Good afternoon, welcome to SiTime's first quarter 2023 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 a question and answer session. As a reminder, this conference is being recorded today, Wednesday, May third, 2023. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Brett, please go ahead. Thank you. Good afternoon, and welcome to SiTime's 1st quarter 2023 financial results conference call. On today's call from SiTime are Rajesh Vashist, Chief Executive Officer, and Art Chadwick, 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 factors 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 may 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 the 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 27th, 2023, as well as the company's subsequent filings with the SEC. Also, during this call, we refer to certain non-GAAP measures, which we consider 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 U.S. GAAP. The only difference between GAAP and non-GAAP results is stock-based compensation expense and related payroll taxes. Kindly note non-GAAP measures for the first quarter of 2023 only exclude stock-based compensation, whereas non-GAAP measures for all periods prior to the first quarter of 2023 also exclude stock-based compensation expense related payroll taxes. Please refer to the company's press release issued today for a detailed reconciliation between the GAAP and non-GAAP financial results. With that, it's now my pleasure to turn the call over to SiTime CEO. Rajesh, please go ahead. Thank you. Good afternoon. First, I'd like to welcome new as well as existing investors to SiTime's Q1 2023 earnings call. For those of you who are new to this, SiTime is a leader in a dynamic new semiconductor category called precision timing. In electronics, timing is ubiquitous and ensures reliable functioning. SiTime created precision timing to service the needs of applications like automated driving, data center, 5G, and IoT. We are early in our growth as we transform the $10 billion timing market. SiTime has shipped 3 billion precision timing chips to 15,000 customers in 300 applications. We delivered Q1 results in line with our guidance. Revenue for the quarter was $38.3 million, non-GAAP gross margins was 61.8%. Non-GAAP EPS was $0.09 per share. Previously, we had expected Q2 revenue to be equal to or modestly higher than Q1. We now expect Q2 revenue will be lower than Q1. The previous guidance for lower first-half 2023 and higher second-half 2023 remains intact. This revenue drop in previously forecasted demand is in three areas: data center, automotive, and broad-based. We believe that the slowdown in macroeconomic conditions has had an impact on all of these three areas. Cloud service providers have reduced their CapEx spending, which has reduced demand for networking and storage equipment. In automotive, Chinese EV makers appear to have significantly reduced their 2023 forecast. Our broad-based segment, which represents 300 diverse applications and 15,000 customers, has also exhibited lower demand. While inventory continues to decline, because of lower demand, it has not declined at the rate that we previously expected. We now forecast that customer and channel inventories will return to a normal level by the end of 2023. Second half revenue will be higher because of higher demand, though likely not of the magnitude that we previously believed. We continue to forecast an acceleration in 2024 and 2025 based on four key indicators: SAM expansion from new products, design wins, continued single-source business, and expanding ASPs or average selling prices. These indicators continue to be healthy, and I'll now spend a few minutes talking about them. In 2020, our SAM was $1 billion, and we are now on track to grow it to $2.5 billion by the end of 2023. As the only company focused on all aspects of precision timing, our strategy is to bring to market compelling products that offer significant benefits, solve tough problems, and make us trusted advisors. Our increasing product portfolio gives us a bigger timing footprint in the customer's systems. As an example, in the past few months, we introduced two new products in the automotive and aerospace defense markets. We continued our momentum in design wins. The number of design wins in the first quarter of 2023 grew 35% quarter-on-quarter and in every market segment. Another source of continued strength is our sole source business, which reflects the value of SiTime products. 80% of Q1 2023 revenue was sole sourced and 85% of Q1 designs in 2023 were sole sourced. Average selling prices, or ASPs, reflect SiTime's value to the customer. Despite lower revenues and better availability from quartz competitors, our ASPs have remained stable. I'd like to give some color on 2024. We expect 2024 to be a solid recovery year. We're expecting the business that was already in production to get back to levels closer to real demand once customer and channel inventory is consumed by the end of 2023. Additionally, our continued design win momentum will translate to new revenue in 2024. For example, in communications enterprise, we forecast that 65% of 2024 revenue opportunities are already in production right now. From 2022-2027, AI is expected to drive significant growth in high-speed Ethernet, and we are well positioned here. The situation is similar in aerospace defense. We forecast that 60% of our expected 2024 revenue will come from opportunities in production today. Here, 10 applications drive our revenue. We are shipping to seven out of the top eight U.S. defense contractors, where we have an average of 50 design wins per customer. In automotive, we forecast that 70% of our expected 2024 revenue in this segment will come from opportunities that are already in the early stages of production, primarily in ADAS, which is automated driving assistance systems. In this segment, we're engaged with all U.S.