Arteris and SiTime Report Strong Q3 2024 Results, Highlighting AI and Data Center Growth

Earnings call: Arteris reports strong Q3 with focus on AI and automotive SoC By Investing.com

In the recent Arteris Inc. (ticker: AIP) Third Quarter 2024 Earnings Call, CEO Charlie Janac and CFO Nick Hawkins (NASDAQ:HWKN) reported solid financial performance, with a record annual contract value (ACV) plus royalties of $60.5 million. The company, specializing in AI-driven enterprise computing and automotive SoC solutions, saw a year-over-year revenue increase of 11% to $14.7 million and a positive free cash flow of $1.1 million for the quarter ending September 30, 2024. Driven by robust demand in the AI and automotive sectors, Arteris remains optimistic about its future, with strong bookings and new product innovations on the horizon. Arteris Inc. demonstrated resilience and growth in its Q3 2024 earnings call, with significant achievements and a positive outlook for the future. The company's focus on AI and automotive SoC solutions, along with strategic partnerships and product innovations, positions it well in the competitive tech landscape. With strong bookings and anticipation for new product updates, Arteris is poised for continued success in the quarters to come. Arteris Inc.'s (AIP) recent earnings call paints a picture of a company navigating the competitive tech landscape with promising developments, particularly in AI and automotive sectors. To complement this narrative, InvestingPro data offers additional insights into the company's financial health and market position. According to InvestingPro data, Arteris boasts impressive gross profit margins, with the latest figures showing a gross profit margin of 89.34% for the last twelve months as of Q3 2024. This aligns closely with the 90% GAAP gross margin reported in the earnings call, underscoring the company's efficiency in managing production costs relative to revenue. Despite the positive outlook presented in the earnings call, it's worth noting that InvestingPro Tips indicate that Arteris is not currently profitable over the last twelve months. This is consistent with the reported non-GAAP net loss of $3.1 million for the quarter. Additionally, analysts do not anticipate the company will be profitable this year, which investors should consider when evaluating the stock's potential. The company's market capitalization stands at $281.08 million, reflecting its current valuation in the market. Interestingly, Arteris holds more cash than debt on its balance sheet, which could provide financial flexibility as it continues to invest in product innovations and market expansion. For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics beyond those mentioned here. In fact, there are 11 more InvestingPro Tips available for Arteris, providing a deeper dive into the company's financial health and market position. Operator: Good afternoon, everyone and welcome to the Arteris Third Quarter 2024 Earnings Call. Please note this call is being recorded and simultaneously webcasted. All material contained in the webcast is the sole property and copyright of Arteris with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Erica Mannion: Thank you and good afternoon. With me today from Arteris are Charlie Janac, Chief Executive Officer; and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the third quarter ended September 30, 2024. Nick will review the financial results for the third quarter, followed by the company's outlook for the fourth quarter and full year of 2024. We will then open the call for questions. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties and factors that could cause results to differ appear in the press release Arteris issued today and in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including non-GAAP loss, non-GAAP net loss per share and free cash flow which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended September 30, 2024. In addition, for a definition of certain of the key performance indicators used in this presentation such as annual contract value, confirmed design starts, active customers and remaining performance obligations please see the press release for the quarter ended September 30, 2024. Listeners who do not have a copy of the press release for the quarter ended September 30, 2024, may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the Q3 2024 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now, I will turn the call over to Charlie. Charles Janac: Thank you, Erica and thanks to everyone for joining us on our call today. In the third quarter of 2024, we achieved a record annual contract value plus royalties of $60.5 million. We also delivered positive free cash flow of $1.1 million, making it our third consecutive quarter of positive free cash flow. Our success during the quarter was, in particular, fueled by demand for AI-driven enterprise computing and automotive SoC solutions, along with growing momentum in our other verticals. Business in the third quarter was primarily driven by increasing adoption of our technology by our current customer base. As an example, a top 5 global technology company increased their deployment of Arteris products to enable development of their high-end AI chiplets and SoCs. This expanded engagement provides our customers with a broader access to our system IP. We expect to see designs from this customer used in a wide range of products such as hyperscale cloud data center applications as well as high-volume consumer electronics. Similarly, NIO, a pioneer and a leading company in the global smart electric vehicle market, deployed Arteris technology for its next generation of ADAS and LiDAR SoCs using our physically-aware NoC technology to reduce silicon implementation risks and schedule. This is yet another example of our continued success in accelerating automotive electrification and autonomous driving with over 9 carmakers already using Arteris directly as the gold standard for functionally safe, high-end automotive computing. During the quarter, we also announced the adoption of Arteris NoC IP and SoC integration automation software products by Tier IV for intelligent vehicle SoC, then starting for next generation of chiplet-based AI solutions and VeriSilicon for HPC data center SoCs. Majority of the new designs in the third quarter came from enterprise computing, followed by automotive, consumer electronics and communications verticals. The demand for multiple type of AI chips and chiplets from data centers to endpoint devices including the smart edge continues to be a key factor in our success this year. Nearly half of our license deals in dollar terms in the year have enabled AI SoC development more than doubling