“`html
Image source: The Motley Fool.
SiTime (NASDAQ: SITM)
Q3 2024 Earnings Call
Nov 06, 2024, 5:00 p.m. ET
SiTime Reports Strong Q3 2024 Results with Remarkable Revenue Growth
Overview of Earnings Call and Company Insights
Operator
Good afternoon, and welcome to SiTime’s third quarter 2024 financial results conference call. All participants are currently in listen-only mode. After the planned presentations, we will have a question-and-answer session. [Operator instructions] Please note that this call is being recorded on Wednesday, November 6th, 2024.
I’d like to now introduce your first speaker, Brett Perry from Shelton Group Investor Relations. Brett, the floor is yours.
Brett Perry — Investor Relations
Thank you, Amber. Good afternoon, everyone. Welcome to SiTime’s Q3 2024 financial results conference call. With us today are Rajesh Vashist, Chief Executive Officer, and Beth Howe, Chief Financial Officer. Before we begin, I want to remind everyone that this call may include forward-looking statements about the company’s future results and strategies.
The management team recognizes that predicting every potential risk is impossible and that actual results could significantly vary from the anticipated results discussed here. Therefore, neither the company nor any individual is accountable for the accuracy of these statements. There is no obligation to update forward-looking remarks after this call.
Financial Performance Highlights from Q3 2024
For more detailed information regarding potential risks, please refer to the company’s 10-K filed on February 26th, 2024, alongside subsequent SEC filings. Throughout this call, we will reference certain non-GAAP financial measures critical for evaluating the company’s performance. These non-GAAP measures should not replace U.S. GAAP measures.
This reconciliation includes stock-based compensation, amortization of intangibles from acquisitions, and related acquisition costs. A detailed reconciliation is available in our press release from earlier today. I’ll now turn the call over to SiTime’s CEO, Rajesh Vashist.
Rajesh Vashist — Chief Executive Officer
Thank you, Brett. Good afternoon, everyone. I want to welcome you and our existing investors to SiTime’s Q3 2024 earnings call. SiTime leads in a new semiconductor market for precision timing, crucial for modern electronics.
Our precision timing technology enhances performance and reliability across various sectors, including AI data centers, networking, automated vehicles, personal mobility, and IoT devices. In Q3, revenue soared 62% to $57.7 million, with net income representing 17% of total revenue.
All customer segments and regional markets grew by double digits, with communications, enterprise, and data centers in Greater China and EMEA witnessing triple-digit growth. Our bookings for the fourth quarter are robust, and we anticipate sequential growth as we previously projected. Looking back, November marks five years since our IPO, and we committed to delivering high-value products for high-growth areas, which we have consistently done.
We’ve established a high-growth, high-margin business model with diverse revenue sources and customers. This diversity enhances SiTime’s resilience and strengthens our position in the semiconductor industry. The communications, enterprise, and data center sector is particularly notable, with revenue increasing over 200% year-over-year in Q3 and projected to more than double for FY 2024.
As we look ahead to 2025, we expect significant growth in the AI market with advancements in AI servers and networking gear. Our precision timing solutions are particularly beneficial in AI data center infrastructures, addressing complex timing challenges in hardware such as top-of-the-rack switches and optical modules.
Additionally, cloud service providers are keen on enhancing bandwidth and GPU utilization, leading to greater demand for precision timing solutions, which offer higher value per application. SiTime’s products excel in high-speed connectivity, proving resistant to noise while maintaining a compact form factor, making them ideal for various applications.
“`
SiTime Reports Strong Third Quarter Growth Amid Booming AI and Automotive Markets
In a period marked by rapid advancements in AI and automotive technology, SiTime Corporation is establishing itself as a leader. During the latest financial call, Chief Executive Officer Rajesh Vashist highlighted the company’s role in enhancing GPU utilization through advanced parallel processing, supported by precision timing solutions derived from its recent acquisition of Aura.
Vashist elaborated on how the company’s Clock Generators from Aura contribute to the growth of the AI market by providing multiple high-performance clocks within one device. He expressed confidence in SiTime’s ability to increase its dollar content as demand for these technologies rises. A significant macro trend mentioned was the push for a more accurate global navigation satellite system (GNSS), which has crucial applications across defense, aerospace, and automotive sectors. Enhanced GNSS is vital for autonomous and Advanced Driver Assistance Systems (ADAS), which need precise timing to function efficiently. SiTime is collaborating with key industry players to deliver this technology.
