SITIME Corp Q1 FY2025 Earnings Call

Good afternoon, and welcome to SiTime's First Quarter 2025 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 the question-and-answer session. As a reminder, this conference call is being recorded today, May 7, 2025. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.

Thank you, Didi. Good afternoon, and welcome to SiTime's first quarter 2025 financial results conference call. Joining us today on the call from SiTime are Rajesh Vashist, 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 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 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 14, 2025, as well as the company's subsequent filings with the Securities and Exchange Commission. Also during the call, we'll 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, nor superior to measures of financial performance prepared in accordance with US GAAP. The 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 contingent consideration and earn-out liabilities. Please refer to the company's press release issued earlier 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.

Thanks, Brett. Good afternoon. I want to welcome you and our existing investors to SiTime's first quarter 2025 earnings call. SiTime leads in a new semiconductor category we call precision timing, integral to modern electronics in areas such as AI, datacenters, networking, automated vehicles, personal mobility, and IoT. Our precision timing technology enhances performance and reliability in the $10 billion timing market. We focus on high-value timing markets and applications with differentiated products that offer exceptional value. This strategy is building a diverse business across various industries, applications, and regions, allowing us to maintain rapid growth even in a dynamic environment. The figures reflect this success; in Q1 2025, we achieved revenue of $60.3 million, an 83% increase from last year. Our gross margins reached 57.4%, with earnings per share at $0.26. All segments contributed to this growth, with our comms, enterprise, and data center business tripling year-over-year, and both mobile IoT consumer and auto industrial defense sectors growing significantly. Our largest customer’s revenue increased over 75%, and we anticipate this momentum to persist into Q2. Our CED business has shown significant sequential growth for four quarters running, spurred by AI's strength. Our OEM and Cloud Service Provider clients continue to express optimism about their growth forecasts, and we expect the Data Center segment to keep expanding through 2025. AI infrastructure necessitates higher network bandwidth to enhance GPU utilization rates, directly affecting SiTime's precision timing product demand. Two trends reinforce this infrastructure upgrade. First, optical module and switch bandwidth are doubling, with our current high-volume shipments in 800G. We're observing increased design work for 1.6T modules, which we expect to dominate in 2026 and 2027. SiTime has successfully engaged in 1.6T designs, with over 20 opportunities globally. Secondly, Active Electrical Cables are superseding passive cables in data centers, offering two to four times higher bandwidth. SiTime remains a distinctive solution in both applications, providing substantial value through performance and reliable supply. We are also very enthusiastic about our Clocking business, which plays a vital role in addressing customers' needs within the timing subsystem. We maintain a sustainable edge by possessing all necessary components to create truly unique products. By integrating oscillators, clocks, and software, SiTime has established a new clock category that is a comprehensive system solution, enhancing performance and simplifying designs for clients. This approach is likely to generate the highest clocking revenue in the industry across all customer segments in the upcoming years. We've already introduced three clocking products that offer higher average selling prices and extended revenue streams, a trend we expect to continue. For instance, in CED, our Cascade family provides more resilient performance and has been integrated into various applications, from network switches and NIC cards in datacenters to 5G equipment and Fixed Wireless Access. In the Automotive sector, our Chorus family boasts multiple high-value designs in Automated Driving Applications, benefiting from integration and greater reliability. For the mobile IoT consumer market, we recently launched Symphonic, the industry's first integrated clock generator for 5G millimeter wave consumer products, along with asset trackers and GPS receivers. Symphonic customers experience high performance with environmental resilience, compact size, and power efficiency, making it suitable for industrial applications as well. In these changing times, our product differentiation is crucial for ongoing success. I'm confident in SiTime's ability to adjust to rapid global changes while continuing to grow revenue, profitability, and market share. Now, I’ll hand the call over to Beth, our CFO, to provide a detailed overview of our financial results. Beth?

