SiTime(SITM) - 2021 Q4 - Annual Report

Part I Business SiTime is a leading fabless provider of silicon-based timing solutions, including oscillators and clock ICs, serving diverse markets - SiTime is a leading provider of silicon timing solutions, including oscillators, resonators, and clock ICs, serving markets like communications, automotive, industrial, and consumer electronics[15] - The company operates a fabless business model, outsourcing manufacturing to third-party foundries like Bosch (for MEMS) and TSMC (for analog ICs), allowing it to focus on design, sales, and marketing[18][50] - Substantially all revenue to date has been from oscillator systems. The company plans to aggressively expand into the clock IC and timing sync solutions markets[16] Revenue Concentration by Distributor (2019-2021) | Distributor | 2021 Revenue % | 2020 Revenue % | 2019 Revenue % | | :--- | :--- | :--- | :--- | | Pernas Electronics Co., Ltd. | 24% | 26% | 17% | | Quantek Technology Corporation | 10% | 18% | 22% | | Arrow Electronics, Inc. | 14% | 15% | 19% | - Revenue from its largest end customer, Apple Inc., accounted for approximately 22%, 40%, and 35% of total revenue for 2021, 2020, and 2019, respectively[42] Risk Factors The company faces numerous operational, industry, intellectual property, and ownership risks, including supply chain dependencies and customer concentration - The COVID-19 pandemic could adversely impact business through supply chain disruptions, reduced demand, and financial market volatility[72] - The company depends on third parties for wafer fabrication (Bosch for MEMS, TSMC for analog circuits), assembly, and testing, exposing it to supply, quality, and pricing risks[77][80] - A large portion of revenue is dependent on a single end customer, Apple, which accounted for 22% of revenue in 2021. The loss of this customer would significantly harm operating results[88] - The top three distributors accounted for 48% of revenue in 2021, and the top ten end customers accounted for 49% of revenue, indicating significant customer concentration[91] - The semiconductor industry is highly cyclical, and downturns can lead to diminished demand, overcapacity, and price erosion, which could harm the business[143] - MegaChips Corporation owns approximately 24% of the company's common stock as of December 31, 2021, giving it significant influence over stockholder votes and company matters[181] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[198] Properties The company operates from leased facilities, including its principal executive offices in Santa Clara, California, and does not own any real property - The company's principal executive offices are in a leased facility in Santa Clara, California, under a lease that expires in March 2027[198] - The company does not own any real property and believes its leased facilities are adequate for current needs[198] Legal Proceedings The company is not currently party to any material legal proceedings - The company is not currently party to any material legal proceedings[199] Mine Safety Disclosures This item is not applicable to the company - Not applicable[200] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'SITM' since its 2019 IPO, with no current plans for cash dividends as earnings are retained for growth - The company's common stock has been quoted on the Nasdaq Global Market under the symbol "SITM" since November 2019[202] - The company has never paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for operations and growth[203] Management's Discussion and Analysis of Financial Condition and Results of Operations SiTime achieved significant 2021 growth with 88% revenue increase to $218.8 million and 64% gross margin, turning a net loss into a $32.3 million net income, and boosting liquidity through stock offerings Key Financial Performance (2020 vs 2021) | Metric | 2021 | 2020 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $218.8M | $116.2M | +$102.7M | +88% | | Gross Profit | $139.5M | $57.9M | +$81.5M | +141% | | Gross Margin | 64% | 50% | +14 p.p. | - | | Income (Loss) from Operations | $32.8M | ($8.6M) | +$41.5M | -481% | | Net Income (Loss) | $32.3M | ($9.4M) | +$41.6M | -444% | - The 88% revenue growth in 2021 was driven by a 34% increase in shipment volume and a 40% increase in average selling price (ASP)[235] - The company raised $460.6 million in 2021 from two follow-on stock offerings, significantly boosting its cash position to $559.5 million at year-end[212][250][251] - The company is experiencing growth in demand but faces industry-wide supply constraints affecting analog circuits and OSATs, which may limit its ability to fully satisfy the increase in demand[217] Results of Operations In 2021, revenue grew 88% to $218.8 million, gross margin improved to 64%, and operating expenses increased 60% to $106.6 million, resulting in $32.8 million income from operations Results of Operations (in thousands) | | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $218,808 | $116,156 | $102,652 | 88% | | Gross Profit | $139,462 | $57,932 | $81,530 | 141% | | Total Operating Expenses | $106,619 | $66,545 | $40,074 | 60% | | Income (Loss) from Operations | $32,843 | ($8,613) | $41,456 | -481% | | Net Income (Loss) | $32,277 | ($9,372) | $41,649 | -444% | - Gross margin increased by 14 percentage points to 64% in 2021, primarily due to higher ASPs (contributing 11%) and improved manufacturing costs as a percentage of revenue (contributing 3%)[239] - Research and development expense increased 65% to $52.1 million in 2021, driven by higher personnel costs, stock-based compensation, and new product development expenses[243] - Selling, general and administrative expense increased 56% to $54.5 million in 2021, due to higher stock-based compensation, personnel costs, and commission expenses tied to increased revenue[245] Liquidity and Capital Resources As of December 31, 2021, cash and cash equivalents substantially increased to $559.5 million, primarily from $460.6 million in follow-on offerings, with all debt paid down in 2020 Cash and Cash Equivalents | Date | Cash and Cash Equivalents | | :--- | :--- | | December 31, 2021 | $559.5 million | | December 31, 2020 | $73.5 million | Summary of Cash Flows (in thousands) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $59,078 | $16,604 | $7,378 | | Net cash used in investing activities | ($33,788) | ($7,793) | ($3,202) | | Net cash provided by financing activities | $460,646 | $1,296 | $51,353 | - In 2021, the company completed two follow-on public offerings, resulting in total net proceeds of $460.6 million[251][262] - The company paid down all outstanding loans of $35.0 million with MUFG on July 24, 2020, and closed its credit facilities with MegaChips and SMBC[250] Critical Accounting Estimates Critical accounting estimates involve significant judgment in revenue recognition, inventory valuation, stock-based compensation, and income taxes, particularly regarding deferred tax asset realizability - Key critical accounting estimates include revenue recognition (estimating variable consideration), inventory valuation (forecasting demand for obsolescence reserves), stock-based compensation, and income taxes[265] - Inventory is valued at the lower of cost or net realizable value, with write-downs for excess and obsolete inventory based on management's assessment of future demand and market conditions[267] - The company maintains a full valuation allowance against its deferred tax assets, as their realization is not more likely than not[271][404] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency and interest rate fluctuations, though it held no debt at year-end 2021 and does not use derivatives for hedging - The company's primary market risks are foreign currency exchange rate risk and interest rate risk[274][275] - Foreign currency risk exists as revenues are denominated in U.S. dollars, while some expenses are in foreign currencies (Malaysia, Netherlands, France, Taiwan, Japan, Ukraine)[274] - Interest rate risk is minimal as the company held no debt at the end of 2021 and its interest-earning cash balances are not considered highly sensitive to rate changes[275] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019-2021, including the unqualified opinion from BDO USA, LLP on financial statements and internal controls - The independent auditor, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[278][279] - The critical audit matter identified was the valuation of inventories, specifically the significant judgments related to forecasting future demand and assessing obsolescence[283][286] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $559,461 | $73,525 | | Accounts receivable, net | $38,376 | $23,920 | | Inventories | $23,630 | $12,350 | | Total Assets | $678,209 | $136,011 | | Liabilities & Equity | | | | Total Liabilities | $45,712 | $26,131 | | Total Stockholders' Equity | $632,497 | $109,880 | Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes reported - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[426] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[429] - BDO USA, LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[430][433] Other Information On February 23, 2022, the company adopted the 2022 Inducement Award Plan, reserving 250,000 shares for new employee equity awards - On February 23, 2022, the company adopted the 2022 Inducement Award Plan, reserving 250,000 shares of common stock for grants to new employees as a material inducement to employment[439][440] Part III Directors, Executive Compensation, and Corporate Governance Information for Items 10 through 14, covering directors, executive compensation, and corporate governance, is incorporated by reference from the 2022 Annual Meeting proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders[5][445][451] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key governance documents, material contracts, and required certifications - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[458] - Filed exhibits include key governance documents, executive employment agreements, the 2019 Stock Incentive Plan, and material agreements with third parties like Robert Bosch LLC[461][462] Form 10-K Summary The company indicates no Form 10-K summary is provided in this report - None[468]