-based pure play electric vehicle customers that are shipping in volume. In China, we're engaged with most major EV manufacturers and their OEMs. In conclusion, design wins continue to grow, as does our SAM. Our connection with customers is strong, as evidenced by our stable ASPs and sole source business, as well as the fact that we did not lose any meaningful business to our competitors. As inventory is consumed and demand returns, we expect to be in a great position to take advantage and resume growth. We continue to remain very confident in SiTime's future success. Thank you. Thanks, Rajesh. Good afternoon, everyone. This is Art Chadwick. Today, I'll discuss first quarter 2023 results and then provide some guidance on the second quarter. I'll focus my discussion on non-GAAP financial results and refer you to today's press release for a detailed description of our GAAP results, as well as the reconciliation of GAAP to non-GAAP results. Revenue in the first quarter was $38.3 million, down 37% sequentially. Two-thirds of that decline was caused by much lower sales to our historically largest customer as they worked through excess inventory. Most of the rest of the decline was due to lower sales to our comms and enterprise customers as they, too, worked through inventory. Sales into our mobile, IoT, and consumer segment were $8.8 million or 23% of sales, down from $24.7 million in Q4, due primarily to lower sales to our historically largest customer, where sales were $1.2 million, down from $15.5 million in Q4. Excluding sales to that historically largest customer, sales into this segment were $7.6 million or 20% of sales. Sales into our industrial, automotive, and aerospace segment were $18.7 million or 49% of sales, down from $20.3 million in Q4. Sales into our comms and enterprise segment were $10.9 million or 28% of sales, down from $15.8 million in Q4. Q1 non-GAAP gross margins were 61.8%, down slightly from Q4, due primarily to the lower revenue. Q1 non-GAAP operating expenses were $27.3 million, down slightly from Q4 as we managed certain discretionary and other expenses. Expenses were $16.4 million in R&D and $10.9 million in SG&A. Our non-GAAP operating loss was $3.6 million. Interest income was $5.6 million from interest earned on short-term T-bill investments. Non-GAAP net income was $2 million or $0.09 per share. Accounts receivable were $21.5 million, with DSOs of 50 days, down from $41.2 million and DSOs of 61 days in Q4. Inventory at the end of the quarter was $60 million, up from $57.7 million last quarter as we continue to make strategic wafer purchases. During the quarter, we generated seven and a half million dollars in cash from operations. We invested $2.3 million in capital purchases and ended the quarter with $576 million in cash equivalents, and short-term investments. I'd now like to provide some financial guidance for the second quarter of 2023. As Rajesh mentioned, the macro environment remains challenging. Demand has continued to soften in a number of markets, most recently in the data center. In addition, channel inventory, which is inventory at both distributors and at our customers' contract manufacturers, is historically high, and customers are not consuming that inventory as quickly as expected. Inventory levels will likely remain high well into the second half of this year, this is having a significant impact on current revenue. As a result, we now believe the revenue cycle will be deeper and more prolonged than we had previously thought. We had thought Q1 would be the low quarter for the year, but it now looks like Q2 will likely be the low quarter. Revenue in the second quarter is now expected to be between $25 million and $28 million, down from Q1, due primarily to lower sales into comms and enterprise and auto markets as those customers continue to work through inventory. Sales to our historically largest customer will also continue to be well below their consumption rate, though likely higher than in Q1. Gross margins are expected to be between 56% and 58%, down from Q1 due to the lower sales as well as to a change in mix. Operating expenses are expected to be between $27.5 million and $28 million. Interest income should be at least $6 million. Share count will be approximately 22 million shares. As a result, we expect Q2 non-GAAP net income will be a loss of between $0.25 and $0.35 per share. Though it's not clear when end demand will pick up, we do believe that once our customers work through excess inventory, sales will improve. Though visibility is not great, we believe sales in Q3 will be higher than in Q2, and Q4 should be nicely higher than that as sales to our historically largest customer and others should be back to a more normalized level. I'd like to conclude my remarks by saying that even though we're going through a very tough cycle, we firmly believe that our long-term growth story is intact. We continue to aggressively invest in our process and product development. We have unique and superior technology that addresses large and growing markets. Design win and quote activity continues to be strong, and that, coupled with new product introductions and an expanding SAM, should lead to continued long-term growth. On that note, I'd like to hand the call back to the operator for questions and answers. Thank you. Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to one question and a follow-up. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from Tore Svanberg of Stifel, Nicolaus & Company. Your line is open. Yes, thank you. My first question is if you have a more general feel for the real rate of consumption, because I mean, obviously, you know, $27.5 million at the midpoint is clearly impacted by the inventory digestion. You know, I mean, you had a peak of almost $80 million, now you're at $27.5 million. Do you have any sense for what the real rate of consumption is, just so we kind of know what the revenues will be once the inventory has been digested? Tore, that's a great question, of course. It is not easy to quantify it, but I will put this out there. We look at how much inventory there is in the channel, again, both at the distributors and now the inventory that's being held at the subcontract manufacturers. By our analysis, we think there's about $30 million worth of inventory out there at the end of Q1 above and beyond what we would consider to be normal levels. What that means for the year, assuming that that inventory gets worked down by the end of the year, and we do believe that it should, it means that we'll probably undership by somewhere around $30 million this year. That's the way we look at it in terms of the inventory that's in the channel and what that's doing to our current revenue. No, that's great color. And a question on inventories. you know, they've been up, the last two quarters. They're at $60 million last quarter. Perhaps you could help us feel comfortable with that number, you know, in light of the revenue decline, you know, were there comments on shelf life or, I mean, you didn't mention strategic inventory, right? Anything you can share with us to feel comfortable with that $60 million? Yeah. If you think back, you know, a year plus ago, with all of the supply constraints, it was difficult to build up any buffer stock in wafers. Our MEMS wafers, for example, can take 6 to 9 months lead time. It was kind of hand to mouth for a long time. Those shortages have eased, we made the conscious decision to build a quite sufficient wafer buffer stock. Our wafers come from Bosch for our MEMS wafers, and they come from TSMC for our CMOS analog wafers. Almost all of the increase that we've had in inventory over the last few quarters is wafer stock. Wafers do not go bad. These wafers could sit there for many years if necessary. I think we'll consume it well before that. To answer your question, they do not go bad. It's also important for us to have sufficient inventory for our customers. A number of our customers, as we mentioned last year, 80% of our sales were sole sourced. These are large customers that rely on us, and it gives them quite a bit of comfort. In fact, they've asked us to provide that kind of comfort to them to have that kind of buffer. We could go quite an extended time with supply constraints in the market and still be able to support those customers. This was a very conscious decision to buy those wafers. They will not go bad. We lose a little bit of interest because it does absorb some of our cash. As I mentioned, we've got a very strong cash balance, $576 million. We have made the decision that this was the right strategic thing for us to do. Perfect. I'll go back in queue. Thanks. Great. Thanks, Tore. One moment for our next question. Our next question will come from Suji Desilva of Roth Capital. Your line is open. Hi, Rajesh. Hi, Art. Can you just help us understand what the quarter looked like from a linearity perspective and into April? Was it a sharp fall off? Was it just a kinda lower recovery than you expected? Just the shape of that would be helpful. Yeah. I wouldn't say that it had a step function decline. It's been slow for a while now for the last few months, across a few of our markets as Rajesh talked about, as I talked about in our script, so. Yeah. I think I would add that, Suji, that bookings have been disappointingly low all through this past quarter. Perhaps not in January, but starting in around the middle of February onwards, they have been generally low and weak and not very healthy. We've been looking at this for a while, and what we conclude, of course, is that given that we've not lost any business to competitors, given that we've not lost any design wins, given that our customers are forecasting bigger numbers, we think that those should recover when their business recovers. In the meanwhile, a couple of specific businesses, I called out the Chinese electric vehicle car companies, in this, they declined. They put out information that they've declined quite significantly in data centers. We've seen that in other semiconductor companies that supply to that market as well, that sort of weakness. One of the interesting things is we see other semiconductor companies that ship to what I'll call legacy cars, like internal combustion cars. Those companies seem to be doing okay in the automotive space. Given that we are heavily focused on new business, on electric vehicles, on ADAS systems, which are more emerging, we are not seeing that because, of course, we don't have a big legacy business in automotive. Suji, I'll just add a few comments. Sure. you know, last year, clearly our customers overbought, so there was too much inventory out there. In the meantime, demand has softened. We've talked about that over