SITIME Corp

Previous wording

We operate a fabless business model, where we outsource manufacturing to semiconductor industry suppliers, which allows us to focus on, and excel in, the design, marketing, and sales of our products. This model also allows us to operate with lower capital expenditure investment than other semiconductor companies that own fabs. A fabless infrastructure gives us production flexibility and the ability to scale capacity up and down quickly to meet demand. Our programmable architecture also plays a key role in ensuring optimal production flexibility, as it allows us to offer shorter lead times and the ability to meet custom requirements more easily.

Current wording

We operate a fabless business model, where we outsource manufacturing to semiconductor industry suppliers, which allows us to focus on, and excel in, the design, marketing, and sales of our products. A fabless infrastructure gives us production flexibility and the ability to scale capacity up and down quickly to meet demand. While this model allows us to operate with lower capital expenditure investment than other semiconductor companies that own fabs, we may be required to make such investments from time to time primarily to strengthen our supply chain and optimize our costs. These investments could put downward pressure on our gross margins if demand for our products does not materialize as expected. Our programmable architecture also plays a key role in ensuring optimal production flexibility, as it allows us to offer shorter lead times and the ability to meet custom requirements more easily.

Previous wording

Revenue decreased by $5.3 million, or 14%, for the three months ended March 31, 2024 compared to the same period in the prior year. The decrease was primarily related to a decrease in average selling prices ("ASPs") of our products primarily due to change in mix of the products we shipped, partially offset by an increase in sales volume. Lower sales volume in the prior year was driven by excess inventory buildup at many of our customers, including our largest end customer, distributors and their affiliates, partners, and contract manufacturers, and lower demand for our products due to macroeconomic conditions.

Current wording

Revenue increased by $16.1 million, or 58%, for the three months ended June 30, 2024 compared to the same period in the prior year. The increase was primarily related to an increase in sales volume as well as increase in average selling prices ("ASPs") of our products due to change in mix of the products we shipped. Lower sales volume in the prior year was driven by excess inventory buildup at many of our customers, including our largest end customer, distributors and their affiliates, partners, and contract manufacturers, and lower demand for our products due to macroeconomic conditions.

Previous wording

Sales attributable to our largest end customer through multiple distributors accounted for 19% and 3% of our revenue for the three months ended March 31, 2024 and 2023, respectively. Our end customers predominantly purchase our products from distributors. Our top three customers by revenue, which are distributors, together accounted for approximately 55% and 45% of our revenue for the three months ended March 31, 2024 and 2023, respectively. Revenue attributable to our largest ten end customers accounted for 52% and 43% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Sales attributable to our largest end customer through multiple distributors accounted for 18% and 16% of our revenue for the three months ended June 30, 2024 and 2023, respectively, and 18% and 9% of our revenue for the six months ended June 30, 2024 and 2023, respectively. Our end customers predominantly purchase our products from distributors. Our top three customers by revenue, which are distributors, together accounted for approximately 55% and 45% of our revenue for the three months ended June 30, 2024 and 2023, respectively, and 54% and 44% of our revenues for the six months ended June 30, 2024 and 2023, respectively. Revenue attributable to our largest ten end customers accounted for 59% and 42% for the three months ended June 30, 2024 and 2023, respectively, and 57% and 40% of our revenues for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

Gross profit decreased by $5.4 million in the three months ended March 31, 2024 compared to the same period in the prior year. Gross profit decreased $4.5 million mainly from lower revenue and $1.2 million due to higher stock-based compensation expense. This decrease was partially offset by lower other manufacturing and overhead costs of $0.3 million.

Current wording

Gross profit increased by $0.7 million in the six months ended June 30, 2024 compared to the same period in the prior year. Gross profit increased $7.1 million mainly from higher revenue. This increase was partially offset by higher stock-based compensation expense of $4.6 million and higher other manufacturing and overhead costs of $1.8 million.

Previous wording

Gross margin was lower by 7% in the three months ended March 31, 2024 compared to the same period in the prior year. Of the decrease, 5.2% was mainly due to lower sales causing an unfavorable absorption of our manufacturing overhead costs and the additional 1.4% decline was contributed by lower ASP for the quarter due to change in mix of products shipped.

Current wording

Gross margin was lower by 7% in the six months ended June 30, 2024 compared to the same period in the prior year. Of the decrease, 6% was mainly due to higher stock-based compensation expense and the additional 1% decline was due to lower ASP for the six months ended June 30, 2024.

