SiTime(US:SITM)2024-02-26 21:05Part I Business The company leads in silicon MEMS Precision Timing solutions for diverse electronics markets - SiTime is a leading provider of Precision Timing solutions, including oscillators, clock ICs, and resonators, using all-silicon MEMS technology22 - In December 2023, the company acquired Aura Semiconductor's timing business to expand its portfolio of clock products2627 Key Customer Revenue Contribution (as a % of total revenue) | Customer (Distributor) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Pernas Electronics Co., Ltd. | 20% | 20% | 24% | | Arrow Electronics, Inc. | 18% | 17% | 14% | | Quantek Technology Corporation | 13% | 12% | 10% | | Sabre Technologies Pte. Ltd | 10% | 6% | 4% | - Sales attributable to the largest end customer, Apple Inc., accounted for approximately 21% of revenue in 2023, 20% in 2022, and 22% in 202152 - The company operates a fabless business model, utilizing third-party foundries and contractors for manufacturing, including Bosch for MEMS wafers and TSMC for analog ICs5765 - As of December 31, 2023, the company had 382 full-time equivalent employees, with 181 (47%) dedicated to research and development6278 Risk Factors The company faces significant risks from macroeconomic conditions, customer concentration, and supply chain dependency - Global macroeconomic conditions, such as inflation and recession fears, and the cyclical nature of the semiconductor industry have harmed and may continue to harm the business818284 - The company depends on a limited number of customers, with sales to its largest end customer, Apple, accounting for approximately 21% of revenue in 202385 - SiTime relies on third parties for all manufacturing operations, including Bosch for MEMS wafer fabrication and TSMC for analog circuits, creating supply chain risks949597 - A significant portion of operations are located outside the U.S. (e.g., Taiwan, Ukraine), subjecting the company to geopolitical instability and other international risks102105 - A material weakness was identified in the company's internal control over financial reporting related to the misclassification of certain cash flows167 - MegaChips Corporation owns approximately 20.7% of the company's common stock as of December 31, 2023, giving it significant influence over stockholder matters201 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None219 Cybersecurity The company manages cybersecurity risk through a program based on the NIST framework with Audit Committee oversight - The company's cybersecurity risk management program leverages the National Institute of Standards and Technology (NIST) Cybersecurity Framework220 - The Board of Directors has delegated oversight of cybersecurity matters to the Audit Committee, which receives quarterly reports from management226227 - The IT management team, led by the Senior Director of IT, is responsible for the day-to-day implementation and management of the cybersecurity program228 Properties The company leases all its facilities, including its principal executive offices in Santa Clara, California - 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 2027230 - The company does not own any real property and leases all its facilities, including international offices in Japan, Malaysia, the Netherlands, Taiwan, and Ukraine230 Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently party to any material legal proceedings231 Mine Safety Disclosures This item is not applicable to the company - Not applicable232 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, with no dividends planned as earnings are retained for growth - The company's common stock trades on the Nasdaq Global Market under the symbol "SITM"234 - The company has never paid cash dividends and does not intend to for the foreseeable future235 Stock Performance Comparison (Cumulative Total Return) | Company/Index | 11/21/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | SiTime Corporation | 100.00 | 662.31 | 1,731.01 | 601.30 | 722.37 | | Nasdaq Composite Index | 100.00 | 151.13 | 183.46 | 122.73 | 176.03 | | Philadelphia Semiconductor Index | 100.00 | 165.10 | 233.06 | 149.55 | 246.61 | [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Financial performance declined in 2023 due to market headwinds, resulting in lower revenue and a net loss - The company believes that macroeconomic events in 2022 and 2023 led to reduced demand for customers' products, resulting in an inventory buildup that adversely affected sales251 - In December 2023, the company acquired assets and licensed IP from Aura for a purchase price of approximately $148 million in cash, plus potential earnout payments up to $120 million247 Results of Operations Revenue and gross margin fell in 2023 due to lower sales volume, while operating expenses increased Consolidated Results of Operations (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $143,993 | $283,605 | $218,808 | | Gross Profit | $82,088 | $182,962 | $139,462 | | Gross Margin | 57% | 65% | 64% | | Income (loss) from operations | $(107,200) | $16,142 | $32,843 | | Net income (loss) | $(80,535) | $23,254 | $32,277 | - The 49% decrease in revenue for 2023 was primarily driven by a 47% decrease in sales volume and a change in product mix leading to lower ASPs264 - R&D expense increased by 8% in 2023, mainly due to a $7.7 million increase in stock-based compensation and a $5.1 million decrease in non-recurring engineering contra-expense273 - Selling, general