the last couple of quarters, but it continues. I look at, say, our top five customers, for example, our top five customers last year. They're sitting here and saying, "Look, I have enough inventory. My demand is less than I thought. I just don't need to buy anything right now." That's what we're seeing in Q2. you know, our top five customers are buying very, very little, at least compared to what they were buying. That's driving to a decline in sales in Q2. As Rajesh mentioned, our design win activity is stronger than ever. It is up, you know, nicely Q1 over Q4. Our quote activity is very strong. The long-term markets that we're addressing, we feel very confident that they will continue to grow. Our new product introductions are on track. Longer term, we're as confident as ever. Short term, our customers are basically shaking their head and saying, "I just don't need any product right now." That's what we need to work through. Okay. Thanks, Rajesh. That's a very helpful color there. My second question is on the gross margin, the drop here. What are the drivers here, and what are the factors that get it back above? Yeah. 60? Is it, just give us some color. Yeah. Thanks. Yeah, no, great question. In Q2, I guided the gross margins, non-GAAP gross margins, of between 56% and 58%, that's down from our 61.8% in Q1. Two factors that are driving that, I mentioned them briefly. One is just top line revenue. We've got, you know, we've talked about this many times, kind of a fixed manufacturing overhead. It's really a cost of our ops group, some depreciation on back-end equipment that we own at our OSAT and some other cost of sales. That number is relatively fixed. When revenue goes down, that becomes a larger% of sales and that drives down blended margins. That probably accounts for about half of the drop between Q1 and my guide for Q2. The other half has to do with mix. As I mentioned, much of the decline in revenue from Q1 to Q2 is in comms and enterprise and auto, and those are high margin products for us. That becomes a lesser percentage of our revenue, and then our consumer IoT will be a slightly higher percentage of our revenue. That mix moves against us in terms of gross margins. Okay, thanks guys. Let me add to that. Going forward, as revenue continues to increase, and that's what we expect will happen. I mentioned we think Q3 will be better than Q2, Q4 to be better than Q3. We think 2024 should be nicely better than 2023 in total. That manufacturing overhead absorption will improve. That'll pick up a number of points. I think the mix will also improve. You know, our whole strategy since the IPO has been to develop products that are addressing these higher performance markets. That drove a very nice gross margin expansion from our IPO through last year. Because of the inventory situation that we talked about, comms and enterprise sales are down substantially right now. That should come back. When that comes back, the mix should get back to where it was and improve even beyond. At this point, I think we exit this year gross margins probably closer to 60% just because of the revenue. I think by 2024, we should, at some point during 2024, be able to get back to our gross margins in the mid-60s. That's how we see it right now. Okay, thanks Art. Thanks, Suji. One moment for our next question. Our next question will come from Quinn Bolton of Needham and Company. Your line is open. Hey, guys. I guess, Art, I wanted to come back to your comment about the $30 million of inventory and it, you know, probably taking through year-end to, you know, work that down. I guess I'm trying to come back to this, you know, what's the right level of consumption? If I just take $30 million, spread it over three quarters, you know, you're under shipped by $10 million a quarter. You know, kind of feels like you're telling us that end consumption might be only something like $40 million a quarter. That seems a lot lower than I think what we might have discussed a quarter or two, where I think you were thinking end consumption might have been closer to $60-$65. Can you give us any better sense? I mean, is $40 million the right number now to be thinking about consumption? I don't wanna give it. It's difficult to give a hard number on that. Clearly, there is softness in some of the markets that we're addressing. You know, data center is the more recent one. A lot of change. You know, they're pulling back on CapEx. That impacts high performance servers. It impacts, you know, optical switches, a whole variety of things. My point is, demand is down. We think that it will come back. I think this is a classic cycle, and it is hitting us hard. I think that's obvious. It's difficult to put a hard number on your question. Fair, fair enough. I know you guys have talked about a CAGR, long-term CAGR in sort of the 30%-35% level. You're gonna have a very weak 2023 as you undership consumption. Do you think you come back and are you looking at a 2024 that's sort of in line with that 30%-35% long-term CAGR? Do you think that as you snap back to consumption, you have an opportunity to potentially grow faster than that, just given how weak 2023 is? I know you're not guiding out a year, but I just wondering if you might be able to try to provide us with a framework because it feels like the numbers- Yeah. Are still moving around a fair amount, you know, this late into the inventory cycle. Yeah. Well, first of all, you know, we've been surprised by this cycle. This is becoming deeper and longer than we had expected. There has been some surprise