SITIME Corp Q4 FY2022 Earnings Call

Good afternoon, and welcome to SiTime's Fourth Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, the conference call is being recorded today, Wednesday, February 1, 2023. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. You may begin.

Good afternoon and welcome to SiTime's fourth quarter 2022 financial results conference call. On today's call from SiTime are Rajesh Vashist, Chief Executive Officer and Art Chadwick, Chief Financial Officer. Before we begin, I would 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 is 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 a 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 the forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason at the date of this call to conform these 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 the course of the call, we’ll refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's 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 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. First, I'd like to welcome you as well as existing investors to SiTime’s Q4 2022 earnings call. SiTime is a leader in a dynamic new product category called Precision Timing. In electronics, timing is ubiquitous and ensures reliable functioning of systems. SiTime created precision timing to service the needs of applications like automated driving, 5G, enterprise, and IoT. We are early in a growth phase as we transform the $10 billion timing market. SiTime has shipped 3 billion precision timing chips to 20,000 customers in 300 applications. We had a solid fourth quarter. Revenue for the quarter was $60.8 million and revenue for 2022 was $283.6 million. This is a 30% growth over the previous year even though the second half of 2022 was challenging. Non-GAAP income was $14.4 million for the quarter and $82.9 million for the year, which is 29% of revenue. On the product side, SiTime introduced four new products since the last earnings call. Previously, we had introduced four key performance metrics as indicators of future revenue: SAM expansion, design wins, ASPs, and single-source business. While we don't expect to do this on an ongoing basis, given the current market conditions, we're giving further insight into our business by using these metrics this time. In 2021, our SAM was $1 billion. In 2022, we grew it to $2 billion. We're on track to get to $4 billion by the end of 2024. With our highly differentiated precision timing products, SiTime is creating a market where we continue to expand our advantages. Since our last earnings call, we introduced four new products and are on track to introduce five more in 2023. Customer activity for these nine new products, which includes architectural discussions and sampling, continues to be robust. Seven of these nine products are in our focus segments: Comms, Enterprise, Automotive, and Aerospace Defense. Last week, we introduced two new Endura product families that expand our presence in the aerospace defense market in applications such as position, navigation and timing, PNT, tactical communications, network service synchronization, and surveillance. Both products deliver up to 10 times better environmental resilience, which is crucial for these applications that operate in harsh environments. Our funnel and design wins continue to grow at rates higher than in previous quarters. In Q4 2022, our design wins grew 55% over the same period in 2021. Additionally, 65% of these design wins were in our focus segments of comms, enterprise, automotive, and aerospace defense. Higher average selling prices or ASPs are an indication of the value that we provide to customers. Our ASPs continue to grow and are expected to be higher in 2023 than in 2022. As in the past few years, we are not seeing any meaningful loss of business to competitors even though their availability has increased and lead times have shortened. We attribute this to the highly differentiated nature of our products. The customer trust that SiTime has earned is of tremendous importance to us and a metric of that is the percentage of business that is single-sourced. In 2023, we expect to continue to have 80% of our business as single-sourced. Looking further out, our funnel is in a similar single-source position across geographies and market segments. Now, coming to our guidance for Q1 2023. As we said earlier, the shortages of past few quarters led customers and their contract manufacturers to purchase more than they needed. SiTime is continuously evaluating the inventory situation at our top 50 customers and their more than 100 contract manufacturers. While most customers’ inventory is as we forecasted earlier, a new development is that our historically largest customer recently informed us that they have more inventory at their subcontractors than previously thought. Despite the rest of the business being as expected, this will lead to lower revenue in Q1 2023 than previously anticipated. We continue to believe Q1 2023 will be the lowest quarter of the year as we expect Q2 to be higher than Q1, and growth to resume in the second half. In conclusion, end customer demand continues to be generally healthy. Our design wins and SAM expansion continue to grow. Our connections with customers are close and growing through design wins. SiTime continues to be the leader in precision timing, a category that we created, and we are confident about our future success. Art?