Previous wording

Our operating expenses consist of research and development, sales and marketing, general and administrative expenses, and acquisition related costs. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and commissions. Our operating expenses also include consulting costs, allocated costs of facilities, information technology and depreciation.

Current wording

Our operating expenses consist of research and development, selling, general and administrative expenses, and acquisition related costs. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and commissions. Our operating expenses also include consulting costs, allocated costs of facilities, information technology and depreciation.

Previous wording

Our research and development efforts are focused on the design and development of Precision Timing solutions. Our research and development expense consists primarily of personnel costs, which include stock-based compensation, pre-production engineering mask costs, software license and intellectual property expenses, design tools and prototype-related expenses, facility costs, supplies, professional and consulting fees, and allocated overhead costs, which may be offset by non-recurring engineering contra-expenses recorded in certain periods. There is no assurance that we will have non-recurring engineering contra-expense from period to period. We expense research and development costs as incurred. We believe that continued investment in our products and services is important for our future growth and acquisition of new customers and, as a result, we expect our research and development expenses to continue to increase in absolute dollars. However, we expect our research and development expenses to fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Current wording

Our research and development efforts are focused on the design and development of Precision Timing solutions. Our research and development expense consists primarily of personnel costs, pre-production engineering mask costs, software license expenses, design tools and prototype-related expenses, facility costs, supplies, professional and consulting fees, and allocated overhead costs, which may be offset by non-recurring engineering contra-expenses recorded in certain periods. There is no assurance that we will have non-recurring engineering contra-expense from period to period. We expense research and development costs as incurred. We believe that continued investment in our products and services is important for our future growth and acquisition of new customers and, as a result, we expect our research and development expenses to continue to increase in absolute dollars. However, we expect our research and development expenses to fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Previous wording

Research and development expense increased by $1.1 million, or 4%, for the three months ended March 31, 2024 compared to the same period in the prior year, primarily due to a decrease in non-recurring engineering contra-expense recognized of $0.9 million, an increase in depreciation and amortization of lab equipment and licenses of $0.2 million, and an increase in stock-based compensation expense of $1.1 million, offset by lower engineering spend towards ongoing new product development of $0.6 million and lower other personnel costs of $0.5 million.

Current wording

Research and development expense increased by an immaterial amount for the six months ended June 30, 2024 compared to the same period in the prior year. The change in the current year was primarily due to an increase in stock-based compensation expense of $0.6 million, a reduction in non-recurring engineering contra-expense recognized of $0.8 million, and an increase in depreciation and amortization of lab equipment and licenses of $0.4 million, and offset by lower engineering spend towards ongoing new product development of $1.0 million and lower personnel costs of $0.7 million.

Previous wording

Sales, general and administrative expense consists of personnel costs, including stock-based compensation, professional and consulting fees, accounting and audit fees, legal costs, field application engineering support, travel costs, advertising expenses and allocated overhead costs. We expect sales, general and administrative expenses to continue to increase in absolute dollars as we increase our personnel and grow our operations, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Current wording

Sales, general and administrative expense consists of personnel costs, professional and consulting fees, accounting and audit fees, legal costs, field application engineering support, travel costs, advertising expenses and allocated overhead costs. We expect sales, general and administrative expenses to continue to increase in absolute dollars as we increase our personnel and grow our operations, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Previous wording

Selling, general and administrative expense increased by $3.2 million, or 15%, for the three months ended March 31, 2024 compared to the same period in the prior year, primarily due to higher stock-based compensation expense of $2.5 million, higher other personnel costs of $0.5 million, and higher advertising costs of $0.4 million, partially offset by reduction in sales commission payouts by $0.3 million due to lower sales, and lower consulting fees of $0.3 million.

Current wording

Selling, general and administrative expense increased by $3.9 million, or 18%, for the three months ended June 30, 2024 compared to the same period in the prior year, primarily due to higher stock-based compensation expense of $2.7 million due to new grants, higher other personnel costs of $1.1 million, and higher sales commission payouts due to higher sales of $0.5 million, partially offset by reduction in consulting fees of $0.6 million.