there. To answer your question, longer term, we still think that the 30% CAGR is very reasonable, and we base that on the number of new products that we've recently introduced, that we're gonna introduce, what that does to our SAM expansion. We do this market segment by market segment. We spend a lot of time on this in the company. Longer term, I think that 30% growth rate is defensible. Hasn't happened yet, I think it's a very reasonable number. It could be higher than that, could be lower than that, I think that's a good baseline. For next year, I think two things happen. One, we get back to shipping at our customer's consumption levels. With whatever we end up shipping this year, I think we're gonna undership probably somewhere around $30 million less than the consumption based on the fact that we believe there's about $30 million in inventory above and beyond what would be normal. That would get us to a new to a baseline. Then what's the growth rate in 2024? I would like to think it's 30%, you know, people are also talking about maybe there's gonna be a recession, things are slowing down. I don't know if that's gonna happen or not. I think it might make better sense to have a slightly more conservative expectation on revenue growth. you know, something less than 30%, only because we don't know. My point is. We can come up with a baseline by adding back the under shipment this year, and then folks can assume on a growth rate from that base to a revenue number for 2024. I think that's how we look at it, and I think that's the right way to look at it. To add to that, Quinn, I would reiterate the element of disappointment that we see in the bookings because of demand. We poke at the usual things, design win loss, single source going to multi-source, declining prices, and so on, and we don't see the issues there. We see the issues in decline demand, and I think it's mirrored in macroeconomic conditions, perhaps, and certainly in a couple of the key markets, which are important to us. We definitely cite the disappointment. On the other hand, everything that I mentioned in those four things, new products, therefore new SAM, new design wins at 35% increase, single source business undiminished and expanding ASPs. Those are still visible to us in the new business that we are finding in our funnel and taking it all the way through into design win. Got it. Thank you for the additional color. Thanks, Quinn. Okay, as a reminder, to ask a question, please press star one one on your telephone. One moment. We have a follow question from Tore Svanberg of Stifel Nicolaus & Company. Your line is open. Yes, thank you. I had a follow-up question on your largest customer. Obviously it was very low this quarter as you had projected. It did sound like you expect that customer to be up sequentially in the June quarter. Is it safe to say that the bulk of sort of their inventory overhang is now, you know, played out? I mean, I do recognize the June quarter probably still some lingering effect there, but it does directionally feel like, you know, the bulk of that overhang is now behind you. I would not say it's played out yet. It is playing out. As I mentioned, you know, they only purchased $1.2 million in Q1. That was down from $15.5 million in Q4. Clearly, they burned through inventory in Q1. I do expect that sales to them will be up some in Q2, not a lot, could be a few million dollars, give or take. I think that improves substantially in Q3. As I mentioned in my comments, I think by Q4, they'll be back to what we would consider to be a normalized run rate. The good news there is we are still in all the products that we were designed into. That has not changed. They or essentially their subcontract manufacturers severely overbought over the last few quarters. We have to get through that. It's gonna come back, but it's gonna take a couple of quarters to get back to kind of a full normalized run rate. Very good. My last question, you know, trying to think more about some of the longer term trends out there. I know, Rajesh, you introduced a new range of high precision timing devices for in-car connectivity. Just, you know, hoping you could elaborate a little bit on that, especially, you know, when we can start to see more material revenue contribution from that product family? Yeah, I think what we are seeing is that these products take about nine months for design wins and then another year to roll out in fruition. Continuing into one of the reasons I gave some of the metrics on how we see 2024. For example, in automotive, 70% of the revenue from automotive is already shipping today. In other words, that is a level of insight or outlook we have on it. We don't expect that kind of product to have significant impact on the revenue 'cause it's a lot of the stuff that's already in design win. Not even design win, that's actually mass production, which is one step out, well out of design wins. I think it's safe to say that when we put out a new product, announcement, it's generally about a year and a half away from high volume production. Low volume production, another matter, but high volume production, probably a year and a half. Very good. Thank you. I'm showing no further questions. I would now like to turn the call back to management for closing remarks. All right. Thank you, operator. We wanna thank everybody for joining us on the call today. We hope you have a great afternoon, thank you very much. Thank you. Bye-bye. This concludes today's conference. Thank you for your participation. You may now disconnect.