year-over-year. We continue to work with market-leading customers to further advance our technology, accelerating the broad shift towards smarter electronics. Accordingly, in October, we announced the addition of NoC Tiling supported by mesh and innovation in our IP products to accelerate the design of AI SoCs by providing scalable performance, power reduction and increased design reuse. By organizing network interface units or NIUs into modular repeatable blocks, both FlexNoC and Ncore IP users can replicate verified functional modules into larger AI compute clusters. These support sophisticated workloads for vision, machine learning, deep learning, natural language processing, including large language models and generative AI, both for training and inference applications. Earlier this year, we announced expanded support for Armv9 architecture CPUs with our Arteris Ncore IP extensions for [indiscernible] customers. Additionally, we announced a partnership with Andes Technologies to accelerate RISC-V SoC adoption and are pleased to have been named by them as a partner of the year. We recently expanded our collaboration with SiFive, announcing preverified RISC-V solutions for data centers with our Ncore product providing faster, lower-risk SoC design for AI workloads and power efficiency requirements. Moreover, Arteris joined the Synopsys (NASDAQ:SNPS) ARC Access program. The aim is to provide interoperable and optimized solution for mutual customers using Synopsys processors and Arteris NoCs. Our strategy of supporting mid- and high-end SoCs and expanding our footprint with large customers appears to be paying off. In dollar terms, the majority of our license deals in the quarter were with the top 10 technology companies as they create ever more sophisticated electronics that increasingly need AI-enabled, high-performance and energy-efficient SoCs. To further expand our footprint at large customers, we have broadened our focus to include the support of microcontroller chips, many of which are now complex enough to benefit from our system IP technology. These designs are numerous and are often producing large volumes. As microcontrollers are used to control the operational electronic systems such as industrial machinery, automotive functions and IoT devices, they require low latency and low power consumption. To address these requirements, we have achieved the ability to create data packets with zero latency penalty for these types of devices. This strategy aims to expand customer usage of Arteris technology from complex SoCs to their mid- to upper range microcontroller product lines and demonstrates the technological flexibility and scalability of our products. We are also aiming to address an even broader set of designs at our large customers. We believe the scale and scope of our long-term opportunity remains robust, supported by our current products and strong product pipeline of new system IP technologies as well as growing relationships with some of the largest and most advanced electronics companies in the world. Our customers continue to innovate in exciting growth areas such as generative AI and autonomous driving using Arteris technologies. Before I hand the call over to Nick, we are excited to have 2 seasoned individuals join our leadership team. We recently announced that Joachim Kunkel joined our Board of Directors, having most recently served as a General Manager of the IP business unit at Synopsys where he grew revenue from nearly 0 to over $1.5 billion. In addition, Ken Way joined as Arteris EVP of Sales, leading our global and application engineering force, bringing with him a wealth of experience and industry knowledge gained from Achronix, Xilinx (NASDAQ:XLNX), Freescale and others. With that, I'll turn it over to Nick to discuss our financial results in more detail. Nick Hawkins: Thank you, Charlie and good afternoon, everyone. As I review our third quarter results today, please note that I'll be referring to GAAP as well as non-GAAP metrics. A reconciliation of GAAP to non-GAAP financials is included in today's earnings release which is available on our website. Also, as a reminder, I'll be referring to the 3Q 2024 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Turning to Slide 4 of the presentation. Total revenue for the third quarter was $14.7 million, up 11% year-over-year and at the midpoint of our guidance range. At the end of the third quarter, annual contract value or ACV plus royalties was $60.5 million at the midpoint of our guidance range and a record high for the company. Remaining performance obligations, or RPO, at the end of the third quarter were $78.4 million, representing a 25% year-over-year increase, also growing to the highest level we have ever reported. GAAP gross profit in the quarter was $13.3 million, representing a gross margin of 90%. Non-GAAP gross profit in the quarter was $13.5 million, representing a gross margin of 92%. Now turning to Slide 5. Total GAAP operating expense for the third quarter was $21.2 million, representing a 4% year-over-year increase. Non-GAAP operating expense in the quarter was $16.8 million, flat both sequentially and year-over-year. This reflects the team's continued focus on prudent management of our operating expenses. As we look ahead, we will continue to limit spending to strategically critical areas while investing in profitable revenue growth. GAAP operating loss for the third quarter was $7.9 million, compared to a loss of $8.5 million in the prior year period and $7.4 million in the second quarter. Non-GAAP operating loss was $3.3 million which is better than the top end of our guidance. This represents a $1.2 million improvement compared to the prior year period and a slight improvement sequentially. Net loss in the quarter was $7.7 million or diluted net loss per share was $0.20. Non-GAAP net loss in the quarter was $3.1 million or diluted net loss per share of $0.08 based on approximately 39.3 million weighted average diluted shares outstanding. Moving to Slide 6 and turning to the balance sheet and cash flow. We ended the quarter with $54.5 million in cash, cash equivalents and investments. Free cash flow which includes capital expenditure was positive $1.1 million. This was above the midpoint of our guidance range and in line with the company's goal to be free cash flow positive for the full year of 2024. I would now like to turn to our outlook for the fourth quarter and for the full year 2024 and refer now to Slide 7. For the fourth quarter of 2024, we expect ACV plus royalties of $63 million to $67 million; revenue of $14.7 million to $15.7 million with non-GAAP operating loss of $5 million to $4 million and non-GAAP free cash flow of negative $0.9 million to a positive $1.1 million. For the full year 2024, our guidance is as follows: ACV plus royalties to exit 2024 at $63 million to $67 million, up over 16% year-over-year at the midpoint, midpoint unchanged from the prior guidance. Revenue of $56.9 million to $57.9 million, increasing the midpoint of our guidance by $0.4 million. Non-GAAP operating loss of between $17.1 million to $16.1 million, improving the midpoint of our guidance by $3.4 million. And non-GAAP free cash flow of positive $0.7 million to positive $2.7 million which is $1.6 million higher than the prior guidance at the midpoint and represents an improvement of $18.9 million year-over-year. We are very encouraged by our top line trajectory and by our effective cost management in the first 3 quarters of the year but resulted in strong performance for the third quarter and improved guidance for revenue, operating income and free cash flow for the full year. We are particularly excited about achieving positive free cash flow for 3 consecutive quarters. With that, I will turn the call over to the operator and open it up for questions. Operator? Operator: [Operator Instructions] Our first question is from Joshua Buchalter from TD Cowen. Joshua Buchalter: Congrats on solid results in a choppy backdrop. To start and speaking of the choppy backdrop, I mean, this has been an interesting earnings season with China autos positive and the rest of the world, weak. Maybe you could spend a couple of minutes talking about in that -- in an environment where China continues to take share in the global auto market. I mean, is that a net positive or is that a headwind for you guys? Because obviously, one of your lead customers, Mobileye has been losing share in that market but also there's a lot of local vendors that are also building up their semiconductor portfolios where you have partnered. So I'd just be curious to hear your view on that backdrop and the impacts to your business? Charles Janac: So -- yes, I mean, this sort of automotive disruption, it's kind of difficult to [indiscernible] time, right? And so we have -- our strategy has been to be in as many projects as we can capture. And so we are in start-ups. We're in automotive car manufacturers, we're in Tier 1s. And -- so regardless of market share shifts, our tariffs should benefit. But we do have a strong presence in the China automotive market. I think Nio (NYSE:NIO) was kind enough to allow us to announce that they are using us for some of their automotive SoC projects, right? And there's a number of others. And so from the Arteris perspective, it doesn't make a whole lot of difference. However, the Chinese have put a huge amount of effort in their electric vehicles. They're very nice vehicles. We've been in a number of them. But because of the tensions, the rest of the world is going to probably throw up some protective barriers, right? And so I don't know how much the market share is going to shift except that the electric car inside China is going to be the -- eventually the predominant technology. Nick Hawkins: Can I just add a little bit color to Charlie's excellent comments, Josh. There are -- I mean, as you rightly point out, we have a very small number of Chinese auto OEMs that we can actually -- we're entitled to use the names but you recognized most of the names that we do have if we were able to tell you. Some of the ones that we can tell you that are in that area, that Chinese auto area, that are public include Black Sesame which I'm sure you know, Horizon, SemiDrive, those are all very powerful vendors in that space. But there are many others we can't mention, unfortunately. On the subject of Mobileye, excellent question, Mobileye is obviously facing a few headwinds and also is facing some headwinds, specifically in China. But Mobileye is still very strong. It's one of the strongest in the market. They have an excellent set of products. There has definitely been some headwind to our royalties, as you've seen and we've talked about in previous calls, solely derived from Mobileye weak shipments in the first and second quarters to an extent that was started to be remedied in the third quarter. But the whole impact of short, let's call it, short royalties from Mobileye versus our previous expectation, has a less than 1% impact on revenue for the whole year. So it's not as dramatic as you might think. Charles Janac: And if I may add in terms of Mobileye, Mobileye is not going anywhere. They are designed into a bunch of very impressive vehicles and they are going to continue to be the leader despite short-term headwinds or those kinds of things, we believe -- we are strong believers that Mobileye is going to continue to do well in this market because of their superior software technology. Joshua Buchalter: No. Thank you both for all the color there. To follow up and move away from the auto space, I mean, it was great to see that enterprise computing design was sort of the leading contributor this quarter. Any more details you can give us on sort of the contribution today? And maybe what that funnel can look like over the next year or so as you diversify the revenue base? Charles Janac: Yes. I mean, the business continues to be strong. We've -- as you said, it's a choppy market with us having to be nimble and responsive to various developments. However, one of the things that we were talking about on the earnings call is we are making a move also into the microcontroller market. Microcontrollers have now become sophisticated enough that at least the midrange to upper range of the -- microcontroller market can benefit from our system IP technology. So that opens up an additional segment. So we're very excited about that. And we're also excited about our strong product pipeline for next year. So, we continue to be prudent but optimistic. Nick Hawkins: Yes. One thing I would just add to that, Charlie, is that as you can actually see, Josh, from the investor deck that's on our website now, the enterprise computing actually still remains slightly our biggest revenue contributor, slightly larger than automotive. It's in the low 30s percent [ph] total of revenue and it's growing quite nicely. A lot of that's driven out of the sort of the enterprise space -- sorry, the AI element of the enterprise space. And if you look at AI/ML as its own sector, I can't call it a vertical because it's really horizontal. That actually contributes to about 40% of total revenue but that goes across all our verticals, as you probably know; so some really interesting dynamics going on there. Operator: Your next question is from Kevin Garrigan from Rosenblatt Securities. Kevin Garrigan: Let me add my congrats on the solid results. Going off of Josh's question on the Chinese auto market. So