Previous wording

Acquisition related costs include legal, regulatory, consulting, and other costs incurred towards the acquisition closed during the year ended December 31, 2023 and changes in the fair value of the sales based earnout liability and acquisition consideration payable. We expect these costs to be dependent on the occurrence of future acquisitions and to be non-recurring. The acquisition related costs incurred for the three months ended March 31, 2024 were related to the completion of the Aura transaction. We may incur incremental costs in 2024 and beyond related to the Aura transaction.

Current wording

Acquisition related costs include legal, regulatory, consulting, and other costs incurred towards the acquisition closed during the year ended December 31, 2023 and changes in the fair value of the sales based earnout liability and acquisition consideration payable. The acquisition related costs incurred for the three and six months ended June 30, 2024 were related to the Aura transaction. We will incur incremental costs in 2024 and beyond related to the Aura transaction arising from changes in the fair value of the sales based earnout liability and acquisition consideration payable.

Previous wording

Interest income increased by $0.9 million for the three months ended March 31, 2024, compared to the same period in the prior year due to an increase in interest rates in the current year.

Current wording

Interest income decreased by $0.9 million for the three months ended June 30, 2024, compared to the same period in the prior year due to a decrease in investment balances upon payment of acquisition consideration and earnout in the current quarter.

Previous wording

Other income (expense), net, increased by $0.3 million or 314% for the three months ended March 31, 2024, compared to the same period in the prior year primarily due to an increase in net unrealized loss on foreign exchange rates due to increased activities in our foreign subsidiaries and unfavorable exchange rate fluctuations.

Current wording

Other expense, net, increased by $0.4 million for the six months ended June 30, 2024, compared to the same period in the prior year, primarily due to an increase in net unrealized loss on foreign exchange rates due to increased activities in our foreign subsidiaries and unfavorable exchange rate fluctuations.

Previous wording

Income tax expense consists primarily of state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance for deferred tax assets as the realization of the full amount of our deferred tax asset is uncertain, including NOL carryforwards, and tax credits related primarily to research and development. We expect to maintain this full valuation allowance until realization of the deferred tax assets becomes more likely than not.

Current wording

Income tax benefit (expense) consists primarily of state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance for deferred tax assets as the realization of the full amount of our deferred tax asset is uncertain, including NOL carryforwards, and tax credits related primarily to research and development. We expect to maintain this full valuation allowance until realization of the deferred tax assets becomes more likely than not.

Previous wording

As of March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $96.3 million and $9.5 million, respectively. As of March 31, 2024 and December 31, 2023 we also held $421.0 million and $518.7 million of short-term investments, respectively in held-to-maturity securities which consisted of treasury bills. Our principal use of cash is to fund our operations, to support growth through capital investments, and to acquire complementary businesses, products, services or technologies in the future.

Current wording

As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $16.6 million and $9.5 million, respectively. As of June 30, 2024 and December 31, 2023 we also held $435.9 million and $518.7 million of short-term investments, respectively in held-to-maturity securities which consisted of treasury bills. Our principal use of cash is to fund our operations, to support growth through capital investments, and to acquire complementary businesses, products, services or technologies in the future.

Previous wording

In February 2024, we entered into a Sales Agreement ("Sales Agreement") with Stifel, Nicolaus & Company, Incorporated ("Stifel"), under which we may offer and sell from time to time at our sole discretion, up to an aggregate of 1,200,000 shares of our common stock, par value $0.0001 per share, through Stifel as our sales agent. During the three months ended March 31, 2024, we sold 32,500 shares of our common stock under the Sales Agreement at a weighted average price of $92.57 per share resulting in net proceeds to us of $2.7 million, after deducting underwriting discounts and commissions and offering costs. The Company used the net proceeds from the shares of common stock offered and sold to replenish funds expended to satisfy anticipated tax withholding and remittance obligations related to the net settlement upon vesting of restricted stock unit awards (“RSU”) granted to employees under the equity incentive plans.

Current wording

In February 2024, we entered into a Sales Agreement ("Sales Agreement") with Stifel, Nicolaus & Company, Incorporated ("Stifel"), under which we may offer and sell from time to time at our sole discretion, up to an aggregate of 1,200,000 shares of our common stock, par value $0.0001 per share, through Stifel as our sales agent. During the six months ended June 30, 2024, we sold 132,500 shares of our common stock under the Sales Agreement at a weighted average price of $118.69 per share resulting in net proceeds to us of $15.0 million, after deducting underwriting discounts and commissions and offering costs. The Company used the net proceeds from the shares of common stock offered and sold to replenish funds expended to satisfy anticipated tax withholding and remittance obligations related to the net settlement upon vesting of restricted stock unit awards (“RSU”) granted to employees under the equity incentive plans.

