SiTime Corporation (SITM) Earnings Call Transcript & Summary

Good afternoon, and welcome to SiTime's Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, August 5, 2026. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.

Thank you, Olivia. Good afternoon, and welcome to today's conference call to discuss SiTime's Second Quarter 2026 Financial Results. Joining us on today's call from SiTime are Rajesh Vashist, Chief Executive Officer; and Beth Howe, 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 factor 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 could differ materially and adversely from those anticipated or implied. Neither the company nor any person assumes responsibility for the accuracy and completeness of forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this conference call to conform 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 company's annual report on Form 10-K for the year ended December 31, 2025, as well as the company's subsequent filings with the SEC, including the company's quarterly reports on Form 10-Q. During the call, management will refer to non-GAAP financial measures, which are considered 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. This GAAP to non-GAAP reconciliation includes stock-based compensation expense, amortization of acquired intangibles, amortization of financing-related transaction costs and acquired and acquisition-related expenses, which include transaction and certain other cash costs associated with business acquisition as well as changes in the estimated fair value of earn-out liabilities and accretion of acquisition consideration payable. Please refer to the company's press release issued earlier today for a detailed reconciliation between GAAP and non-GAAP financial results. Unless otherwise specifically noted, all comparisons made during today's conference call are year-over-year comparisons with the corresponding year ago period. With that, it's now my pleasure to turn the call over to SiTime's CEO, Rajesh, please go ahead.

Thanks, Brett. Good afternoon, and thank you for joining us today. Today, I'm happy to introduce you to an expanded SiTime. We started with a simple vision, high-performance systems need high-performance, resilient timing or precision timing. We have delivered on that vision with the most compelling differentiated portfolio in the industry, that is oscillators, resonators and clocks, and we're the only company that is doing so. The outstanding financial results that we are reporting reflect SiTime's success. The second quarter was truly exceptional. Revenue was $157.4 million, up 127% year-over-year. Gross margins were 67.1%, up 8.9% points. Operating margin was 34%, up from 10% a year ago. And net income was $65.7 million or $2.34 per diluted share, up 400%. This strength is evidenced across all our end markets. Every BU or business unit grew more than 50% year-over-year, and every region grew more than 50%. Some were over 100%. Other markers of strength, book-to-bill, order size, ASPs, all grew on a higher value product mix. Channel inventory held on to our tight target levels, reflecting strong pull-through. Now that many customers are placing orders 12 to 18 months in advance, our visibility into 2027 keeps improving. Other indicators that point to future demand such as average design-in value and funnel size grew significantly. Our Communications, Enterprise and Data Center business or CED, is again the engine of our growth, but not the only one. CED grew 181% year-over-year and crossed $100 million in quarterly revenue, our ninth consecutive quarter of triple-digit growth. We expect CED's rapid growth to continue with several drivers behind it. The first driver is increasing bandwidth. The move to 1.6T terabit in optical modules is driven by the need for more networking in the data center. In 2027, we expect our 1.6T revenue to grow by 100%, while 800G also grows significantly. In both these applications, which we expect will be a combined $450 million of SAM in '27, SiTime has significant market share. These modules need higher frequencies and performance, which fits closely with SiTime's value propositions. The second driver is the further adoption of synchronization by hyperscalers across both compute and networking nodes in the data center. This has increased demand for our Elite family of Super TCXOs, adding several hundred dollars of content per data center rack. The third driver is the expansion of AI data centers spending beyond traditional hyperscalers. SiTime products are now being used by new OEMs and ODMs, bringing demand that did not exist before this. We've talked several times about the diverse nature of SiTime's business, and a strong example is AI beyond data center and into cars, humanoid robots, drones and personal AI devices, each of which opens a new opportunity for our precision timing. In all types of vehicles, including agricultural and heavy equipment, our content increases significantly as more AI-based autonomous driving is built into the system. Positional accuracy is key to autonomous driving, a $400 million SAM and it depends upon precision timing. Customers choose SiTime's devices for resilience that deliver up to 10x better positional accuracy. In defense, we see a significant opportunity in assured PNT, which is Position, Navigation, and Timing, a $400 million market, where timing keeps working when GPS does not. As jamming and spoofing become prevalent, GPS-dependent platforms need a local timing backup that can be trusted. This is exactly where our precision timing shines. Our devices enable systems to be immune to spoofing and extend PNT validity. This opens a retrofit opportunity across the installed base as defense spending increases worldwide. In Mobile, IoT and Consumer, or MIC BU, personal AI devices, smart glasses, wearables, hearables, health devices are an emerging growth area. Since January, we have added significant oscillator opportunities to our funnel in these applications, and our Titan resonators continue gaining traction with partners and OEMs. Mobile demand continues to grow with visibility through 2027, and our MIC BU funnel is now over $1.2 billion. On July 1, we closed the acquisition of Renesas' timing business, well ahead of our year-end goal. We call this business our Timing Products Division or TPD. To the TPD team worldwide, we say to you that you're in the right place for your talents and ambition, so welcome home. This 20-year clocking franchise is a highly respected provider of clocking products. Over its evolution from ICS to IDT to Renesas, this business has consistently delivered architecture, and the engineers are known for their technical prowess. Take 2 examples, FemtoClock and VersaClock, 2 proven clock families with many generations of products that are now part of our portfolio. FemtoClock has led the industry in jitter performance and features for over 20 years. VersaClock used across CED and industrial applications, has offered the best balance of power, jitter, size, and programmable flexibility for 25 years. Buffers, which are usually considered less differentiated, are over $100 million in revenue for TPD with a broad customer base. TPD's formula for success is to consistently lead the industry by 12 to 18 months in new architectures and performance. This business serves 10,000 customers with 70% gross margins and nearly 70% of the revenue coming from CED. The same factors that are driving the growth in SiTime's CED business also helped TPD. Our previous guidance of $300 million in revenue in the 12 months post close indicated a growth of 40% over the 2025 revenue. And while it's still early times, we expect that TPD could grow at a higher rate. This acquisition accelerates SiTime's path to $1 billion in revenue. It moves us closer to our goal to be the timing in every important system in the world. I'd like to leave you with where our innovation is heading in the future. We're moving timing from a discrete component to something that's integrated into the heart of the system through chiplets, advanced substrates and modules that enable higher performance and compute density. In CED, we think that this expands our SAM by $2.5 billion by 2030 in opportunities that do not exist today. As AI moves outward from the center into physical, edge and personal systems, we expect this integration of timing will build similar higher-value opportunities as well. The opportunity in front of us has never been clearer. Modern electronics run on precision timing, a category we created. We lead it today with the strongest portfolio, the best customers and the balance sheet to invest through cycles and intend to lead it in the foreseeable future. Thank you. Beth?