and administrative (SG&A) expense increased by 10% in 2023, primarily due to a $10.8 million increase in stock-based compensation expense276 - Acquisition-related costs of $7.7 million were incurred in 2023 related to the Aura transaction277 Liquidity and Capital Resources The company maintains strong liquidity with over $528 million in cash and short-term investments Summary of Cash Flows (in thousands) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $8,056 | $39,752 | $59,078 | | Net cash used in investing activities | $(36,660) | $(560,088) | $(33,788) | | Net cash provided by (used in) financing activities | $3,469 | $(4,522) | $460,646 | - As of December 31, 2023, the company held $9.5 million in cash and cash equivalents and $518.7 million in short-term investments (Treasury Bills)283 - In 2023, the company sold 400,000 shares under its Sales Agreement, generating net proceeds of $44.8 million285296 - The company believes its existing cash, cash equivalents, and short-term investments will be sufficient to meet its cash needs for at least the next 12 months288 Critical Accounting Estimates Key accounting estimates involve revenue recognition, business combinations, and inventory valuation - Revenue recognition involves estimating variable consideration, such as price adjustments and returns, which has historically been in the range of 2% to 4% quarterly300 - Accounting for business combinations requires significant estimates for the fair value of acquired assets and liabilities, especially intangible assets and contingent consideration301302 - Inventory is valued at the lower of cost or net realizable value, with write-downs for excess and obsolete inventory based on management's forecasts of future demand306 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to foreign currency risk and interest rate risk - The company's primary market risks are foreign currency exchange risk and interest rate risk308309 - As of December 31, 2023, a hypothetical 10% change in market interest rates would change interest income by approximately $2.7 million310 Financial Statements and Supplementary Data This section contains the audited consolidated financial statements and the independent auditor's report - The independent auditor, BDO USA, P.C., identified the valuation of assets from the Aura acquisition as a critical audit matter due to significant management judgments318319 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $623,242 | $669,067 | | Total Assets | $951,683 | $750,616 | | Total Current Liabilities | $121,394 | $33,794 | | Total Liabilities | $243,631 | $42,136 | | Total Stockholders' Equity | $708,052 | $708,480 | - The Aura acquisition had a total purchase consideration fair value of $259.2 million, which included fixed consideration of $139.9 million and an estimated earnout liability of $102.3 million388389 - The acquisition resulted in the recognition of $96.7 million in developed technology, $69.5 million in in-process R&D, and $87.1 million in goodwill391392 Revenue by Geographic Region (in thousands) | Region | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Taiwan | $43,954 | $101,849 | $66,390 | | Hong Kong | $31,987 | $59,209 | $82,503 | | United States | $19,976 | $33,470 | $14,221 | | Singapore | $16,466 | $22,439 | $14,371 | | Other | $31,610 | $66,638 | $41,323 | | Total | $143,993 | $283,605 | $218,808 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None455 Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023457464 - A material weakness was identified in internal control over financial reporting due to a deficiency in the review control over the classification of cash flows from investments458472 - A remediation plan has been implemented, including an enhanced review checklist, and is expected to be completed prior to the end of fiscal year 2024459460 - The company's independent registered public accounting firm, BDO USA, P.C., issued an adverse opinion on the effectiveness of the company's internal control over financial reporting465467 Other Information This section details a recent executive promotion and the adoption of Rule 10b5-1 trading plans by insiders - Samsheer Ahmad was promoted to Senior Vice President, Finance and Chief Accounting Officer on February 24, 2024475 - Several directors and officers, including Lionel Bonnot, Piyush Sevalia, Vincent Pangrazio, and Kate Schuelke, adopted Rule 10b5-1 trading plans in late 2023476 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable477 Part III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders479 Executive Compensation Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders484 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on security ownership are incorporated by reference, with a summary of equity compensation plans provided Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining for Future Issuance | | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 1,387,465 | 1,344,878 | | Equity compensation plans not approved by stockholders | 245,454 | 204,439 | | Total | 1,632,919 | 1,549,317 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders489 Principal Accounting Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders490 Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K - This section provides an index of all financial statements, schedules, and exhibits filed with the 10-K report493495 Form 10-K Summary The company reports that there is no Form 10-K summary - None501