Great. Thanks, Rajesh, and good afternoon, everyone. Today, I'll discuss fourth quarter and full-year 2022 results, and I'll provide guidance for the first quarter of 2023 and make some comments on the year. I'll focus my discussion on non-GAAP financial results and refer you to today's press release for a detailed description of our GAAP results, as well as a reconciliation of GAAP to non-GAAP results. Revenue in the fourth quarter was $60.8 million and revenue for the full-year 2022 was a record $283.6 million, up 30% over 2021. Sales into our mobile, IoT, and consumer segment were $24.7 million or 41% of total sales. Sales to our largest customer, which is included in this segment, were $15.5 million or 26% of sales. Excluding sales to our largest customer, sales into this segment were $9.2 million or 15% of sales. Sales into our Industrial, Automotive, and Aerospace segment were $20.3 million or 33% of sales. Sales into our communications and enterprise segment were $15.8 million or 26% of sales. Non-GAAP gross margins were 63.1%, down about 2 points from Q3, due to the lower revenue. Non-GAAP gross margins for the full-year were 65.2%. Non-GAAP operating expenses for the quarter were $28.2 million as we held spendings essentially flat with Q3. Expenses were $16.6 million in R&D and $11.6 million in SG&A. Non-GAAP operating margins were 16.8% for the quarter and 26.7% for the year. Interest income for the quarter was $4 million, up substantially from prior quarters, due to higher investment yields. Non-GAAP net income was $14.4 million or $0.64 per share. Non-GAAP net income for the year was $82.9 million or $3.66 per share. Accounts receivable at the end of the quarter were $41.2 million with DSOs of 61 days, compared to $44.9 million and DSOs of 55 days in Q3. Inventory at the end of the quarter was $57.7 million, up from $45.4 million at the end of Q3 as we bought additional wafer safety stock to provide a cushion in the event of any future geopolitical or other supply chain issues. During the quarter, we generated $5 million in cash from operations, invested $8 million in capital purchases, and ended the quarter with $564 million in cash, cash equivalents, and short-term investments, essentially flat with the prior quarter. I'd now like to provide some financial guidance for the first quarter of 2023. The macro environment remains somewhat challenging and it is clearly having an impact on industry-wide semiconductor demand. It also appears that many customers and especially their subcontract manufacturers overordered when supply bottlenecks eased last year. This higher inventory, coupled with the current demand environment, has led many customers to reduce order rates as they work through excess inventory. And that is what we are experiencing now. Last quarter, we offered comments on Q1 of 2023 and said that revenue would be down sequentially from Q4 for two reasons. First, we expected the usual seasonal slowdown with our largest customer. And second, we expected a lull in comms and enterprise sales as our customers in those markets work through excess inventory. Our view on Q1 remains consistent with the comments we made last quarter with one exception, and that has to do with our largest customer. As Rajesh mentioned, it now appears that their subcontract manufacturers have enough inventory to support their needs through the first half of the year. This means that sales to our largest customer will likely be nominal in both Q1 and Q2. To be clear, we have not lost any sockets with this customer. Therefore, once they work through this inventory, sales should rebound to more normal levels starting in Q3. As a result, we now expect Q1 revenue will be somewhere between $37 million and $39 million. Gross margins will be down a few points due to the lower sales and will be approximately 60% plus or minus a point. We will hold operating expenses relatively flat with Q4, so approximately $28 million. Interest income will increase to somewhere between $5 million and $5.5 million. Diluted share count will be approximately 23 million shares. So at the midpoint of that guidance, we therefore believe Q1 non-GAAP net income will be approximately breakeven. We also believe that Q1 will be the low quarter for the year. That revenue will increase in Q2, and that once excess inventory gets worked down, sales should rebound nicely in the second half of the year. I'd like to conclude my remarks by saying that even though we are going through this short-term dip, we firmly believe that our long-term growth story is intact. Our process and product developments continue as planned; we expect to introduce at least five more new product families this year with each spawning numerous derivative products. This will expand our SAM from about $1 billion a year ago to about $4 billion by the end of 2024. Design win and quote activity has been strong and that coupled with new product introductions and an expanding SAM should lead to continued long-term growth. And on that note, I'd like to hand the call back to the operator for Q&A. Thank you.

Thank you. Our first question comes from the line of Quinn Bolton with Needham and Company. Your line is open.

