SiTime Corporation — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020. The unaudited filing was signed August 6, 2020. SiTime provides fabless silicon timing solutions, including MEMS oscillators, resonators and developing clock IC products, through distributors and resellers.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $21.5 million | $15.8 million | $43.2 million | $30.7 million |
| Gross profit | $10.0 million | $6.4 million | $20.0 million | $14.0 million |
| Gross margin | 46% | 40% | 46% | 46% |
| Operating loss | $(5.3) million | $(5.0) million | $(10.1) million | $(7.4) million |
| Net loss | $(5.6) million | $(5.4) million | $(10.7) million | $(8.3) million |
| Basic and diluted loss per share | $(0.36) | $(0.54) | $(0.70) | $(0.83) |
- Revenue increased 36% year over year in Q2 and 41% for the first six months, primarily from higher sales volume in Asia and favorable product mix.
- Gross profit increased 57% in Q2 and 43% year to date. Management noted that 2019 gross profit included benefits from selling previously reserved inventory: approximately $0.4 million in Q2 and $1.7 million for the first six months.
- Operating expenses rose 34% in Q2 and 41% year to date. Research and development increased 18% and 19%, respectively; selling, general and administrative expense increased 54% and 68%, driven substantially by stock-based compensation, headcount, public-company costs and legal expenses.
- Six-month stock-based compensation expense was approximately $6.0 million, compared with none in the prior-year period; the filing reports $38.7 million of unrecognized RSU compensation cost at June 30, 2020.
Cash flow, liquidity and capital structure
- Six-month operating cash flow was $5.7 million, versus $5.2 million in 2019. Investing cash flow was $(2.9) million, primarily for property and equipment, production masks and software.
- Financing cash flow was $36.3 million, including $45.8 million of net proceeds from the June follow-on offering, $35.0 million of borrowings, $41.0 million of loan repayments and $3.5 million of employee tax withholding payments.
- Cash and cash equivalents increased to $102.5 million at June 30, 2020 from $63.4 million at December 31, 2019. Inventories increased to $14.8 million from $11.9 million.
- Debt was $35.0 million at June 30, all classified as current. On July 24, 2020, the company repaid all MUFG borrowings, including a $0.1 million prepayment penalty on $12.0 million of the loans.
- Total liabilities were $55.9 million and stockholders’ equity was $99.6 million at June 30, 2020. Management stated that existing cash and available funds after the debt repayment should cover cash needs for at least the next 12 months.
- The June offering issued 1.525 million new shares for net company proceeds of $45.8 million; MegaChips sold 2.5 million shares and retained approximately 44.9% ownership.
Material changes versus the prior comparable period
- Revenue growth accelerated materially, while net losses widened because operating expenses grew faster than gross profit.
- Q2 gross margin improved to 46% from 40%; the six-month margin remained 46%, despite the prior-year inventory-sale benefit.
- Average selling price increased modestly because of product mix, while Q2 sales volume increased approximately 17% and six-month sales volume increased approximately 39%.
- Customer and channel concentration remained significant: the largest end customer represented 26% of Q2 revenue and 30% of six-month revenue; the top three distributors represented approximately 51% and 54%, respectively.
- The follow-on offering materially increased cash and equity but also increased shares outstanding. MegaChips ceased to be a “controlled company” under Nasdaq rules following the offering.
Guidance, outlook, risks and unusual items
- The filing does not provide a clear numerical revenue or margin forecast for the remainder of 2020. Management expects research and development and selling, general and administrative expenses to increase in absolute dollars.
- Management plans to expand in clock IC and timing synchronization solutions and to increase sales and marketing activity. Clock IC products were being sampled, but commercial scale and timing remain uncertain.
- COVID-19 created substantial uncertainty around demand, supply-chain operations, manufacturing, shipping, customer finances and access to financing. The company reported minimal supplier disruption to date but could not estimate the full-year impact.
- The company relies on third-party foundries, assembly and test providers, including Bosch and TSMC, and faces risks from capacity, yields, pricing, qualification delays, geopolitical developments and Malaysia-related operating restrictions.
- The company’s largest end customer, identified in the risk factors as Apple, has no minimum purchase obligation and may reduce or cancel purchase orders with little notice.
- VTT patent litigation remained disclosed as a contingency. Subsequent to quarter-end, on July 17, 2020, the court found all claims of the asserted patent invalid; VTT had until August 17, 2020 to appeal. No loss accrual was recorded.
- The company recorded a $0.2 million impairment charge for internal-use software associated with an abandoned product and maintained a full valuation allowance on deferred tax assets.
- On August 4, 2020, the company adopted an executive bonus and retention plan for the second half of 2020 based on revenue, non-GAAP operating profit and individual goals. Target bonuses are 50% of base salary for the CEO and 25% for other named executive officers, with payouts ranging from zero to 150% of target and generally settled in restricted stock units.
Important facts for investors to verify
- Whether post-quarter-end repayment of the $35.0 million MUFG debt and intended closure of other credit facilities changes liquidity, borrowing capacity or future financing needs.
- The durability of revenue growth, gross margin improvement and customer demand amid COVID-19, semiconductor cyclicality and concentrated customer exposure.
- The effect of ongoing stock-based compensation, planned hiring and public-company costs on the path to profitability and dilution.
- The status of the VTT appeal and any other intellectual-property, product-liability or indemnification exposure.
- Progress, investment requirements and commercial adoption of clock IC and timing synchronization products.
- Dependence on MegaChips, including its 44.9% ownership, related-party transactions, distribution arrangements and potential future financing relationships.