I guess a different way to kind of ask the question, are you seeing design activity in the Chinese EV market increasing at a faster clip versus other parts of the world? And I think the -- I think you guys had mentioned the average time from licensing to production for automotive is about 2.5 to 3 years. Are you seeing these Chinese customers looking to accelerate that time line? Charles Janac: Yes. I mean we're seeing design activity throughout the world, right? I mean people -- precisely, as you said, the design cycles for automotive chips are long. And so right now, people are really building chips for the 2030 automotive model year, right? And so people typically try to design their way out of recessions. And so even when there's shipment volume impact, the impact on the design activity from our perspective, at least doesn't seem to be great. And certainly, the Chinese design activity is robust. But there's also a number of designs that are being done in the U.S. and in Europe. Kevin Garrigan: Okay. Got it. That makes sense. And then in the microcontroller market, do the licensing deals in this market, do they have the same ASPs as those in complex SoCs? Charles Janac: I was afraid you were going to ask that. So the answer is no. The ASPs are lower typically. But the royalty volumes are very, very high and the designs are numerous. So our strategy in the microcontroller market is really to engage with the largest microcontroller suppliers and essentially not just capture one design but to capture an entire generation of microcontrollers which is typically designed together. So that would essentially improve the account yield, because as your question implies, if you focus on 1 or 2 microcontroller projects, the ASP will be lower than what we're seeing in the SoC market. But if you bundle everything together, then essentially things will go to the right. Kevin Garrigan: Yes. Okay. Yes, that makes sense. And then just last one, if I could. And congrats on the announcement of the NoC Tiling. How is kind of customer feedback been for this product? Charles Janac: Well, it's just coming -- that particular product is just coming out. People have been asking for that for a long time. So we are finally started or about to commence deliveries. But we have a significant number of customers waiting for it, because what it does is that the AI sections are very, very complicated. And so what the customers want to do is they want to design a certain section, get it verified and then replicate it across the chip to basically build larger clusters out of these tiles, if you will, that's why it's called Tiling. And so this is built at the request of our AI customers and we think that the reception is going to be very good. But we've had lots of requests for it but the orders and the revenue impact will probably not start until next year. Nick Hawkins: Kevin, this is Nick. Just a little bit of extra color. I didn't want to interrupt Charlie midstream. But going back to the MCUs question, it is definitely a new incremental sort of product area for us to an extent. Having said that, we have had some history in MCUs in the past. Well, I can't name the customer, unfortunately but it's a very large U.S. top semi company. And the volumes that we have, this is actually for a Bluetooth application, were very, very substantial. And so the royalties also out of that were very substantial. So just to give you an understanding that we have actually visited this space before. We're just emphasizing it much more now. Operator: [Operator Instructions] Your next question is from Gus Richard from Northland. Gus Richard: Let me add my congratulations on the quarter. The cloud service providers are designing their own ASICs. Quite a bit of data suggesting that those are in-flight and starting to ramp. And I'm just wondering if you could talk about how many of the top ASPs you're involved with now or maybe even better yet, how many of the Top 30 tech companies that actually design chips you're involved with? Charles Janac: Yes. So we've sort of created our own Top 10 index, the Top 30 index by market cap, right, of technology companies. And so out of those 30, about 15 are designing chips, about half of them at the moment. And basically, 10 out of the 30 are using Arteris for something. Gus Richard: Got it. And you had a large deal with one of the Top 5 tech companies, this deal to expand the use of your products, correct? Charles Janac: Correct. So this would be one of the -- yes, so this would be one of the large hyperscalers, yes. Gus Richard: Got it. And then Nick, for you -- I calculate your -- from cash flow, your bookings were on the order of like $23 million, $24 million. Am I in the right ZIP code? Nick Hawkins: Close. I think that's sort of a good blended average between third quarter and fourth quarter. We do have a bit of seasonality on bookings, as you know, Gus. Typically, the fourth quarter is our strongest bookings quarter by some way. Last year was a little different. We had a sort of a reasonable third quarter and a weaker fourth quarter in terms of bookings. This year, it's back to kind of normal which is a decent third quarter but a much stronger fourth quarter. So the number that you've quoted there is, I guess, kind of an average between the two. Gus Richard: Got it. And then you guys have talked about a new product and it doesn't sound like the tiling and mesh networks is that new product and I'm just wondering if you guys have any updates on how many companies you're engaged with and when you expect to launch? Charles Janac: So as you say, the tiling and the mesh features is not the product that we were sort of alluding to earlier, we do have installations and we hope to provide more information on the fourth quarter earnings call. Gus Richard: Okay. Got it. And have you recognized some revenue on that price at this point? Nick Hawkins: Not yet, no. It's more of an early access -- more of an early access, I think at the moment, Gus, so revenue will follow in due course. Operator: There are no further questions at this time. I would now like to turn the call over to Charlie Janac for closing comments. Charles Janac: Well, thank you, everyone, for your time and interest in Arteris. We look forward to meeting with you at the upcoming investor conferences that we're participating during the next couple of months -- and the months and we look forward to updating you on all of our business progress in the quarters to come. So thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

SiTime (SITM) Q3 2024 Earnings Call Transcript | The Motley Fool