Hey Art and Rajesh. I guess, I wanted to start with just the environment. Obviously, it sounds like inventory correction is going to keep results fairly depressed in the first half of the year, but wondering if you might comment today where do you think the natural level of demand or what do you think consumption of your products is running at on a quarterly basis, so that as we start to snap back to that consumption, we have some sense what the revenue ramp might look like in the second half of the year?

Yes, that's a great question, Quinn. It's difficult to quantify that precisely. Clearly the demand is substantially higher than the guide that we gave for Q1. As both Rajesh and I talked about, there is a lot of excess inventory in the channel. As I mentioned in my discussion, I think you go back to 2021 and there were a lot of shortages in the industry and when those shortages eased, many of our customers and certainly their subcontract manufacturers took advantage of the supply and overordered. So they ended up with too much inventory that has to get worked down. So I'm not going to put a number on it, but clearly that is suppressing our revenue, I would say substantially certainly in Q1 and we will also do that in Q2. I think, if you just look at our historic numbers, for the year, we did $283 million in 2022 and there's some overbuying in that. I think clearly in the first half of the year. But if you notch that down, that's going to be a normalized number for 2022. And I think longer term, our 30% growth rate is intact once we get through this dip. So people can kind of triangulate what the back half should look like and definitely what 2024 should look like given that growth rate. So I know I didn't give you any numbers there, but tried to add some color to what we said earlier.

So maybe just trying to frame it, it sounds like that the $284 million in 2022, obviously included some amount of inventory burn. It sounds like it could be ballpark $20 million to $40 million and so it sounds like a run rate might be closer to $240 million to $260 million, is that sound about right?

I would not dispute that number. I don't want to get tied down to an exact number, but I think the logic there is founded.

Great. And then just a sort of a quick follow-up just as margins historically have trended or followed revenue. I assume that since you think revenue is troughing in the first quarter that the 60% guide for Q1, would you expect that also to be the trough for the year and that as revenue grows sequentially through the rest of the year that gross margin would trend higher?

Yes, absolutely. We've discussed this before. While we perform well, we do incur some fixed manufacturing overhead costs related to our operations group and depreciation on our backend equipment at our OSATs. This accounts for about 10 percentage points of our margin, so when revenue decreases, the absorption rate drops, which resulted in lower gross margins from Q2. Gross margins fell from just over 65% in Q2 to 63% in the most recent quarter we announced, with my forecast suggesting a decline to 60% in Q1. To directly answer your inquiry, yes, gross margins will improve as revenue rises. I expect we can finish the year with gross margins approaching our historical averages; last year's full-year gross margins were just over 65%, and I believe we can return to that level by the end of 2023.

Perfect. Thank you for the additional color, Art.

Thank you. Please stand by for our next question. Our next question comes from the line of Chris Caso with Credit Suisse. Your line is open.

Good afternoon. For the first question, could you provide some insight on the additional segments based on the guidance you've given? It appears the guidance suggests a relatively stable revenue outlook for industrial, automotive, aerospace, and enterprise segments, along with a seasonal decline in the consumer segment that isn't part of your main customer base. Is that an accurate expectation? Any further details you could share on this would be appreciated.

Yes. I think that's a pretty good analysis. Again, comms and enterprise will be substantially lower from Q4 to Q1 for the reasons that I mentioned, and that is our largest customers that's plural in that segment have enough inventory to get them through the first quarter. So their order rates are relatively low for Q1. So the biggest decline would be in comms and enterprise. In our auto and industrial segment, in total, that's going to be flattish, I think from Q4 to Q1. And then our IoT and consumer space excluding our largest customer will be flattish, but our largest customer of course will be down very substantially. Revenue to them as I mentioned was $15.5 million in Q4 and it will be quite nominal. Nominal means less than $1 million in Q1.

Okay. That's clear. Thank you. As a follow-up, if you could speak about pricing for the remainder of your products and/or just made it clear that the large number, the vast majority of products are sole sourced and knowing that those customers are buying the product for the performance. But as you see some of the more conventional quartz products decline in pricing, is there a risk that the gap between SiTime’s pricing and the more conventional pricing could widen to the point that you do see some pressure? What are your customers telling you and kind of what are you seeing in the market right now?