With an eye on the future, SiTime has achieved several design wins with electric vehicle manufacturers, anticipating volume shipments would commence in 2025. Vashist concluded, expressing satisfaction with the company’s strategic direction and performance thus far.
Financial Highlights from the Third Quarter
Beth Howe — Chief Financial Officer
Following Vashist, CFO Beth Howe provided insights into the company’s financial performance for the third quarter. She noted that the revenue for this period reached $57.7 million, marking a 62% increase year-over-year. This growth stemmed from higher volumes and a favorable product mix.
By market segment, revenue from the communications, enterprise, and data center sectors totaled $19.7 million, representing 34% of sales and a striking 233% growth year-over-year. Sales from the automotive, industrial, and aerospace markets reached $17.7 million (31% of sales), up 51% from the previous year. Meanwhile, the mobile, IoT, and consumer categories generated $20.3 million (35% of sales), reflecting a modest 14% increase in the same period. Sales to SiTime’s largest customer accounted for $13.1 million, or 23% of total sales.
Howe highlighted improvements in non-GAAP gross margins, which stood at 58.1%, largely attributed to increased manufacturing efficiencies. Non-GAAP operating expenses were reported at $29.5 million, with significant investments directed towards R&D and SG&A. The third quarter marked a return to operating profitability, with a non-GAAP operating profit of $4 million, demonstrating a substantial improvement from the previous year.
Future Outlook Strong Despite Challenges
Looking ahead, SiTime anticipates fourth quarter revenues between $63 million and $65 million, with gross margins projected at 58% to 58.5%. The focus remains on managing non-GAAP operating expenses, expected to reach $31 million to $31.5 million. The company also expects interest income of approximately $4.5 million, with diluted outstanding shares around 24.4 million. Accordingly, non-GAAP EPS is anticipated to fall within the range of $0.39 to $0.45 per share.
Howe concluded by reaffirming the company’s commitment to driving growth through innovative product offerings that align with significant market trends.
Q&A Session Highlights
Operator
The Q&A session began with inquiries regarding SiTime’s position in the data center market. Analyst Suji Desilva asked about the differences in content opportunities between optical top-of-rack switches and other data center components, including AI servers. Vashist responded by noting an overall increase in server content over the next few years, particularly in switches and CPU servers. He acknowledged the complexities of predicting specific configurations but indicated growth would be broad across the market.
Desilva followed up by asking about the financial comparison of optical pluggables versus larger data center components. Vashist clarified that while pluggables represent lower dollar amounts, other equipment such as switches and GPUs offer significantly higher growth potential.
The conversation showcased the firm foundation SiTime has built in both emerging technology sectors and its ability to adapt to market demands, setting the stage for continued success.
SiTime’s Growth Strategy: Insights from the Latest Earnings Call
Robust Demand in TCXOs and Automotive Segments
SiTime executives discussed the company’s promising opportunities in the TCXO market during a recent earnings call. The latest NVIDIA NVL72 rack, for instance, uses multiple SiTime TCXOs across its dedicated switching trays, indicating a significant demand for their products in evolving technology networks. However, while SiTime has carved out a niche in some hyperscaler networks, growth within this sector remains uneven.
Revenue Growth and Segment Performance
Rajesh Vashist, the CEO of SiTime, outlined current pricing trends, noting a shift from sub-$100 racks to hundreds of dollars for fully populated models. This price increase reflects the broader demand for SiTime’s technology in CPUs, GPUs, NIC cards for storage compute, switches, and top-of-the-rack devices. The company reported an impressive growth of 200% quarter-over-quarter, underscoring its success in various OEM sectors.
Analyst Quinn Bolton confirmed that the high hundreds of dollar pricing applies to multiple applications within SiTime’s offerings, solidifying the company’s role in diverse technology markets.
Future Growth Predictions for 2025
During the call, Vashist reiterated a forecast of 30% growth for the company, suggesting that segments with diverse revenue streams often outperform this estimate. He emphasized that specific divisions, like CED, may eclipse the overall corporate growth rate, contributing to a balanced growth trajectory.
Quarterly Segment Insights
Analyzing segment-specific performance, Beth Howe, CFO, indicated that while CED would lead growth, increases were also expected in consumer IoT, mobile segments, and the automotive sector. This positive trajectory reflects heightened demand during the holiday season and sustained performance in industrial and aerospace applications.
Operational Expenditure and Investment Strategy
Howe projected operating expenses (opex) for the fourth quarter to fall between $31 million and $31.5 million. As for 2025, an annualized figure of about $125 million was anticipated, which aligns with their strategy to invest in growth areas like R&D and market outreach while expecting revenue to significantly outpace opex growth.
