing systems, satellite communications, autonomous drones, and smart munitions have already used SITAM products. We expect to benefit from recent increases in government spending to replenish supply and increase output where many of these are in high volumes. Our aerospace defense funnel is about half a billion dollars in lifetime revenue and a funnel to revenue conversion in this business is twice that of other businesses. We are well on track to achieve 100 million in aerospace defense revenue the next few years with an expanded roadmap and strong customer relationships. In mobile, IoT, and consumer, revenue momentum continues as our largest consumer customer is expected to expand deployments across additional platforms. At other consumer customers, AI categories such as smart glasses, personal productivity devices, and hearables are driving demand for ultra-small, low-power, high-accuracy timing. This is where Titan resonators are gaining strong traction with semiconductor partners and OEMs, and the funnel has grown to $400 million since introduction. On a separate note, our announced Vanessa's acquisition remains on track, and we continue to be optimistic about this combination. As we experience rapid growth, we continue to invest in people, systems, and technology that makes us more productive, delivering even more valuable products faster. We expect to continue to drive durable revenue and deepen customer relationships. We're now entering Citem's next phase of growth from a position of strength, and I'm confident in our trajectory and very excited about what lies ahead for Citem.