I believe that some of SiTime's products have no direct competitors. This is particularly true in the communications and enterprise sectors, a significant portion of the automotive industry, and clearly in military aerospace. While this is applicable to some of our other products, let's concentrate on this one. In this area, we face no competition and there's no push for lower pricing, as our customers recognize the unique value of our products. For products that are compatible with others, typically in higher volumes in industrial sectors, possibly in consumer markets, and perhaps in some lower-end networking telecommunications, we still command premium prices. This indicates that even in those markets, we operate at the higher end of our customers' offerings, which means we don't experience pricing pressure. When such pressure arises, we have managed to navigate it in a way that doesn't affect us negatively, allowing us to maintain growth in our average pricing, including with our largest customer over the past few quarters. I feel very confident that SiTime is well-positioned, thanks to our highly differentiated products, whether in our focus markets or in other sectors.

Got it. Thank you.

Yes.

Thank you. Please stand by for our next question. Our next question comes from the line of Alessandra Vecchi with William Blair. Your line is open.

Hi, thanks for taking my question. Just some additional color on your largest customer. Should we be thinking about taking that much revenue out for the next two quarters that really look like they've been building inventory over the last year plus? Should we be thinking about like normalized rates for that customer more in the kind of 2019, 2020 timeframe? Or do you think they can get back to 2021 levels at some point in the future?

Yes. I think they can get back to 2021 levels. Clearly, they overbought or more precisely, their subcontractors overbought. But we haven't lost any sockets there. And they're a great customer of ours. We work very closely with them. So yes, I think we can get back to those types of numbers.

I think, Alex, there's been some decline in their natural demand. It's probably in the news as well. But in general, they have a very complex, more than anybody else, they have a whole host of CMs. And I think that between the CMs and them, it took a while for them to figure it out, but they did. And we look forward to any changed forecasting methods from them. And we've had some discussions on that.

Perfect. That's helpful. I was just trying to think about on a more normalized level. And then similarly, not to harp on the consumer segment in general, but we've had conversations talking about the non-Apple consumer portion being allowed to sort of bleed out over time as customers maybe go back to quartz. But in the fourth quarter, it looks like revenue sort of increased sequentially and I believe you said it would be flattish in Q1? Can you add some color on what you're seeing from customers in terms of their appetite to go back to quartz versus stay with you? And how we should think about that over the next year or two?

Yes. Generally, we observe that when our customers have unique products, they tend to prefer SiTime. We've experienced very little, if any, significant loss of business due to the increased availability of quartz crystal. Excluding our largest customer, our consumer business remains quite strong. In fact, we continue to secure some promising design wins that should support us in the second half of the year, I believe.

And Alex, I'll just add another comment to that. We have talked about that segment declining over time, but not going to zero. There are still, as Rajesh mentioned, customers in the consumer space where we provide real value. So we're not expecting those numbers to go to zero. And as I mentioned in my script, it was $9.2 million in the fourth quarter, that was up what, $1 million maybe a $1.5 million from Q3. So I mean that's I think a reasonable run rate for us there. And over time, if we have the right customers that could even go up.

Great. That's very helpful. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Suji Desilva with ROTH. Your line is open.

Hi, Rajesh. Hi, Art. I appreciate the gross margin guidance for the end of the year and the confidence behind it. I would like to understand if that implies an assumption of steady pricing or if improved blended pricing has been assumed when considering factors like mid-60s from the end market or product mix uplifts.

Well, I mean, one of our basic themes and one of the ways that we got our gross margins to expand from the high-40s three years ago when we went public to 65% for the full-year that we just finished is that most of our new products are focused on the market segments that Rajesh mentioned, which are generally higher performance markets. We get higher ASPs and higher gross margins. So over time, as those new products become a larger percentage of our sales, that will continue to help expand our gross margins. And I think we'll see some of that certainly in the back half of this year and going out for a number of years.

That's right. And the confidence, I think some of the metrics that we gave Suji are all related. Our ASP's solidity and growth is related to a single source. It's related to our new products, and it's related to our SAM expansion. They're all tied together, which is why it's all part of one strategy: to deliver highly differentiated products that customers just have to have. And we see the benefit of that in the relatively short-term in the coming quarters. But the real benefit for that is going to come in growth and stickiness in 2024 and 2025 and so on. So I think as those products, we talked about nine products, unfold in the marketplace as we get the design wins, I think it will be really good.