Automotive Market Outlook
Jeremy from Stifel Financial sought further details on SiTime’s opportunities in the automotive industry. Vashist shared insights about a serviceable available market (SAM) of approximately $400 million to $500 million within the automotive sector—a notable increase since the company’s public launch. Most of this business is driven by innovative car manufacturers, particularly in the growing electric vehicle segment.
Overall, SiTime’s focus on advanced technology solutions continues to position it favorably in the market, with robust growth expectations across various sectors and strategic investments paving the way for future success.
SiTime’s CEO Discusses Growth in EV and Precision Timing Markets
Automated Driving and Precision Timing: Key Areas for SiTime
SiTime is making significant strides in the electric vehicle (EV) sector, particularly in China and the United States. The company focuses on automated driving technologies, encompassing Level 2 to Level 4 driving assistance systems. The use case largely revolves around this ecosystem, bolstered by their advanced failsafe technology aimed at enhancing vehicle safety.
Precision Timing Market Analysis
Rajesh Vashist, the CEO, provided insights into the precision timing market, which is valued at approximately $10 billion. This market is split among oscillators, clocks, and resonators. SiTime has carved out a segment of about $3 billion in served market, with current revenues around $200 million. The growth opportunities are vast, particularly in data centers, enterprise tech, consumer IoT, and automotive sectors.
Growth Potential in Various Applications
SiTime’s serviced market consists of about 300 different applications, highlighting the diversity of its business model. The company aims for a 30% annual growth rate moving forward. Key markets include military, aerospace, industrial, and medical sectors, along with a growing automotive sector estimated at half a billion dollars.
Gross Margin Projections
Chief Financial Officer Beth Howe spoke on gross margins, noting a sequential increase of 40 basis points. Expectations remain high for long-term margins exceeding 60%, potentially reaching this target by the second half of 2025 as new products move into production. However, seasonal fluctuations may cause a slight decline from the fourth to the first quarter.
Clock Market Penetration
In terms of the clock market, Rajesh Vashist addressed the strategic approach post-Aura acquisition. The company’s ability to gain design wins will dictate the pace of product rollout, typically averaging between 18 to 24 months from design win to volume production. SiTime anticipates reaching around $100 million in clocking revenue in the coming years.
Changing Margin Structures and Operating Leverage
As SiTime looks ahead, Beth Howe reflected on operating expenses and the overall margin structure. Stability in the market allows for a clearer perspective on growth in operational leverage relative to revenue growth. Continued focus on efficiency is anticipated as revenue steadily increases.
Conclusion
Both Vashist and Howe expressed optimism for SiTime’s positioning in the evolving markets, underscoring the potential for continued growth in precision timing and automotive technologies.
SiTime’s Growth Strategy: Emphasizing Revenue Over Operating Expenses
Key Insights on Future Financial Plans
During the recent conference call, Rajesh Vashist, the CEO of SiTime, discussed projections for the year 2025, focusing on the company’s operating model. Although specific guidance for 2025 has not been provided yet, Vashist expressed optimism regarding revenue growth and operating expenses (opex). He indicated that revenue is expected to increase at a faster rate than opex as SiTime continues to build on its current momentum.
Vashist highlighted an impressive 75% flow-through of gross profit to the bottom line this quarter. This operating leverage reflects the company’s ability to convert increased sales into profits efficiently. He emphasized the importance of making strategic investments in opex where they yield a good return on investment (ROI).
Future Investment Outlook
Looking ahead, Vashist reiterated the goal of maintaining higher revenue growth compared to operating expenses. While acknowledging the need for future investments, he remains confident that the company will efficiently manage operational expenses. Additionally, he noted that plans for forthcoming investments will be influenced by the company’s performance in terms of revenue growth and operating leverage.
Closing Thoughts
As the call concluded, Vashist expressed gratitude for the company’s return to growth, signaling a hopeful outlook for the future. He assured stakeholders that SiTime is poised for continued progress in the upcoming quarters.
Operator
[Operator signoff]
Duration: 0 minutes
Call Participants:
Brett Perry — Investor Relations
Rajesh Vashist — Chief Executive Officer
Beth Howe — Chief Financial Officer
Suji Desilva — Analyst
Quinn Bolton — Analyst
Melissa Fairbanks — Analyst
Unknown speaker — Stifel Financial Corp. – Analyst
Chris Caso — Analyst
More SITM analysis
All earnings call transcripts
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. The Motley Fool does not assume any responsibility for your use of this content. We strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
The Motley Fool has positions in and recommends SiTime. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