Thanks, Rajesh. Good afternoon, everyone. Today, I’ll discuss first quarter 2025 results and then I'll provide our outlook for the second quarter of fiscal 2025. As a reminder, I'll focus my discussion on non-GAAP financial results, which are reconciled to GAAP in our press release. Our Q1 results highlight the momentum of our business. First quarter revenue increased 83% year-on-year to $60.3 million, driven by ongoing strength in our data center business, as well as growth in our mobile business. Sales to the communications, enterprise, and data center customer segment were $29.3 million, up 198% year-on-year. Sales into the automotive, industrial, and defense customer segment were $14.1 million, up 10% year-on-year. And sales into the mobile, IoT and consumer customer segment were $16.9 million, up 64% year-on-year, with sales to our largest end customer increasing 76% to $11.1 million. In terms of the mix of revenue, communications enterprise data center represented 49% of revenue, automotive industrial and defense made up 23% of revenue, and mobile IoT consumer represented 28% of total revenue. Gross margins for the quarter were 57.4% with gross margin dollars increasing 81% year-on-year. Total non-GAAP operating expenses were $32.5 million, flat sequentially and in line with expectations. For the quarter, R&D expense was $19.3 million and SG&A expense was $13.2 million. Q1 non-GAAP operating income was $2.1 million, an improvement of $10.3 million or 16 percentage points versus the same quarter a year ago. Q1 non-GAAP net income was $6.3 million or $0.26 per share. Turning to the balance sheet. Accounts receivable were $28.1 million with DSO improving to 42 days versus 50 days in Q4. Inventory ended the quarter at $82.6 million compared with $76.7 million in Q4 as we ramp production for key new products and continue to maintain strong wafer balances for assurance of supply. During the quarter, we generated $15 million in cash from operations, up $1.5 million sequentially and up $13.3 million year-over-year. CapEx was $16.4 million in the quarter, driven largely by the purchases of production equipment, and we paid $5 million to Aura Semiconductor. Our balance sheet remains strong and we ended the quarter with $398.9 million in cash and short-term investments and no debt. Now, I'd like to provide our outlook for the June quarter. For Q2, we expect revenue growth of 45% to 50% year-on-year, which is $64.7 million at the midpoint; gross margins to be approximately flat compared with Q1; operating expenses to be in the range of $33 million to $33.5 million; and interest income of approximately $3 million to $3.4 million. As a result, we expect second quarter non-GAAP EPS to be in the range of $0.25 to $0.31 per share. With that, I'll open it up for questions.

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

Hey guys. Congratulations on the nice results and outlook. I guess first question, Rajesh, you mentioned a significant design win back in March at the Morgan Stanley Investor Conference with your largest customer. That customer is up I think 76% year-on-year. Can you give us a sense do you expect that kind of growth to continue throughout the year? Just what should we be expecting as that customer launches phones with the internal modem where you have two timing sockets paired with that internal modem?

Yes, I think we should expect to have continued growth. I don't know if it will be in the same percentage. Clearly there is strength. You mentioned those two design wins. I think those design wins are in good shape. What remains to be seen, however, as always is, first of all, as you know, it's a consumer product. So, it typically cycles up and down a little bit more than others. The second is, it's the first one of its kind in the phone paired to their own certain chips that they have. So, I think we've got to see where that goes. And finally we do live in a very dynamic environment where we don't know what the impact of tariffs or not tariffs or lesser tariffs or more tariffs are going to have. So all that being said, we continue to expect growth, yes.

And maybe a follow-up for Beth. Beth, I think as revenue grows into the second half of the year, I think you were expecting margin expansion. Can you give us a sense, do you still expect margins to expand in the second half? And I guess as part of that, to the extent your largest customer, which is in the consumer space, continues to grow at a pretty healthy clip, would that potentially represent some drag on margins that we should be thinking about? Thank you.

Thanks for the question. So as we look at our gross margins, you indicated the two factors. So we do remain committed to the gross margin target for our core business of 60% that we've been working towards. As we've discussed, we're making improvements in our cost and yields for our new products as they ramp. In addition, as you mentioned, we do have this new consumer business, which does come at lower gross margins. And so while it does contribute incremental revenue and gross profit dollars, and also provide significant value to us over the long term, it does put some pressure on our gross margin rate. And so overall, we're working to offset and mitigate that pressure to deliver the 60% by the end of the year, and that's what we're working towards.

So the 60% is still the target?

That's still our target. Clearly, we're working on it. We've got a little more work to do now with the new products.

Understood. Thank you very much. I'll get back in the queue.

Thank you. Our next question comes from Tore Svanberg of Stifel. Your line is open.

Yes. Thank you, and congratulations on the strong results. So I know there's a lot of focus on your largest customer, but I mean, the data center segment continues to be very robust, Rajesh. So I was just hoping you could elaborate a little bit more on your growth profile there. You definitely talked about 800-gig upgrade cycle moving to 1.6. You talked about the AECs. But my understanding is that you participate in a lot of different parts of the AI data center. So how should we think about the continuous momentum here throughout the year?

