Silicom Ltd. Price & Performance (SILC)

Which may cause actual results to differ materially from expectations expressed or implied in the forward looking These include, but are not limited to Silicom's increasing dependence of substantial revenue growth on a limited number of customers the speed and extent to which Silicom solutions are adopted by the relevant market, difficulties in the commercialization and marketing of Silicom's products and services maintaining and protecting brand recognition, protection of intellectual property [indiscernible] disruptions to manufacturing and sales and marketing, development and customer support activities the impact of war in Israel and in Ukraine, rising inflation, changing interest rates, volatile exchange rates, tariffs as well as any continuing or new effects resulting from the COVID -nineteen pandemic and global economic uncertainty, which uncertainty, which may impact customer demand through customers exercising greater caution and selectivity with their short term IT investment plan. The factors noted are not exhaustive. Further information about the company's business, including information about factors that could materially affect Silicom's results of operations and financial conditions. Are discussed in Silicom's annual report on Form 20 F and other documents filed by the company and that may be subsequently filed by the company from time to time, the Securities and Exchange Commission.

Therefore, can be no assurance that actual future results will differ will not differ significantly from anticipated results. Consequently, investors are reminded not to rely on these forward looking Silicom does not undertake to update any forward looking statement as a result of new information or future events or developments except as may be required by law. Addition, following the company's disclosure of certain non GAAP financial measures, in today's earnings release such non GAAP financial measures will be discussed during this call. Such non GAAP measures used by management to make strategic decisions forecast future results and evaluate the company's current performance. Management believes that the presentation of these non GAAP financial measures useful to investors' understanding and assessment of the company's ongoing operations and prospects for the future. Unless otherwise stated, it should be assumed that the financials discussed in this conference call will be on a non GAAP basis. Non GAAP financial measures disclosed by management are provided as additional information to investors, provide them with an alternative method for assessing the company's financial condition and operating results. These These measures are not in accordance with or a substitute for GAAP. Full reconciliation of non GAAP to financial GAAP measures are included in today's earnings release, which you can find on Silicom's website.

With us on the line today, we have Mr. Liron Eisenmann, President and CEO and Mr. Eran Gilad, CFO. Liron will begin with an overview of the results followed by Ehran who will provide the analysis of the financials. We'll then turn the call over to the question and answer session. And with that, would now like to hand the call over to Liron. Liron, please go ahead. Thank you, Kenny. I would like to welcome everyone to our conference call to discuss the results of the first quarter of twenty twenty five. Are pleased with our start to 2025. Which reflects solid execution and progress in line with our strategic plan aimed at bringing renewed revenue growth profitability and ultimately increased shareholder value. In addition, we saw significant design win momentum and made strong progress growing our mid- and long term pipeline. Quarter demonstrates that we are advancing and achieving meaningful milestones with various customers and projects, and all this makes us more optimistic that we will drive an acceleration in revenue growth in 2026 and beyond. Terms of the financial results, we delivered revenues of $14,400,000 which were in line with our targets and delivered gross margin and operating expenses.

In line with our strategic plans. Our balance sheet has therefore continued to remain very strong Our working capital and marketable securities amounted to $119,000,000 including $77,000,000 in cash deposits and highly rated bonds. With no debt. All this represents about $21 per share. This ensures we can maintain adequate investment in our business and its growth engines even in this very volatile market without compromise. From a strategic perspective, I'm very happy to report that we are on track with our plan to return to solid double digit growth rate materializing gradually from 2020 To remind you, long term financial goals of our strategic plan are to deliver an EPS above $3 based on revenues between $150,000,000 and $160,000,000 The most tangible indicator of our progress is the impressive number of design wins closed during the quarter. And the breadth and depth of our design win opportunity funnel. Renewed focus on our core product lines coupled with the deep relationships with our customers and potential new customers, has created a solid pipeline enabling our future growth potential. So far in 2025, we have already seen success in converting this pipeline to design wins. Main indication for the progress of our strategic plan.

We expect to continue to convert this pipeline to further design wins throughout 2025. In our previous call, we discussed our target of achieving between seven and nine design wins in 2025 and we are well on track. Since the beginning of the year, we have been awarded three important new wins, two with cybersecurity leaders and one with the global network test equipment company. Together encompasses our full product range, from SmartNICs and FPGA based products to our advanced edge systems. All three are repeat customers of ours that already rely on Silicom on Silicom products to give their system performance edge. And all three have decided to expand their business with us as they embark on a new project. I want to highlight those recent design wins in more detail. Number one, a U. S.-based global provider of advanced network testing equipment solutions selected our 100 gigabit network interface cards for the next generation platform. Customer placed an initial purchase order to cover its new product introduction needs and we expect mass deployment to begin in early twenty twenty six. Once the product ramps up, we expect the total business with this customer to be $2,500,000 per year.

We are very proud that this global giant turned to us for a performance edge and it speaks volumes about the innovation at the heart of our high performance NICs and our reliability as a design partner. Customers such as this represents the backbone of our business.

The potential to secure new design wins with a shorter sales cycle process contributing to a growing base of revenues. Number two, also won a design win with a U. S.-based cybersecurity leader choosing our latest Altera based 400 gig [indiscernible] for its new network monitoring offering. The customer placed an initial order with us and at full ramp up, we expect revenues will reach $3,000,000 per year. This design win represents the successful conclusion of many months of collaborative effort with the customer. As a full service supplier, we work closely with the customer to meet the feature set and performance requirements deliver them at as a complete solution, fully integrated and tested within a server. This demonstrates the added value of Silicom's engineering talent whose customers often view as an extension of their own R and D team. This win demonstrates the importance of the full package that we offer, a uniquely broad product line based on advanced technology, hands on collaboration with the customer, and a rapid development development and the delivery capability. Number three, a major U. S. Cybersecurity customer of ours, awarded us a design win for customized version a wireless connectivity enabled Silicom edge system incorporating a Silicom network interface card for the next generation of one of its leading product lines.

