SiTime(US:SITM)2023-02-27 21:10markdown Part I [Business](index=7&type=section&id=Item%201.%20Business) SiTime provides silicon-based MEMS precision timing solutions for electronic systems, utilizing a fabless model and proprietary technology [Overview](index=7&type=section&id=Item%201.%20Business%23Overview) SiTime provides critical precision timing solutions for electronics, leveraging expertise in MEMS, analog mixed-signal design, and system integration for superior all-silicon products - SiTime provides precision timing solutions (oscillators, resonators, clock ICs) that are the 'heartbeat' of electronic systems, designed into over **300 applications** across markets like communications, automotive, industrial, aerospace, and consumer[19](index=19&type=chunk) - The company's solutions are based on three core areas of expertise: **micro-electro-mechanical systems (MEMS)**, **analog mixed-signal design**, and **advanced system-level integration**[19](index=19&type=chunk) - Unlike quartz-based providers, SiTime designs the entire system, including the silicon MEMS resonator and analog circuits, enabling performance advantages and a complete solution for customers[20](index=20&type=chunk) [Industry Background and Market Opportunity](index=8&type=section&id=Item%201.%20Business%23Industry%20Background%20and%20Market%20Opportunity) The global timing market, projected to reach **$10.1 billion by 2024**, is transitioning from quartz to MEMS, with the MEMS sub-market expected to grow at a **35% CAGR** to **$1.5 billion by 2027** - The global timing market is expected to grow to **$10.1 billion by 2024**, with oscillators and resonators representing approximately $5.0 billion and $4.0 billion, respectively[29](index=29&type=chunk) - The market for MEMS timing devices is projected to grow from approximately **$0.25 billion in 2021** to **$1.5 billion by 2027**, representing a compound annual growth rate of about **35%**[29](index=29&type=chunk) - Legacy quartz-based solutions have limitations such as sensitivity to temperature changes and vibration, limited frequency ranges, and difficulty integrating into standard semiconductor packages[27](index=27&type=chunk) [Our Solutions, Technology, and Strategy](index=10&type=section&id=Item%201.%20Business%23Our%20Solutions%2C%20Technology%2C%20and%20Strategy) SiTime's solutions leverage proprietary MEMS processes and advanced analog technologies, with a strategy focused on extending leadership, broadening portfolio, and expanding margins - Key technologies include **MEMS First®**, **EpiSeal®**, and **TempFlat®** processes for resonators, and innovative low-noise circuits and high-performance PLLs for oscillators and clock ICs[38](index=38&type=chunk) - The company's solutions offer benefits such as high performance, small size, low power consumption, programmability, high quality, and rapid time to market[39](index=39&type=chunk) - Key strategic elements include extending technology leadership, broadening the product portfolio, attracting new customers via direct sales and the **SiTimeDirect** online store, and expanding profit margins[40](index=40&type=chunk)[41](index=41&type=chunk) [Customers and Sales](index=13&type=section&id=Item%201.%20Business%23Customers%20and%20Sales) SiTime sells through distributors and directly, with **Pernas, Arrow, and Quantek** as major distributors and **Apple Inc.** as the largest end customer, accounting for **20% of 2022 revenue** Revenue Contribution from Major Distributors (2020-2022) | Distributor | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Pernas Electronics Co., Ltd. | 20% | 24% | 26% | | Arrow Electronics, Inc. | 17% | 14% | 15% | | Quantek Technology Corporation | 12% | 10% | 18% | - Revenue attributable to the largest end customer, **Apple Inc.**, accounted for approximately **20%**, **22%**, and **40%** of total revenue for the years 2022, 2021, and 2020, respectively[44](index=44&type=chunk)[45](index=45&type=chunk) - The company's sales channels include a direct sales force, a network of distributors, and a self-service online store, **SiTimeDirect**[47](index=47&type=chunk)[48](index=48&type=chunk) [Manufacturing and R&D](index=14&type=section&id=Item%201.%20Business%23Manufacturing%20and%20R%26D) SiTime operates a fabless model, outsourcing manufacturing to **Bosch** and **TSMC**, with **56% of its workforce** dedicated to research and development - SiTime uses a fabless model, with **Robert Bosch LLC** (MEMS wafers) and **TSMC** (analog ICs) as primary foundries[51](index=51&type=chunk) - A ten-year supply agreement with **Bosch** for MEMS wafers is in place through **February 2027**[52](index=52&type=chunk) - As of December 31, 2022, the company had **211 employees** in research and development, representing approximately **56%** of its total workforce[54](index=54&type=chunk) [Intellectual Property and Competition](index=15&type=section&id=Item%201.%20Business%23Intellectual%20Property%20and%20Competition) SiTime protects its technology with **99 issued U.S. patents** and competes in a highly competitive timing market against large international and specialized firms - As of December 31, 2022, the company held **99 issued U.S. patents**, expiring between 2026 and 2039, and 43 pending U.S. patent applications[55](index=55&type=chunk) - The company also licenses certain patents from Bosch for MEMS-based timing applications, with these rights expiring between 2021 and 2029[56](index=56&type=chunk) - Key competitors include **Abracon**, **Daishinku**, **Kyocera**, **Microchip Technology**, **Murata**, **Renesas**, **Seiko Epson**, **Skyworks**, and **Texas Instruments**[60](index=60&type=chunk) [Human Capital](index=16&type=section&id=Item%201.