SiTime Corporation — Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; filed May 5, 2021. SiTime is a fabless provider of silicon timing systems, including MEMS oscillators, resonators and clock ICs. The company sells primarily through distributors and resellers across communications, enterprise, automotive, industrial, aerospace, mobile, IoT and consumer markets.
Financial Performance and Position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $35.5 million | $21.7 million | +63% |
| Gross profit | $18.8 million | $10.0 million | +89% |
| Gross margin | 53% | 46% | +7 percentage points |
| Research and development | $11.2 million | $7.0 million | +59% |
| Selling, general and administrative | $11.1 million | $7.8 million | +42% |
| Loss from operations | $(3.5) million | $(4.9) million | Improved by $1.4 million |
| Net loss | $(3.6) million | $(5.1) million | Improved by $1.5 million |
| Basic and diluted loss per share | $(0.20) | $(0.34) | Improved |
| Cash flow from operations | $6.1 million | $2.0 million | +199% |
Revenue growth reflected approximately 9% higher shipment volume and a 15% increase in average selling prices, driven by demand from new and existing customers, design wins, product mix and selected price increases. Gross margin benefited from higher volume and pricing and lower manufacturing costs as a percentage of revenue.
Operating margin was approximately (9.8%), compared with (22.3%) in the prior-year quarter. Net margin was approximately (10.0%), compared with (23.4%). The company remains unprofitable and had an accumulated deficit of $67.0 million at March 31, 2021.
- Cash and cash equivalents were $257.0 million at March 31, 2021, compared with $73.5 million at December 31, 2020.
- Net cash provided by operating activities was $6.1 million; investing cash outflow was $4.2 million, including $3.9 million of property and equipment purchases.
- Financing cash inflow was $181.6 million, primarily from the February 2021 follow-on offering.
- The company had no outstanding borrowings at March 31, 2021 and canceled its $50.0 million MUFG credit facility after repaying prior debt.
- Total assets were $324.1 million and total liabilities were $28.8 million. Operating lease liabilities totaled $8.1 million.
- Inventories increased to $15.0 million from $12.4 million at year-end 2020, while accounts receivable declined to $22.2 million from $23.9 million.
Material Changes Versus Q1 2020 and Year-End 2020
- Revenue increased 63%, with gross margin expanding from 46% to 53%.
- Net loss narrowed despite higher operating expenses. R&D increased 59% and SG&A increased 42%, primarily due to higher headcount and stock-based compensation.
- Total stock-based compensation expense increased to $7.0 million from $2.8 million in Q1 2020.
- Interest expense fell to zero from $0.3 million because the company had repaid its borrowings.
- The February 2021 offering generated approximately $181.6 million of net proceeds to SiTime and increased shares outstanding to 18.84 million at March 31, 2021, from 17.15 million at December 31, 2020.
- MegaChips sold 1.5 million shares in the offering and remained the largest stockholder, with approximately 31.8% ownership at March 31, 2021, compared with 43.7% at December 31, 2020.
- Revenue concentration increased: one end customer represented 37% of Q1 2021 revenue versus 34% in Q1 2020; the top three distributors represented approximately 62% versus 57%.
Outlook, Commentary, Risks and Unusual Items
Management expects continued investment in research and development, sales and marketing, and general and administrative functions. The filing does not provide a clear numerical revenue or earnings forecast for the remainder of 2021. Management stated that existing cash and cash equivalents are sufficient to meet cash needs for at least the next 12 months.
- Supply constraints: Industry-wide constraints affecting analog circuits manufactured by certain foundries, including TSMC, may limit the company’s ability to satisfy demand. SiTime relies principally on Bosch for MEMS fabrication and TSMC for analog circuits, with additional reliance on outsourced assembly, packaging and testing providers.
- COVID-19: The pandemic may disrupt suppliers, manufacturing, shipment, demand, customer finances and employee operations. Management reported minimal supplier disruption to date but stated that the duration and full impact remain uncertain.
- Customer concentration: A substantial portion of revenue is attributable to one end customer, identified in the risk disclosures as Apple. Customers generally purchase under standard purchase orders without minimum or long-term commitments and may cancel, reduce or reschedule orders with limited notice.
- Execution and market expansion: Future growth depends on design wins, successful volume production of new products, expansion into clock IC and timing synchronization markets, and continued acceptance in target end markets.
- Litigation: VTT Technical Research Centre of Finland appealed a district court judgment finding all asserted claims of U.S. Patent No. 8,558,643 invalid. Oral argument was scheduled for June 9, 2021. No loss contingency was accrued because a potential loss was not considered probable or reasonably estimable.
- Stock-based compensation: Unrecognized compensation cost was $70.2 million for RSUs and $0.9 million for liability-based awards at March 31, 2021, which may continue to affect future expenses.
- Taxes: The company maintains a full valuation allowance against deferred tax assets and reported $2.6 million of unrecognized tax benefits at March 31, 2021.
- Controls: Management concluded that disclosure controls and procedures were effective at the reasonable assurance level, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether foundry and analog-circuit supply constraints restrict shipments, revenue growth or gross margin in subsequent quarters.
- Whether the 37% end-customer concentration and 62% distributor concentration remain stable or create material volatility.
- Whether higher average selling prices and the 53% gross margin are sustainable as product mix, pricing and supply conditions change.
- Whether continued increases in R&D, SG&A and stock-based compensation lead to profitability or prolong operating losses.
- How the company deploys the approximately $181.6 million of offering proceeds and whether additional financing becomes necessary after canceling its credit facility.
- The outcome of the VTT patent appeal and any related indemnification, product, licensing or litigation exposure.
- The ongoing effects of COVID-19, geopolitical conditions, tariffs, foreign exchange movements and international supply-chain disruptions.