Good afternoon, and welcome to SiTime's third quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] As a reminder, this conference call is being recorded today, Wednesday, November 6th, 2024. I would now like to turn the conference over to your first speaker today, Brett Perry of Shelton Group Investor Relations. Brett, please go ahead. Brett Perry -- Investor Relations Thank you, Amber. Good afternoon, and welcome to SiTime's third quarter 2024 financial results conference call. 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 10-K filed on February 26th, 2024, as well as the company's subsequent filings with the SEC. During the call, we will refer to certain non-GAAP financial measures, which are considered to be an important measure of company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for or 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, 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 contingent consideration and earn-out liabilities. Please refer to the company's press release issued earlier today for a detailed reconciliation between GAAP and non-GAAP financial results. With that, it's now my pleasure to turn the call over to SiTime's CEO, Rajesh, please go ahead. Rajesh Vashist -- Chief Executive Officer Thank you, Brett. Good afternoon. I'd like to welcome you, as well as existing investors to SiTime's Q3 2024 earnings call. SiTime is the leader in a dynamic new semiconductor category that we call precision timing, which is the heartbeat of modern electronics. Whether it is in AI data centers, networking infrastructure, automated vehicles, personal mobility or IoT, SiTime's precision timing delivers better performance and reliability. This precision timing uses semiconductor technology to reimagine time and transform the $10 billion timing market. Our third quarter results demonstrate broad strength across financial metrics, customer segments, and regions. Revenue for the quarter grew by 62% to $57.7 million, and net income increased to 17% of revenue. Each of our customer segments and regions continued at least double-digit growth with CED or communications, enterprise and data center, Greater China, and EMEA, all growing at triple-digits. Bookings for the fourth quarter are strong, and we expect Q4 to grow sequentially as previously forecasted. Looking back, November 2024 marks our fifth year as a public company. At the time of our IPO, SiTime made a commitment to building high-value timing products for high-growth applications and markets and we have significantly delivered. We have built high-growth, high-margin businesses with a diversity of revenue, customers, and applications. Since markets grow at different rates and on different timelines, we believe that this diversity benefits SiTime and makes us a unique semiconductor company. Our comms enterprise data center, or CED, business demonstrates the value of our products. In both Q2 and Q3 2024, CED has been a major driver of our growth, driven by cloud service provider investments in AI infrastructure. CED revenue grew over 200% year over year in Q3 and, for FY '24, it will more than double. Looking forward into 2025, we believe that the AI market will continue to grow as newer generations of AI servers and networking equipment are rolled out. We expect CED to continue to lead SiTime growth next year. An AI data center infrastructure, SiTime's products are solving difficult timing problems in applications such as top-of-the-rack switches and optical modules. Additionally, CSPs, or cloud service providers, are investing in improving bandwidth and GPU utilization in the data center, which we believe results in more use of precision timing solutions with higher dollar content per application. SiTime's precision timing plays in high-speed connectivity applications such as active electrical cables. We provide high performance that is virtually immune to noise in a very small form factor, which is quite valuable in these cases. Another application is the direct connectivity between GPUs through a very fast dedicated switch, which improves GPU utilization rates with faster parallel processing of the AI workloads. Our Clock Generators acquired from Aura play a key role here as well, delivering multiple high-performance clocks from a single integrated device. In sum, we are in a leadership position in AI with precision timing and expect to grow our dollar content as this market grows. Another macro trend is in building a more precise global navigation satellite system, or GNSS, which is resilient to jamming and spoofing. Such a system has use cases in defense and aerospace and extends to industrial, automotive, and mobile IoT consumer. In automotive, ADAS Level 2, Level 3, and 4, as well as robotaxis need such an enhanced GNSS to operate optimally. Such a GNSS will depend upon precision timing and we are engaged with key players in multiple markets. In autonomous and ADAS vehicles, we are now also offering FailSafe technology where the single device integrates resonators, oscillators, clocking, and advanced safety mechanisms for timing. This integration accelerates functional safety development and simplifies system architecture. We have multiple design wins with key electric vehicle companies and expect to begin shipments in volume quantities in 2025. Thank you. In summary, our strategy is working as intended and delivering results. I'm confident of success now and in the future. I now want to turn the call over to Beth, our CFO, to discuss our financial results in more detail. Beth Howe -- Chief Financial Officer Thanks, Rajesh, and good afternoon, everyone. Today, I'll discuss the details of our third quarter results and provide our outlook for the fourth quarter. As a reminder, I'll focus my discussion on the non-GAAP financial results, which are reconciled to GAAP in our press release. We are pleased with our third quarter financial results as we continue to execute our financial model. We drove strong sequential and year-over-year revenue growth, expanding non-GAAP operating profit and earnings per share over twice as fast as revenue, while continuing to invest in our leading product road map. Our financial performance this quarter demonstrates our ability to successfully invest in our business while delivering strong financial results. Third quarter revenue was $57.7 million, up 62% year on year, driven by increased volumes and favorable product mix. Looking at growth by market, sales into our communications, enterprise and data center market were $19.7 million or 34% of sales, up 233% year on year. Sales into the automotive, industrial, and aerospace market were $17.7 million or 31% of sales, increasing 51% year on year. And sales into the mobile, IoT, and consumer market were $20.3 million or 35% of sales, up 14% year on year, with sales to our largest customer totaling $13.1 million or 23% of