%20Business%23Human%20Capital) SiTime attributes success to its innovative culture, employing **377 full-time equivalents** as of December 2022, with a focus on competitive compensation and high employee satisfaction - As of December 31, 2022, the company had **377 full-time equivalent employees**, with **211 in R&D**, **136 in sales, general, and administrative**, and **30 in operations**[69](index=69&type=chunk) - Compensation includes a mix of base salary, bonuses, and equity incentive plans to attract, retain, and motivate employees[64](index=64&type=chunk) - A 2022 employee survey showed an **8.5 out of 10** overall employee satisfaction rating[68](index=68&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from macroeconomic conditions, semiconductor cyclicality, customer concentration (especially **Apple**), reliance on third-party suppliers, intense competition, and significant ownership by **MegaChips Corporation** - Global macroeconomic conditions, such as inflation and recession fears, and the cyclical nature of the semiconductor industry have harmed and may continue to harm business and demand[72](index=72&type=chunk)[75](index=75&type=chunk) - The company has historically depended on a limited number of customers. In 2022, the top three distributors accounted for **49% of revenue**, and the largest end customer, **Apple**, accounted for **20%**[76](index=76&type=chunk) - Reliance on third-party suppliers for wafer fabrication (**Bosch**, **TSMC**), assembly, and testing exposes the company to supply chain, quality, and pricing risks[82](index=82&type=chunk)[83](index=83&type=chunk) - **MegaChips Corporation** owns approximately **23.0%** of the company's common stock as of year-end 2022, giving it significant influence over stockholder matters[183](index=183&type=chunk) [Unresolved Staff Comments](index=39&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - **None**[197](index=197&type=chunk) [Properties](index=40&type=section&id=Item%202.%20Properties) SiTime does not own real property, with its principal executive offices in a leased **50,400 square foot facility** in Santa Clara, California, expiring March 2027 - The company's principal executive offices are in a leased facility of approximately **50,400 square feet** in Santa Clara, California, under a lease that expires in **March 2027**[198](index=198&type=chunk) - The company does not own any real property and believes its leased facilities are adequate for current needs[198](index=198&type=chunk) [Legal Proceedings](index=40&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that would materially adversely affect its business or financial condition - The company is not currently a party to any **material legal proceedings**[199](index=199&type=chunk) [Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not applicable**[200](index=200&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) SiTime's common stock trades on Nasdaq under **SITM** since November 2019, with no cash dividends paid or intended, retaining earnings for growth - The company's common stock has been quoted on the Nasdaq Global Market under the symbol "**SITM**" since **November 2019**[202](index=202&type=chunk) - The company has never paid cash dividends and does not intend to in the foreseeable future[203](index=203&type=chunk) [Reserved](index=43&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, SiTime achieved **30% revenue growth** to **$283.6 million**, but operating income decreased **51%** due to a **56% surge in operating expenses**, with **$564.1 million** in cash and investments at year-end [Results of Operations](index=47&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Results%20of%20Operations) For fiscal year 2022, revenue grew **30%** to **$283.6 million**, gross margin improved to **65%**, but operating income fell **51%** to **$16.1 million** due to increased operating expenses Key Financial Results (2021 vs 2022) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $283,605 | $218,808 | 30% | | Gross Profit | $182,962 | $139,462 | 31% | | Gross Margin | 65% | 64% | 1 ppt | | Income from Operations | $16,142 | $32,843 | (51%) | | Net Income | $23,254 | $32,277 | (28%) | - Revenue growth of **30%** in 2022 was driven by an increase in ASPs, a **2%** increase in shipment volume, and a **$2.7 million** one-time revenue recognition from a waived customer rebate[232](index=232&type=chunk) - R&D expenses increased by **73%** to **$90.3 million**, primarily due to new product expenses, higher stock-based compensation, and increased headcount[240](index=240&type=chunk)[242](index=242&type=chunk) - Selling, general and administrative expenses increased by **40%** to **$76.5 million**, mainly due to higher stock-based compensation and consulting fees[240](index=240&type=chunk)[245](index=245&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Liquidity%20and%20Capital%20Resources) As of December 31, 2022, the company held **$564.1 million** in cash and investments, with **$39.8 million** net cash from operations, sufficient for at least the next 12 months Cash and Investments (as of Dec 31) | Asset | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $34.6 | $559.5 | | Short-term investments | $529.5 | $0 | | **Total** | **$564.1** | **$559.5** | Summary