Thanks, Rajesh. Today, I'll walk through our second quarter 2026 results, and then I'll provide our outlook for the third quarter. As a reminder, my remarks focus on non-GAAP financial results, which are reconciled to GAAP in our press release, unless otherwise noted. Q2 was another strong quarter and demonstrates the power of our model as revenue scales. Revenue was $157.4 million, up 127% year-over-year and 39% sequentially. This performance was driven by broad strength across the businesses, led by Communications, Enterprise and Data Center, or CED. CED revenue was $101.2 million, up 181% year-over-year and up 34% sequentially. Growth in this segment continues to reflect expanding demand for precision timing across AI infrastructure, including optical modules, switches, accelerators and related high-performance systems. Automotive, Industrial and Aerospace defense revenue was $24.8 million, up 51% year-over-year and 18% sequentially, with continued adoption of precision timing across automotive, industrial automation and defense applications. Mobile IoT and Consumer revenue was $31.4 million, up 85% year-over-year and 89% sequentially, reflecting strong sequential growth from our large consumer customer, which delivered revenue of $22.8 million in the quarter. Second quarter gross margin was 67.1%, up 8.9 percentage points year-over-year and 2.6 percentage points sequentially. The year-over-year improvement was driven by product mix as well as better manufacturing absorption. Sequentially, the improvement was primarily driven by better manufacturing absorption. Importantly, the quarter reinforces the margin scalability of the model as we grow in high-value applications where precision timing is increasingly critical to system performance. Operating expenses in the quarter were $52.1 million, consisting of $25.6 million in R&D and $26.5 million in SG&A. The increase of $18.8 million year-over-year reflects continued investment in growth, including personnel, product road map investments, revenue-linked go-to-market expenses and acquisition readiness. We are being deliberate in these investments to scale capabilities to support a substantially larger business while maintaining strong operating discipline. Operating income was $53.5 million or 34% of revenue compared with 10% of revenue a year ago and 28% in Q1. Other income totaled $12.2 million. The increase was driven by interest income earned on the proceeds from our May convertible notes offering prior to the July 1 close of the acquisition. Going forward, this benefit will not recur at these levels as those proceeds were used to fund the cash consideration for the acquisition. Non-GAAP net income was $65.7 million and non-GAAP earnings per share were $2.34. These results reflect strong revenue growth, expanded gross margin and continued operating leverage. Looking at the balance sheet and capital structure. During the quarter, we completed our first convertible notes offering, issuing $1.35 billion of 0 coupon convertible senior notes due 2031. This financing helped fund the cash portion of the Renesas timing acquisition while preserving significant financial flexibility. Turning to working capital. DSO was 51 days compared with 44 days in Q1, primarily due to the timing of shipments in the quarter. Inventory increased to $103.9 million to support Q3 demand. During the quarter, cash flow from operations more than doubled to $40 million, up from $15.3 million a year ago. Capital expenditure totaled $12.9 million and free cash flow was $27.1 million. Overall, we exited the quarter with the acquisition funded, continued positive cash generation and the financial flexibility to support the next phase of growth. On July 1, we closed the acquisition of the Renesas timing business, or TPD. As we integrate this business, our priorities are clear: enhance the customer experience, expand supply and move the business on to SiTime's operating platform. This is a transformational acquisition for us, and we are encouraged by the progress we have made in the months since we closed. Our transition services agreement with Renesas provides continuity while we transfer customer relationships, manage the supply chain transition and expand our infrastructure to run this business as part of SiTime. While carve-outs of this scale are complex, we have an active partnership with Renesas to execute the transition plan, including manufacturing and test dependencies during the TSA period. Our commercial teams are already working with customers and partners to transition customer backlog, support existing programs and position the combined portfolio for the long term. I am confident in our ability to execute in the integration and realize the value of this acquisition. Now looking ahead to the outlook for the third quarter. Since we closed the acquisition of TPD on July 1, the September outlook reflects our expectations for the performance of the combined business. For the third quarter, we expect revenue of $285 million to $295 million. Within this, I expect the SiTime revenue, excluding TPD, to increase to $200 million to $210 million or increase 30% sequentially at the midpoint. This is a step change in growth that reflects both the strength of our backlog and the confidence customers are signaling in their own demand forecast, particularly in CED. That confidence is translating into improved visibility, further reinforcing our expectation for sustained momentum throughout the year. For the newly acquired TPD business, we expect revenue of approximately $85 million. In addition, for the combined SiTime business, including TPD, we expect gross margin to be approximately 68%, plus or minus 1 point. Operating expenses in the range of $80 million to $85 million as we continue to invest in growth, interest income of approximately $4 million and a share count of approximately 32.8 million shares, which include approximately 3.6 million shares issued in conjunction with the TPD acquisition. As a result, we expect Q3 non-GAAP EPS to be in the range of $3.50 to $3.65 per share. In closing, Q2 reflects the continued strength of our core business and the scalability of our financial model. We delivered significant revenue growth, expanded gross margins and increased operating profitability while continuing to invest for the future. With the Renesas timing acquisition now closed, we are entering the next phase of SiTime's growth with a broader portfolio, expanded customer reach and a stronger financial platform. We remain focused on disciplined execution, clear integration milestones and building SiTime's leadership as the premier pure-play precision timing company. With that, I'll hand the call back to the operator to open the line for questions.

