SiTime Corporation: Q2 2021 Form 10-Q Summary
Business Context and Reporting Period
SiTime designs and sells silicon timing systems, including MEMS oscillators, resonators and clock ICs. It operates a fabless model using third-party foundries, assembly, packaging and testing providers, and sells primarily through distributors and resellers. The filing covers the three and six months ended June 30, 2021; financial statements are unaudited.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Revenue | $44.5 million | $21.5 million | $80.0 million | $43.2 million |
| Gross profit | $26.8 million | $10.0 million | $45.6 million | $20.0 million |
| Gross margin | 60% | 46% | 57% | 46% |
| Operating income (loss) | $2.1 million | $(5.3) million | $(1.4) million | $(10.1) million |
| Net income (loss) | $2.0 million | $(5.6) million | $(1.5) million | $(10.7) million |
| Diluted EPS | $0.10 | $(0.36) | $(0.08) | $(0.70) |
| Operating cash flow | Not separately provided | Not separately provided | $10.4 million | $5.7 million |
Revenue increased 107% year over year in Q2 and 85% for the six-month period. Management attributed Q2 growth to a 66% increase in shipment volume and a 25% increase in average selling prices; six-month growth reflected a 53% volume increase and a 21% ASP increase. Operating expenses increased 62% in Q2 and 56% for the six-month period, driven primarily by higher headcount, stock-based compensation and project spending.
Stock-based compensation expense was $7.5 million in Q2 and $14.5 million for the six months, compared with $3.3 million and $6.0 million in the comparable periods. The company reported an accumulated deficit of $64.9 million at June 30, 2021.
Liquidity, Capital Resources and Debt
- Cash and cash equivalents were $253.5 million at June 30, 2021, compared with $73.5 million at December 31, 2020.
- The company generated $10.4 million of operating cash flow and used $12.0 million in investing activities during the first six months.
- Financing activities provided $181.6 million, primarily from the February 2021 follow-on offering. Net proceeds to the company were $181.6 million.
- Capital expenditures were $11.4 million, largely for test and manufacturing equipment supporting increased demand.
- The company had no outstanding borrowings at June 30, 2021 and cancelled its $50.0 million MUFG credit facility.
- Management believes existing cash and cash equivalents are sufficient to meet cash needs for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Q2 revenue more than doubled, while gross margin expanded 14 percentage points to 60%.
- The company moved from a Q2 operating loss and net loss in 2020 to operating income of $2.1 million and net income of $2.0 million in Q2 2021.
- Despite the quarterly profit, the company remained slightly unprofitable for the first six months of 2021.
- Cash increased by $180.0 million during the first six months, primarily because of the follow-on equity offering.
- Inventories increased to $18.5 million from $12.4 million at year-end 2020, and property and equipment increased to $20.8 million from $11.7 million.
- MegaChips remained the largest stockholder, with approximately 31.5% ownership at June 30, 2021, down from approximately 43.7% at December 31, 2020.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a clear numerical revenue or earnings outlook. Management expects revenue, research and development expense, and selling, general and administrative expense to fluctuate or increase as the company expands. Management intends to focus increasingly on clock IC and timing synchronization solutions.
- Industry-wide supply constraints affecting analog circuits, including capacity at certain foundries such as TSMC, could limit the company’s ability to satisfy demand and could reduce revenue or margins.
- COVID-19 restrictions and potential resurgences could disrupt suppliers, manufacturing, shipping, customers and demand. Malaysia movement restrictions were expected to continue through August 2021.
- Customer concentration remains significant. One end customer accounted for approximately 15% of Q2 revenue and 25% of six-month revenue. The top three distributors represented approximately 46% and 51% of Q2 and six-month revenue, respectively.
- Customer orders generally lack long-term purchase commitments and may be cancelled, reduced or rescheduled with little notice, creating revenue volatility and inventory risk.
- The company relies heavily on Bosch for MEMS wafer fabrication and TSMC for analog circuit fabrication, as well as several third-party assembly and testing providers.
- The company provides lifetime warranties and may face product liability, warranty and indemnification claims.
- A patent case brought by VTT was resolved favorably for SiTime after the Federal Circuit affirmed the judgment invalidating all asserted claims on June 10, 2021. No loss contingency was accrued.
- The company maintains a full valuation allowance against deferred tax assets and reported $2.4 million of unrecognized tax benefits at June 30, 2021.
- Foreign currency exposure was not considered material based on the company’s hypothetical sensitivity analysis, and the company has no currency hedging program.
Most Important Facts to Verify
- Whether foundry and supply-chain constraints, particularly at TSMC and in Asian manufacturing locations, limit shipments or pressure gross margins.
- Whether the elevated ASPs and 60% Q2 gross margin are sustainable as product mix, pricing and semiconductor conditions change.
- Progress in diversifying beyond the largest end customer and the three largest distributors.
- Whether continued research and development, sales and marketing spending and substantial stock-based compensation delay sustained profitability.
- Use of the $181.6 million equity proceeds, future capital expenditure requirements and any potential need for additional financing.
- COVID-19 developments, customer order patterns, distributor inventories and the risk of cancellations or rescheduling.
- Remaining exposure to related-party transactions and MegaChips’ continuing influence as the largest stockholder.