of Cash Flows (Year Ended Dec 31, 2022) | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $39.8 | | Net cash used in investing activities | ($560.1) | | Net cash used in financing activities | ($4.5) | - In **May 2022**, the company initiated an at-the-market (ATM) offering, selling **225,334 shares** for net proceeds of **$33.0 million** during the year[255](index=255&type=chunk) [Critical Accounting Estimates](index=51&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Critical%20Accounting%20Estimates) Key accounting estimates include revenue recognition, inventory valuation, stock-based compensation, and income taxes, particularly the full valuation allowance on deferred tax assets - Critical accounting estimates include revenue recognition (variable consideration), inventory valuation (excess and obsolete reserves), stock-based compensation, and income taxes (valuation allowance on deferred tax assets)[269](index=269&type=chunk) - 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[271](index=271&type=chunk) - The company maintains a **full valuation allowance** against its deferred tax assets as their realization is not more likely than not[274](index=274&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency and interest rates on its **$564.1 million** cash and investments, but a **10% change** is not expected to be material - The company is exposed to foreign currency risk as expenses are denominated in various currencies while revenue is primarily in U.S. dollars[278](index=278&type=chunk) - The company is exposed to interest rate risk on its cash, cash equivalents, and short-term investments, which totaled **$564.1 million** as of **December 31, 2022**[279](index=279&type=chunk) - The company does not currently use derivative financial instruments to manage its interest rate or foreign currency risk exposure[278](index=278&type=chunk)[280](index=280&type=chunk) [Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal year 2022, with an unqualified audit opinion from **BDO USA, LLP** on both financials and internal controls Consolidated Balance Sheet Data (As of Dec 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | **Assets** | | | Total Current Assets | $669,067 | | Total Assets | $750,616 | | **Liabilities & Equity** | | | Total Current Liabilities | $33,794 | | Total Liabilities | $42,136 | | Total Stockholders' Equity | $708,480 | Consolidated Statement of Operations Data (Year Ended Dec 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | Revenue | $283,605 | | Gross Profit | $182,962 | | Income from Operations | $16,142 | | Net Income | $23,254 | | Diluted EPS | $1.03 | - The independent auditor, **BDO USA, LLP**, identified the valuation of inventory as a critical audit matter due to the subjective judgments required by management in forecasting future demand[289](index=289&type=chunk)[290](index=290&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=81&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - **None**[413](index=413&type=chunk) [Controls and Procedures](index=81&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and **BDO USA, LLP** concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of **December 31, 2022**[415](index=415&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **December 31, 2022**[418](index=418&type=chunk) - The independent auditor, **BDO USA, LLP**, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of **December 31, 2022**[419](index=419&type=chunk)[422](index=422&type=chunk) [Other Information](index=83&type=section&id=Item%209B.%20Other%20Information) On February 21, 2023, the Compensation Committee approved an amendment to the **2022 Inducement Award Plan**, increasing the share reserve by **250,000 shares** - On **February 21, 2023**, the company amended its **2022 Inducement Award Plan** to increase the share reserve by **250,000 shares**[428](index=428&type=chunk)[429](index=429&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=83&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - **Not applicable**[430](index=430&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=84&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[433](index=433&type=chunk) [Executive Compensation](index=84&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[438](index=438&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=84&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the 2023 proxy statement, with **2,088,820 securities** to be issued under equity plans Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Approved by stockholders | 1,867,071 | 754,827 | | Not approved by stockholders | 221,749 | 27,213 | | **Total** | **2,088,820** | **782,040** | [Certain Relationships and Related Transactions, and Director Independence](index=85&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related person transactions and director independence is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[444](index=444&type=chunk) [Principal Accounting Fees and Services](index=85&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement - The required information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[445](index=445&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=86&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[448](index=448&type=chunk)[449](index=449&type=chunk) [Form 10-K Summary](index=90&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that no Form 10-K summary is provided - **None**[457](index=457&type=chunk)