Previous wording

Our purchase obligations primarily include design and simulation licenses and non-cancelable purchase commitments from agreements with our contract manufacturers as well as a multi-year purchase agreement with commitment to purchase minimum quantities of MEMS wafers and research and development, tooling and sample cost under the agreement. For information about our contractual obligations refer to "Note 5 - Lease" of the Notes to Condensed Consolidated Financial Statements for the period ending March 31, 2024 and "Note 6 - Commitments and Contingencies" of the Notes to the Consolidated Financial Statements filed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Our purchase obligations primarily include design and simulation licenses and non-cancelable purchase commitments from agreements with our contract manufacturers as well as a multi-year purchase agreement with commitment to purchase minimum quantities of MEMS wafers and research and development, tooling and sample cost under the agreement. For information about our contractual obligations refer to "Note 5 - Leases" and "Note 9 - Commitments and Contingencies" of the Notes to Condensed Consolidated Financial Statements for the period ending June 30, 2024.

Previous wording

$34.3 million. Non-cash expenses were mainly related to depreciation and amortization, stock-based compensation expense, change in fair value of sales based earnout liability and acquisition consideration payable, and net change in unrealized interest on held to maturity investments. The changes in operating assets and liabilities resulted in cash used primarily due to an increase in inventories as we built our wafer inventory levels, and an increase in prepaid expenses and other assets due to timing of payments, partially offset by lower accounts receivable due to timing of payments and lower revenue, and higher accounts payable and accrued expenses primarily due to timing of accrued payroll and related benefit payments.

Current wording

In the six months ended June 30, 2024, net cash provided by operating activities of $1.5 million was primarily due to a net loss of $55.5 million, payments towards the Aura transaction of $1.1 million and a change in operating assets and liabilities of $6.6 million, offset by non-cash expenses of $64.7 million. Non-cash expenses were mainly related to stock-based compensation expense, depreciation and amortization, change in fair value of sales based earnout liability and acquisition consideration payable, inventory write-down and net change in unrealized interest on held to maturity investments. The changes in operating assets and liabilities resulted in cash used primarily due to an increase in inventories as we built our wafer inventory levels, and an increase in prepaid expenses and other assets due to timing of payments, lower accounts payable and accrued expenses primarily due to timing of accrued payroll and related benefit payments, partially offset by lower accounts receivable due to timing of payments.

Previous wording

In the three months ended March 31, 2024, net cash provided by investing activities was $91.1 million. We paid $294.4 million to purchase short-term investments in held-to-maturity securities. We paid $3.0 million largely to purchase test and other manufacturing equipment and intangibles to support the general business operations. All such payments were offset by $388.5 million proceeds from the maturity of held to maturity investments.

Current wording

In the six months ended June 30, 2024, net cash provided by investing activities was $78.4 million. We paid $344.0 million to purchase short-term investments in held-to-maturity securities. We paid $5.6 million largely to purchase test and other manufacturing equipment and intangibles to support the general business operations. All such payments were offset by $428.0 million proceeds from the maturity of held to maturity investments.

Previous wording

Our financing activities have primarily consisted of proceeds from issuance of shares and payments of withholding taxes on restricted stock units. During the three months ended March 31, 2024, we sold 32,500 shares of our common stock under the Sales Agreement resulting in net proceeds to us of $2.7 million, after deducting underwriting discounts and commissions of $0.1 million and offering costs of $0.2 million. The net proceeds from the Sales Agreement were offset by tax withholdings paid on behalf of employees for net share settlement of $8.7 million.

Current wording

Our financing activities have primarily consisted of proceeds from issuance of shares, payments of withholding taxes on restricted stock units and payment of acquisition related consideration and earnouts. During the six months ended June 30, 2024, we sold 132,500 shares of our common stock under the Sales Agreement resulting in net proceeds to us of $15.0 million, after deducting underwriting discounts and commissions of $0.3 million and offering costs of $0.4 million. The net proceeds from the Sales Agreement were offset by tax withholdings paid on behalf of employees for net share settlement of $20.4 million, payment towards the Aura transaction of $61.9 million and related payment of earnouts of $5.6 million.