[Operator Instructions] Our first question comes from the line of Quinn Bolton of Needham & Company.

Rajesh and Beth, congratulations on the very strong outlook and especially on a run rate basis, looking like you'll get to about a $1.2 billion annualized run rate very, very soon. I guess, Beth, just a quick clarification before my 2 questions. Could you repeat the OpEx guidance? Maybe just my line, but it cut out there. And so I just want to make sure I had the right OpEx guide for Q3 on a combined basis.

Absolutely. We expect OpEx of $80 million to $85 million for the combined company.

Perfect. I wanted then to come back to the TPD acquisition. When you announced the deal at the beginning of the year, you thought in the 12 months post close, you would hit a $300 million annualized run rate. With $85 million in Q1, you're already tracking probably $40 million above that. And my guess is you expect growth going forward. So can you say what's changed over the last 6 or so months that makes that acquisition even stronger from a revenue contribution perspective?

Sure. In terms of the TPD, what we've seen is continued strength in their business. Recall that about 75% of their revenue comes from what we call CED. And actually, as we were doing our diligence, we were a little surprised, frankly, by the modest growth rate expectations and results that they had. And they continued to see strong performance as we've gone through the year in Q2 and into Q3. And so the outlook that we see for the second half reflects that. And I think you're right; we're well on our way to exceeding that $300 million, but it's early days as well, and we're still working through the integration. And so as we get to know this business better, I think we'll have more to say about the outlook for the business.