sales. Non-GAAP gross margins were 58.1%, up 40 basis points sequentially, driven primarily by improved manufacturing absorption from higher volumes. Total non-GAAP operating expenses for the quarter were $29.5 million, with R&D expense of $17.1 million and SG&A expense of $12.4 million. Operating expenses were lower than expected, primarily related to the shift of R&D expense from Q3 to Q4. Q3 marked the return to operating profitability with non-GAAP operating profit of $4 million, a significant improvement of $9.7 million versus the prior year and representing 75% flow-through of gross profit dollars. Third quarter non-GAAP net income was $9.6 million, representing 17% of revenue or $0.40 per share. Turning to the balance sheet. Accounts receivable was $30.2 million with DSOs of 47 days. Inventory at the end of the quarter was $71.9 million and accounts payable was $17.9 million -- sorry, inventory at the end of the quarter was $71.9 million and accounts payable was $17.9 million. During the quarter, we generated $8.2 million in cash from operations, invested $15 million in capital purchases, and paid $12.9 million to Aura as part of the transaction we announced last year. We ended the quarter with $435 million in cash, cash equivalents, and short-term investments. Let me now review our outlook for the December quarter. In Q4, we expect revenue of $63 million to $65 million, non-GAAP gross margins to be in the range of 58% to 58.5%, non-GAAP operating expenses of $31 million to $31.5 million, interest income of approximately $4.5 million and diluted outstanding shares of approximately 24.4 million shares. As a result, we expect non-GAAP EPS to be in the range of $0.39 to $0.45 per share. In closing, we are pleased with our strong results and remain focused on driving revenue and profit growth. Our product portfolio continues to expand with differentiated products that address large and growing markets, and our customers are clearly recognizing our value proposition. All in all, we are executing our strategy, and our strategy is working. With that, I'd like to hand the call back to the operator for questions and answers. Operator Thank you. We will now conduct the question-and-answer session. [Operator instructions] Once again, please stand by while we compile the Q&A roster. Our first question comes from Suji Desilva at ROTH Capital. Hi, Rajesh. Hi, Beth. Congrats on the progress here. Maybe you can talk about the data center market, Rajesh, the content here. Curious, optical top-of-rack switch versus you expanding into AECs. And it sounds like you have some content in the AI server or somewhere in the rack, other places, and you can elaborate on that maybe. What's the mix of those today? And what's the mix of those content positions maybe one to two years out, maybe some of those growth opportunities? Rajesh Vashist -- Chief Executive Officer Yeah. Thank you for that. We see that all of these will continue to grow over time. The tricky part is forecasting what -- how they're configured. But in general, we're talking about in the next few years, seeing that server content grows quite substantially. Where we see particularly large content growth is in the switches and some of the CPU servers, as well as the pluggables as well. So, I think we see growth all across the market depending upon the configuration of these systems. Suji Desilva -- Analyst OK. And maybe just a follow-up there. I know you've started off with strong traction in the optical pluggables. And I'm wondering, is there a multiplier of content to think about for a server switch or CPU server versus a pluggable? Or are they similar content-wise for you, opportunity? Rajesh Vashist -- Chief Executive Officer The pluggable is probably the least in dollar amount, but the switches, the servers, the GPUs, of course, they all go up quite a bit. We do have SuperNIC cards, which are used for compute, those that are used for storage. So, depending upon, again, it's a pretty complicated architecture, but those are all important places for SiTime's sales and revenue. Suji Desilva -- Analyst Great. Sounds like a great opportunity. I'll pass it along. Thanks, Rajesh. One moment, please. Our next question comes from Quinn Bolton of Needham and Company. Quinn, your line is open. Quinn Bolton -- Analyst Hey, guys. Congratulations on the nice results and outlook. I wanted to follow up on Suji's question. Rajesh, you, I think, perhaps mentioned GPU to GPU networks or others may know them as the scale-up networks in AI being particularly content-rich for your TCXOs. Wondering if you could just dive a little deeper into what the content could be in those scale-up networks. If you look at NVIDIA's latest generation NVL72 rack, 9 of the 27 trays in that rack are dedicated to switching, and there's a lot of content to be had there, and it sounds like those switch trays could potentially use multiple TCXOs from the company. So, just wondering if you could kind of expand on the use cases. And are these scalable networks specifically with NVIDIA? Or are you seeing scalable opportunities with some of the hyperscalers that are developing their own AECs? Thanks. Rajesh Vashist -- Chief Executive Officer Yeah. So, without naming customers' names, we have not made as many inroads into the hyperscalers. We have in some, but not in all. So, I think we are mostly seeing this in the people who are in the business of CPUs and GPUs. But I basically believe that we are now talking -- we started with sub-$100, say, a couple of years ago. And now we're rack, but now fully populated racks are hundreds of dollars, quite high. Slightly less populated racks are still hundreds of dollars. So, it's whether we're talking about a high hundreds of dollars, a little bit more middle of the road, whether we're talking about GPU trays or NIC cards for storage compute or switches or top-of-the-rack switches, SiTime plays in all of them. Additionally, of course, we continue to play across a large number of OEMs in the pluggable modules, as well as in the AECs that are connecting and some of the AEC companies are doing quite well. I know you cover them. So, I think it's all part of a whole program, and that's why we could have the kind of growth, 200% that we saw year on year -- I mean, quarter on quarter. Quinn Bolton -- Analyst And Rajesh, just to confirm that, that high hundreds of dollars per rack, that's across all applications that would include AEC, pluggables, top-of-rack switches, scale-up switches, SuperNIC cards, like everything you do. OK. Thanks for that. Rajesh Vashist -- Chief Executive Officer I'm aggregating all of that because, yes, it's a little bit tricky. And I don't think it should be that specific. Quinn Bolton -- Analyst