Okay, great. And then my follow-up question is those new products as they're coming in and winning. I presume they're more focused on the non-consumer markets, auto, infrastructure data center. What's the design cycle there and those programs to ramp? And is there sort of an elbow point when these new products were announced some of them late in ‘22 that we start to see them come in through design win ramps?

Yes. The typical thing would be to say that in the comms enterprise, automotive, aerospace defense, a rule of thumb would be about 18 months to ramp to revenue. That being said, we actually see sometimes enough of a desire for our products that they get rushed to market quicker than we or ever thought. Also don't forget that while seven out of nine of these products are in fact meant for these focus segments, the remaining two are for consumer, IoT, and mobile. And those balance it out by a shorter design win, let's say, less than a year and shorter time to revenue less than a year. To get to its full glory, I think it takes maybe three years for a product in the focus areas. But again, a reminder that none of our products have ever been obsolete from the time we introduced them 12 years ago, 13 years ago, so they still continue to sell. So that's an important way of understanding the value.

Very helpful, Rajesh. Thanks guys.

Yes. And again, these new products look forward, but we also introduced a lot of products last year and in 2021 and going back to 2020. So even though some of these design cycles can be one, two or three years, we have a number of products that are in the middle of those design cycles.

Okay, great. Sounds good. Thanks guys.

Thank you. Please stand by for our next question. Our next question comes from the line of Tore Svanberg with Stifel. Your line is open.

Yes. Thank you, Rajesh. Thank you, Art. I had a question about your largest customer. Especially as far as them moving manufacturing around. I mean, I think this is sort of in the public domain too. And I'm just wondering if some of this inventory build and subsequent reduction, has anything to do with the diversification of the manufacturing base or do you think this is just more purely the front of manufacturers building too much supply when supplies were short?

Yes, it's a tricky question to ask and there are some things we don't want to talk about too much. But I think they do have more CMs than anybody else, that's point one. The second point is that we understand that in tough times, all CMs, many CMs overorder for a variety of reasons. Some good ones, some not so good ones. In the case of our largest, historically largest customer, we have spent a lot of time in the past years looking at forecasts directly from them and comparing it to forecasts from the CMs. You can almost say that in some ways, we were somewhat instrumental in helping all parties understand what the real situation was. So SiTime has been a value-add player in all of this.

Yes, that's a good point, Rajesh. For my follow-up regarding your inventories, considering that sales to your largest customer are expected to be minimal over the next two quarters, can you provide reassurance about the $58 million in inventory? You indicated that most of it is likely in wafers or raw materials. I'm curious about how we should interpret that $58 million, especially with the significant decline in the first half of the year.

Yes. So first of all, we consciously increased our inventory, as you mentioned $57.7 million at the end of last quarter. And the increase is all in wafer stock, so as we've talked about many times, we get our MEMS wafers from Bosch, it’s our process with their factory. And we get our CMOS wafers from TSMC. And we bought wafers from both Bosch and TSMC and we did it to provide a buffer stock. If there's any type of geopolitical issues out there, if there's any type of supply chain issues out there, we have wafer stock that can support a number of quarters' worth of sales. And remember, wafers do not go bad, they don't become obsolete. These can sit on the shelf for years and years and years if needed. They're not going to sit on the shelf for that long. We will start to work it down over the next couple of quarters. So you would expect it to come down during the course of the year to a certain extent, but wafers do not go bad. And that gives us a lot of comfort. Quite honestly, this gives our customers a lot of comfort for the reasons that I just mentioned, if there are any type of supply chain issues out there with so many of our customers being single-sourced with us, they cannot afford for us to not be able to ship something to them.