Well, the continuous momentum is strong. So you rightly point out that while I have given in the optical module and the connectivity, there are other opportunities in switches in server racks, in the GPU, the CPU, accelerator cards, and so on. And we are, in fact, in every one of those. We are also looking at new opportunities that are coming directly from GPUs that are being made by non-semiconductor companies, and we see that as a tremendous opportunity as well. So we stand pretty strongly behind continued growth, frankly, for years to come in the overall AI data center market because we see no slowdown in it.

Very good. Thank you for that. And as my follow-up, could you talk a little bit about which segments you expect to drive the sequential growth into the June quarter? And have you seen any sort of pull-in activity at all as related to potential tariffs?

It's always challenging to determine the extent of pull-in activity, but currently, I would say it is minimal, if present at all. We haven't observed any pull-in activity. Our bookings continue to be very strong, with customers looking well beyond the 90-day tariff period for the third and fourth quarters and beyond. Our outlook remains bright and solid. The growth we've seen in the first quarter came from every segment, whether it be consumer, data center, mobile IoT, or auto industrial defense, and we expect this growth to continue across all areas. Growth may be slightly lighter in the auto sector, but overall it appears to be consistent. The reason for this is our differentiated and premium products, which tend to be utilized in our customers' premium offerings that are generally less affected by any market weaknesses. This is why we believe we are in a strong position.

Great. Congratulations, again.

Thank you.

Thank you. And our next question comes from Chris Caso of Wolfe Research. Your line is open.

Yes. Thank you. Good afternoon. I guess, the first question is your outlook for the full year, and you had talked about, I think, 25% to 30% growth for the year. Given the differing landscape, both take into account perhaps some of the new design wins you spoke about but also some of the uncertainty in the market, is that still a valid goal for the year? Or is that too low of a goal, too high of a goal? And what do you expect to be the drivers for the year? How has that changed as compared to what you thought a quarter ago?

We are closely monitoring the changing environment and the global situation. However, we remain confident in our growth prospects, maintaining our target of 25% to 30% growth for the base business, along with additional growth from our recent design wins. Our product differentiation and variety are key strengths. We have entered the system timing segment with our clocking products, and our design win pipeline is robust, aligning well with our product offerings. Growth is expected across all segments, with CED, particularly driven by the data center, likely to experience strong growth, similar to the last quarter, while the other segments will also contribute to our overall success, with some potentially outperforming others.

Got it. And then a question for Beth and just to follow up with some of your comments on gross margins. So what are the levers that you can pull to get to that 60% target at the end of the year, while factoring in some of the lower-margin revenue? Is that a function of cost reduction on some of the products? Or is that a function of mix with regard to the rest of the business?

Sure, Chris. So as we look at it, it's a function of a couple of things. So one is that we are making progress in terms of the new product introductions and the ramp there, improving the cost of those new products and improving the yields as those ramp. And that's the work we've been doing, we've been talking about. We also expect revenue growth as we go through the year. And so that you'd expect to see some operating leverage or manufacturing kind of leverage as we have more revenue. And as I said earlier, the new business does provide incremental gross profit dollars but is a bit of a pressure on the rate. And so we'll be looking to take additional actions to improve the cost structure in order to overcome some of those headwinds.

Got it. If I could ask one more question, Rajesh, regarding the data center business, you mentioned a variety of trends within that sector. Could you elaborate on how your content will develop moving forward, including elements like 1.6-terabyte modules and active cables? How does your content grow with the introduction of these new technologies compared to SiTime's increasing market share in these areas?

I believe the dollar content doesn't increase significantly, for instance, moving from 800 to 1.6. Our dollar content remains consistent across all our design wins. However, the number of design wins is certainly increasing due to the growing demand for precision timing. For example, we began to see our first active electrical cables being utilized just a year ago. Some accelerator cards that didn’t incorporate our precision products two years back are now using some of our most valuable and differentiated offerings. We also see opportunities for deeper penetration with our existing customers in the OEM semiconductor module space, where there is still room for growth. This aligns with our strategy of expanding within existing accounts. Additionally, we are engaging with new customers, particularly cloud service providers, who are not yet significant clients for SiTime. There are numerous opportunities for us to explore and capitalize on. Furthermore, we are witnessing shifts in architecture, such as the move towards denser designs that require a higher volume of SiTime's precision timing products per unit. Overall, we foresee substantial growth prospects for SiTime in the time ahead.