Understood, yeah. Understand the customer sensitivities there. I guess the next question, CED was up over 200% in the quarter. It will double in '24 versus '23. I know you're not giving guidance for '25 yet, but what kind of growth rate do you expect in 2025 out of CED? I think you said in the prepared comments that CED would again lead the growth. So, I assume if you're targeting 30% overall for the company, that CED is probably going to be well in excess of 30% next year. Is that kind of the right framework to be thinking about for 2025? Rajesh Vashist -- Chief Executive Officer Yeah. So, as you recall, Quinn, several quarters ago, we took the unusual step of forecasting that we would grow by, give or take, 30%, and looks like we're on target to do that for this year. We also took the sort of unusual step a quarter ago of saying that this growth of approximately 30% would carry on into the coming year and the year beyond. We still maintain that. I think it's fair to say that given the diversity of our revenue, which is the strength of the company, there's always something that's growing at more than corporate growth rate. And I think in this case, CED qualifies for that because there's also something on the other side, which is not growing at the corporate growth rate. So, I think it balances itself out nicely so that we can deliver the promised 30%. One moment for our next question. Our next question comes from Melissa Fairbanks at Raymond James and Associates. Your line is now open. Melissa Fairbanks -- Analyst Hi, guys. Yeah, I'll add my congratulations. I have a couple of questions for Beth actually to start. I'm surprised, normally, this is the first question that gets asked. Are you able to give us any sort of specificity on segment guidance for the fourth quarter? Obviously, CED is going to lead the growth, but any kind of color that you can give us on the other segments? Beth Howe -- Chief Financial Officer Sure. So, as we look at the segments, again, we expect growth in CED to lead the way. I think if you look at our consumer IoT mobile segment, that as well, right? We've got holiday season that should show good growth as well. And then, as we look at the auto, industrial, aerospace, we expect that to continue to grow as well. That's had some strong performance this year. But I'd say, again, growing across the board, but CED definitely leading the way. Melissa Fairbanks -- Analyst OK. Great. And then, as a follow-up, maybe I know this is like way less boring or way more boring than talking about CED, but on the opex line, I understand that some of the R&D got pushed to the December quarter. I think in our prior conversations, maybe we talked about going forward, maybe a couple of million dollars a year in opex growth, and then that drives a lot of leverage in the model. What are you thinking now that you've got all of these new opportunities, should we expect a greater increase in opex? Or how should we be modeling opex going forward? Beth Howe -- Chief Financial Officer So, we look at Q4, I'm expecting opex to be kind of $31 million to $31.5 million for the quarter. So, that's for Q4. And then, I think what you're asking is looking forward into 2025 and how to think about that. So, if you annualize that number, you get to $124 million, $125-ish million as kind of a baseline. And then I think, again, we'll grow a bit from there. As we've been talking about, I expect that revenue to grow much, much faster than opex, but we do want to be investing in the business. We want to be investing in R&D. We want to be investing in go-to-market. So, for those key growth areas, and we see a good ROI on investment, whether it's people or programs, we're going to make those investments. But again, as I said, I expect revenue to grow much faster than opex. Thank you. [Operator instructions] Again, please stand by as I compile the Q&A roster. Our next question comes from Tore Svanberg of Stifel. Your line is now open. Unknown speaker -- Stifel Financial Corp. -- Analyst This is Jeremy on for Tore. And let me add my congratulations to a very strong quarter and outlook. I wanted to dig a little bit more deeply into the automotive segment. I know software-defined vehicles is something that's kind of been coming on pretty strong lately in the industry. I was wondering if you could give us more insight into your timing of content and how it plays into the opportunity there. And how does that compare to legacy or more traditional vehicles in terms of your potential content and potential TAM, that would be great. Rajesh Vashist -- Chief Executive Officer Yes. So, starting with the SAM, we probably have something like about $400 million to $500 million SAM in the automotive market, which is up substantially from the time when we went public when it was almost negligible. Most of the business that we have comes from the more innovative car companies, which tend to be electric vehicles, although it's not limited to that. We're not connected to that, but many of them are significantly EVs. So, with that in mind, we do rather well in China, where, as you know, there's a lot of automated driving and new car companies that have really ramped up volumes. We have done well in the United States with those electric car companies that have done well. And in terms of use case, the use case is mostly centered around automated driving, whether it is the full ADAS at Level 2 or Level 2.5 or design wins at Level 3 and Level 4 but also in the cameras or the sensors or the radar, the LiDAR and the GPS that connects some of these to positioning. So, it's really mostly in that ecosystem, although I will say that we are also in infotainment, we are also in some of the Ethernet cabling and so on. So, it's a pretty diverse use case, but it's mostly centered around automated driving. And as I mentioned, with our new failsafe technology, which is getting rolled out right now, we are likely to be used in other cars that want to increase the safety of their operation. Unknown speaker -- Stifel Financial Corp. -- Analyst Great. Thank you for that color. I was wondering if you could also step back a little bit and look at the precision timing market versus quartz. If you can give us an update there, whether it's -- can you talk about your penetration rate maybe for new applications or emerging applications or even if you can segment it like high performance versus areas that you're not targeting? How are you seeing your uptake in precision timing versus quartz and things like how programmability impacts that decision for customers? Thank you. Rajesh Vashist -- Chief Executive Officer Right. So, our total market TAM is $10 billion, and that is divided into oscillators, which is $4 billion; clocks, which is a couple of