I want to emphasize what Art mentioned. I feel confident about our inventory, and we've approached this deliberately for a couple of reasons. First, none of our products have ever been discontinued, and wafers have a long shelf life. Second, 80% of our business is sourced from a single supplier, and as we move into the communications, automotive, and aerospace defense markets, it's crucial for us to assure our customers that they are in capable hands. Lastly, while this point is more about opportunity, we don't know how the latter half of this year will unfold. We certainly anticipate stronger performance than in the first half, but there's a possibility of significant demand recovery in the second half. I'm not asserting that it will happen, but if it does, I believe SiTime is well-positioned to take advantage of it with our programmability and value proposition, which further justifies our current strategy.

Very helpful. Thank you so much.

Thanks, Tore.

Thank you. Please stand by for our next question. Our next question comes from the line of Doug O'Laughlin with Fabricated Knowledge. Your line is open.

Hey, Art. Hey, Rajesh. I was just wondering for the full 2023, will you be shipping below the run rate demand? I mean we just don't know what the second half looks like. Now I was wondering if there's a possibility that the entirety of the year, you'll be moving down the inventory? And then I have a follow-up.

Yes. So we will clearly be shipping below end demand, right, because our customers have to work through some of their inventory. So whatever we end up shipping, the end demand will have been higher. So I don't know if that's your question or if it has to do with our inventory.

Okay. So I was more just trying to get the trajectory of the second half, right? Like there really is no way to know right now, but for example, at some point in Q3, Q4, if your largest customer goes from essentially zero to some amount, I'm just trying to get a better shape. I was just trying to ask what Q3 and Q4 could look like on the other side, but I understand that's pretty hard to forecast. So could I ask another question…

Let me provide some comment on that. Yes, we believe that sales to our largest customer will come back in the back half for two reasons. One, in the first half, they're going to have to consume inventory; that situation disappears in the back half. And the second piece of this is that our strongest business with this customer has always traditionally been in the second half of the year. If you go back and look at preceding years, we ship a lot more to them in the back half of the year than the first half of the year. So I firmly believe that our sales to that customer will come back relatively strongly in the back half of the year.

Okay. Perfect. You mentioned 300 applications in your prepared remarks. Do you track the expansion of these applications? Is there a way to measure how much that has grown compared to 2021 or 2020?

We don't track it as a primary metric. It's one of the secondary metrics. What we track are design wins in particular segments, rather than in particular applications. But I think it's safe to say that from the time that we went public, we've about doubled the number of applications. So in other words, we've probably gone from sub-150 to 300 applications, and we continue to add applications every month.

Okay. And going forward with these design wins, do you think you'll be able to double that again? Like I'm just trying to get a kind of magnitude of the number of design wins from the longer tail? Or is it going to be like a similar group of current applications that are just being sold into more and more, if that makes any sense?

Right. Our funnel is very strong; it continues to grow very, very solidly year-on-year. Every year that we've been here, it's been growing a lot. And that's no surprise given that we've been adding new products and we've been marketing stronger and so on. As long as our funnel growth continues, particularly around single source, particularly around our focus markets, particularly around our higher differentiated products, I think that the design wins will follow quite naturally. But we think that they will grow, but I couldn't say whether they will double, and I couldn't give you that level of precision.

So Doug, another way to think about it is we talk about our SAM a lot. And we calculate that SAM by looking at the different applications and how our products will apply to those different applications. Our SAM was $1 billion a year ago. Just recently, as Rajesh mentioned on the call, we think it's about $2 billion now. And by the end of 2024, we think it goes to $4 billion. A lot of that SAM expansion comes from new products that are essentially going into new applications.

Alright, perfect. Thanks guys.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

Yes. I would like to say that I feel very comfortable. Although the decline in our largest customer's revenue is disappointing, we understand the situation well because we helped clarify it. We have good insight into that. As we move into the second half of the year, I remain confident about the growth of their business. Aside from that business, our other operations continue to perform well. We believe that Q1 marked the bottom and that we will see improvements in Q2, Q3, and Q4 as things ramp up. We are monitoring the pace of that ramp carefully. We have strong views on it, but for now, we are observing and will share updates as they come. What reassures me is that, despite everything, our average selling prices continue to rise. Our single-source position remains at 80%. Our sales funnel is expanding, our products are on schedule, and even with the complexities we face, we are successfully launching them and connecting with our customers. Overall, I think we're in excellent shape, and we look forward to providing more information as we progress through the quarter. Thank you.

Great. Thank you everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.