Got it. Thank you.

Thank you. Our next question comes from Suji Desilva of ROTH Capital. Your line is now open.

Hi Rajesh, hi Beth. Congratulations on your success and progress. Can you discuss the platforms you mentioned, such as Cascade, Chorus, and Symphonic, and explain how you are presenting the product portfolio and roadmap? This is the first time I’ve heard these platforms mentioned together.

Thank you for that. Our Cascade family of products is primarily focused on the CED side, utilized in communications, enterprise, and data centers. It is our most intricate chip in the clocking sector and is likely the first chip we developed in this area. There are versions integrated with oscillators and others that are not, covering a wide range of price and performance, and it sits at the higher end of that spectrum. The second product line is the newer Chorus family, designed for greater integration and reliability, making it well-suited for the automotive and self-driving markets. It offers a significantly smaller size and much higher performance regarding jitter and phase noise. Lastly, we recently announced the Symphonic product, a multi-output clock generator primarily targeting the 5G millimeter wave market, but it's also seeing substantial use in industrial applications. This product stands out due to its phase noise characteristics, resilience, compact size, and low power consumption. These are long-term initiatives aimed at penetrating the market. I want to emphasize that with the launch of Symphonic, we have raised our revenue target for the coming years. I’ve previously mentioned aiming for around $100 million from our clocking business in a few years, and I can confidently say that we are likely to exceed this target due to the introduction of these products. I'm very pleased with our progress and the momentum we've gained.

Okay. And just to clarify, the strong growth you're having in data center and optical, should I think of that as being majority Cascade? Or is that the oscillator products and shifting to more...

All the oscillators including the Epoch product, the Elite RF, the Elite, the Elite TCXOs, and the clocking products, along with some of the buffers from Aura that are relatively similar but have a higher number of use cases, are all part of our focus. The CED business is a prime example of what we have consistently noted as the area with the highest growth potential and the strongest value proposition that SiTime can offer, featuring the highest average selling prices along with significant volumes. This is a very sticky and long-lasting business, and it is an area we are very dedicated to.

Okay, great. Very clear. Rajesh, thanks.

Thank you.

Thank you. And we have a follow-up from Tore Svanberg of Stifel. Your line is open.

Yes. Thank you. Yes, Rajesh, I know you've got a lot of momentum in the data center segment. I also know you have a lot of design wins in the telecom 5G communications market. Just wondering if that's starting to move or is that market still quite slow?

Yes, thank you for your question, Tore. It is starting to progress, and while it isn't particularly large at the moment, we anticipate continued growth in that area. There are initiatives in fixed wireless, as well as positive developments in the enterprise sector overseas. We believe we will attract new customers in this space, which is promising. I also want to mention that SiTime has been utilizing IEEE 1588 synchronization software for about a year to enhance the value we provide to our customers. This has enabled us to charge more for our oscillator and clocking products since customers require a complete solution that includes oscillators, clocks, and synchronized software. This illustrates our system selling approach.

Very good. And as my last question for Beth. Beth, the CapEx has been around $15 million $16 million in the last three quarters. I assume that's for maybe a combination of things. But could you give us any sense for how much longer it would be at this more elevated level?

Thanks, Tore. Yes, we've been investing to build capacity for some of these new products that we've been talking about, the ones we talked about today, for example. I would expect we've got a little more to go in terms of Q2 at these levels and for the full year probably roughly in line with the total for 2024. So I would expect the total CapEx for the year to be kind of mid- to high 30s for the year.

Thank you. We have no further questions at this time. I'd like to turn it back to management for closing remarks.

Thank you, Didi. I want to emphasize that we are facing challenging times due to macro conditions and market uncertainties. The situation is highly dynamic, with constantly changing news. At SiTime, we consider our role in this environment and aim to navigate it to the best of our ability. Our focus is on the aspects we can control, such as the quality and value of our products. We are committed to providing highly differentiated products. Additionally, we can manage the acquisition of key customers and enhance our market penetration, which we have achieved with several new customers and applications. We are also disciplined with our spending, maintaining a steady level, and we are working to increase our gross margins. Overall, we are taking charge of our future with the circumstances we have, and I am confident that by leveraging these important factors, we can emerge strong. Thank you for your attention and for joining us for our quarterly results.

This concludes today's conference call. Thank you for participating, and you may now disconnect.