billion, so that's $6 billion plus, the remaining is the resonators, even though we don't have any resonator products shipping, but we do have products in the other two categories. Our SAM, or our market that we serve, is a little bit less than $3 billion, but let's say it's $3 billion. And our revenue, as you know, is in the range of a little bit lower than $200 million as forecast by many of you. So, really our penetration, our precision timing market is in that $3 billion category, and SiTime's penetration in that is significantly -- has a lot of room for growth from $200 million all the way up. The real issue here in terms of what makes up that $3 billion is, as we've said before, right now, data centers are doing very well. Enterprise technologies and communications are very important. I think they probably take over about $1 billion of that. We also have a significantly large consumer mobile IoT business, and that is a very large portion of that as well, whatever consumer devices you can think of that we can go to. The rest of it is around military, aerospace, defense, industrial, medical, and so on. And as mentioned, we are probably around $0.5 billion for automotive. So, I think it all adds up to about $3 billion. And we have about 300 different applications inside that $3 billion SAM or served market. So, it's a very diverse business, which is by design because we think that, that adds significant strength to the company at the same time while we get a growth of 30% annually. One moment for our next question. Our next question comes from Quinn Bolton of Needham and Company. Quinn Bolton -- Analyst Hey. I had a quick follow-up for Beth. Beth, I think last quarter, you had mentioned the gross margin was sort of weighed down by some new investments in tooling. Obviously, you guys have done a really nice job here in the near term, delivering higher-than-expected revenue. Just kind of wondering if you might be able to give us your latest thoughts on gross margin, what the trajectory might look like beyond the December quarter into March? Would you see a seasonal downtick as revenue may decline seasonally? And then, any thoughts on when you can get back to that 60% or higher gross margin target? Thank you. Beth Howe -- Chief Financial Officer Sure, Quinn. Let me talk a little bit about our gross margin. As you said, we did see some good improvement sequentially, 40 basis points. And I'd say, we're on track with where we expected to be as we ramp these new products and bring them in production. Long term, we still expect to be north of 60%. And in fact, if we continue on track as we expect, we would be getting back to kind of that 60% mark by probably the second half of 2025 as we get these products into production and really ramping there. So, again, I think we're on track with where we expected to be. We've seen nice improvement here sequentially. To your point, we typically see a seasonal decline Q4 to Q1. I think the average is roughly 20% seasonal decline in revenue. And so that's a little bit of a headwind there just for the March quarter. But long term, even into 2025, I think we're on track with where we want to be. Thank you. Our next question comes from Chris Caso of Wolfe Research. Your line is now open. Chris Caso -- Analyst Yes, thank you. Good evening. I wonder if you could talk a little bit about your penetration or your attempts to penetrate the clock market in terms of the timing of that? And what sort of magnitude of benefit do you expect as you start to penetrate that? And is it really a function of just the pace of product development there? How quickly can you get products out into the market for that segment? Rajesh Vashist -- Chief Executive Officer Yeah. Thanks, Chris. Actually, the pace of this is predicated by the design win and the deployment of the products. So, because of the Aura acquisition, we now have a significant number of the products that we want. There's still some in the pipeline that are getting rolled out, but most of the products are already out and getting design wins. So, what is predicating that rollout is the design win, which takes anywhere from nine months because a lot of these go into CED markets, industrial markets, automotive markets, which have about a 9-month to 12-month design win and then another equal number of months for the rollout of the product in volume, so call it two years? So, because of that, we think we are very much on target with both our organic growth products in clocking, like the Chorus product that we launched recently, but also with the Aura-based products, such that our revenue over the coming few years, not a long time, we expect to be from clocking to reach about $100 million. And we are well on that trajectory even though the revenue from clocking is still relatively small this year and, in fact, next year as well. Chris Caso -- Analyst That's helpful. Thank you. As a follow-up, one for you, Beth. And I guess, you've been there a bit of a while now. Luckily, it appears that the market has now stabilized. So, we have a better idea of what we're dealing with here. What's your view of the margin structure for the company and kind of where you'd like to see it? And how should we think of not just for the next few quarters, but a little longer out, we should think about opex growth relative to revenue growth? And what sort of operating leverage we should see as the revenue grows? Beth Howe -- Chief Financial Officer Thanks, Chris. So, as I talked a little bit about, we haven't really, again, given guidance for '25. But as I think about some thoughts on the operating model and how we're thinking about it, as I've been saying, we are growing revenue. And given kind of our recent trajectory and the opex that we had coming into 2024, I think I still think that we can grow revenue much faster than opex. And so we've got good or great operating leverage in the model. This quarter, you saw that with a 75% flow-through of gross profit to the bottom line. And so, while we do want to invest in opex, as I was telling Melissa, we do want to make those strategic investments where we see good ROI. I do expect us to continue to grow revenue much quicker than opex, at least '25. And we'll see, again, at some point, we'll make more investments. But right now, I expect to see a lot of flow-through and operating leverage in the model. I am showing no further questions at this time. I would now like to turn the conference back to management for closing remarks. Rajesh Vashist -- Chief Executive Officer Well, thank you very much. We are very glad that we've returned to a growth rate, and it's good to be here, and we look forward to talking to you in further detail as the quarters roll on. Thank you very much.