Got it. And then the last question is, as we look to integrate TPD into our models, how do you expect to sort of report revenue going forward? Will TPD be included in your -- the CED bucket, the auto, industrial, Mil-Aero and then IoT consumer? Will you break it out separately? And to the extent that you just included it into the 3 existing buckets, can you give us a sense -- it sounds like about 75% of TPD comes into CED. How does the other 25% split? Is it mostly in the industrial, auto? Or is there some consumer IoT in the TPD revenue stream?

Sure, Quinn. So the business is -- the remaining business is the auto, aero, industrial. They do not have a consumer business. So it will split roughly 75-25 between CED and auto, aero, industrial. We wanted to give you visibility as we're just now assuming the business in terms of the TPD. But going forward, we will expect to integrate it into the overall SiTime business.

Our next question comes from the line of Tore Svanberg of Stifel.

Rajesh, Beth, congrats on the strong results and the closure of the Renesas acquisition. So how should we think about the growth by segment into Q3? I mean, I know you're obviously splitting the new acquisition and also core SiTime. But with the sort of traditional SiTime segments, how should we think about growth in each one for the September quarter?

Sure. Well, let me focus on the SiTime ex TPD first because we've got the most visibility to that. As you can imagine, we're just now beginning the integration, the backlog, getting to understand their customers. But if I think about the SiTime business, excluding TPD, it's rolling out similar to what we discussed earlier. We expect the CED business to continue to show strong growth. And again, triple-digit growth again in Q3. We also expect strong growth from all the businesses, AID continuing to show similar growth. And then consumer, as we've talked about, we expect to pick up significantly in the third quarter, given that's typically as we're getting ready for holiday, back half tends to be much stronger for our consumer business versus the front half. And so we'd expect really strong growth in that. Also, we expect our large consumer customers to continue to roll out the new products -- our products into their next generation, and so that will drive growth as well.

That's very helpful. And as my follow-up, for you, Rajesh, you said something at the end of your prepared remarks that really caught my attention. You talked about moving from discrete to more integrated solutions, chiplets, modules and so on. I assume these are significantly higher ASP products. So just curious, when should we start to see material revenue of some of those newer products?

So Tore, you're always the one to get all the messages. So congratulations on doing that. Yes, there are 2 things that are going to happen. What -- that's happening, what's the meta issue is that performance is going up, throughput is going up, latency is going down and delivering timing to the exact place that is needed is important without signal degradation and timing. And we see this coming, whether it happens to companies that do it on the wafer level itself or think of it as some version of vertical timing delivery, this is coming, and SiTime is pioneering some of it. And the ASPs may go up, but more importantly, the density of use goes up. There's just more used. And perhaps, as you're right, ASP will also go up. But we think that it adds, as I said, a significant amount of money in the billions by 2030.

Our next question comes from the line of Timothy Arcuri of UBS.

Beth, can you just give us a sense of sort of how the segments are going to grow? I know I'm not asking for the guidance that's being looked at for Q3, but more like the core SiTime business versus TPD, are they going to grow at similar rates, would you say, looking out the next few quarters? Or is there anything you would point out that would cause TPD, say, to grow faster than the core business?

Well, as we look at it, I think both -- from a segment perspective, as I said earlier, I expect that the CED business, the core SiTime CED business to be the fastest growing as we continue to see the growth opportunities across AI, not only in data center, but as we think about inference computing and all the different areas as well as some growth in telecom and the rest of CED. With respect to the consumer business, we talked about that the biggest growth there will be the design win that we have as that proliferates across that customer's platform, and that will drive really significant growth in second half of '26, but also into '27. When it comes to the TPD business, we are in very early stages of integrating that business. And at this point, as I talked about in my prepared remarks, we do have significant TSAs with Renesas as we begin that process, including the manufacturing supply chain test, we are relying on them for the next several quarters for the production. And so we're working really closely with them. We have seen from customers there is a lot of constraints in the business in the supply chain. And so we're working with them to improve that over the coming quarters. And as that improves, we should be able to see more growth with that business, but that's what we've got to work through here in the coming quarter.

And then, Rajesh, I know that the Bosch agreement expires, I think, next March, I want to say. So I know you plan to renew it. But does the acquisition of TPD, does it change anything? And sort of how to -- just any updates you might have there?