Our ability to carry out the required customization quickly and to provide both the ad system and the network interface card are incorporated within the system together with our deep wireless know how were key factors in securing the win. Expect demand to continue to build for our edge systems smart network interface cards and innovative products that integrate two, becoming a key driver of our future growth. Initial orders have been received and we expect to start to ramp up during the second half of twenty twenty five with revenues of $2,000,000 per year at the full run rate. This win expands the relationship that Silicom has been building with the client for several years, wrapping up the range of products sold from network interface cards to complex edge systems. Those types of RIN are now our focus. Building steady long term trusting relationships that give rise to multiple deals leveraging a reliable day diversified revenue stream from an expanding base over the long term. The relationships are based on deep trust built over a long period of time and show slow but solid growth. Supporting success of our strategic plan. The power of each design win is not only to generate its own stream of recurring revenues, but also to open the door to multiple additional opportunities.

Combination along with the growing number of potential new customers who are currently evaluating and testing our products, underlines our confidence in achieving our target for seven to nine design wins during 2025. While our recent wins design wins will have a minor positive impact on our financial results in 2025, we believe those and others that we expect to sign in the coming months will form the foundation for a significant growth in 2026. I note that if the opportunities in the pipeline ramp faster than expected, we could achieve the goals of our strategic plan significantly sooner than currently projected. Our pipeline of opportunities at the input of our design win funnel is very broad across all our products, including ad systems, SmartNICs and FPGAs, and include both new and existing customers. This pipeline includes leading names in the cybersecurity, service provider and networking industries highlighting the strength and appeal of our technology offering. We believe that during the coming years, we will see more and more opportunities turning into design wins and we are constantly adding further opportunities at the entry point of the funnel. This is the main engine behind our strategy for growth. I want to highlight our new investor presentation available on our website which includes examples of many opportunities in our pipeline.

It also shows examples of the opportunities that made it through the funnel and became design wins. Driving revenue growth. We are seeing the positive impact of our strategic plan expanding the pool of future opportunities small to medium design wins as well as potential deals in the range of double digit million of dollars in annualized revenue. Considering the impressive pipeline and by executing all aspects of the strategy, we continue to believe that we will achieve the main goal of our strategy to create significant value for our shareholders with EPS of above $3 based on revenues in the range of $150,000,000 to 160,000,000 over the long term. A fast ramp up of a few of the potential deals we have in the pipeline help us to achieve this goal much faster than currently indicated in our strategic plan. And we are fully focused on making this happen. Looking ahead, in terms of guidance, we continue to project low single growth 2025. Double digit growth expected for 2026. For the second quarter, we expect between $14,500,000,000 and $15,500,000 in revenue. In summary, we are pleased with our progress. We are very optimistic about our ability to continue to execute on our growth plan and fully focused on meeting our goal of creating value.

For our customers and for our shareholders. We are advancing towards our mid and long term goals with a robust pipeline that positions us well for double digit growth from 2026 onward. As I've mentioned, we aim to achieve seven to nine design wins in 2025 of which three have already won demonstrates we are well on track. Looking further ahead, our focus remains on delivering long term shareholder value targeting an EPS above $3 on an on annual revenues of 150,000,000 to 160,000,000 As I said, a faster ramp up of a few of the potential deals we have within the pipeline help us to achieve this goal faster. We have a solid design win roster full of Tier one customers, coupled with a superb product and a robust pipeline of opportunities. We have strong financial foundation with a solid balance sheet. With a very dedicated and loyal team, possessing decades of experience in the hardware business, are optimistic about our ability to execute our strategy. Strategic plan and meet our goals. We look forward to reporting on our progress as we continue executing on our growth strategy. With that, I will now hand over the call to Iran for a detailed review of the quarter results.

Eran, please go ahead. Thank you, Liron, and good day to everyone. Revenues for the first quarter twenty twenty five were $14,400,000 similar to the $14,400,000 reported in the first quarter of last year. The geographical revenue breakdown over the last twelve months was as follows: North America, 78% Europe and Israel 14%, Far East and Rest of the World 8%. During the last twelve months, our top our 210% plus customers together accounted for about 24% of our revenues. I will be presenting the rest of the financial results on a non GAAP basis which excludes the non cash compensation expenses. In respect of options. And RSUs granted to directors, officers and employees taxes on amortization of acquired intangible assets as well as lease liabilities financial income. For the full reconciliation from GAAP non GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the first quarter of twenty twenty five was $4,400,000 representing a gross margin of 30.3% compared to a gross profit of $4,100,000 or gross margin of 28.5% in the first quarter of twenty twenty four. As discussed previously, our short to mid term expected gross margin range is between 27% to 32% as our revenues grow from current levels, over the longer over the longer term it is expected to increase the upper end.

Operating expenses in the first quarter were 2025 were $6,700,000 compared with $6,800,000 reported in the first quarter of twenty twenty four. Operating loss for the first quarter of twenty twenty five was $2,400,000 compared to an operating loss of $2,700,000 as reported in the first quarter of twenty twenty four. Net loss for the quarter was $2,100,000 compared to a net loss of 2,400,000.0 dollars in the first quarter of twenty twenty four. Loss per share in the quarter was $0.37 This is compared with loss per share $0.38 as reported in the first quarter of last year. Now, turning to the balance sheet. As of 03/31/2025, our working capital and marketable securities amounted to $119,000,000 including $14,000,000 in high quality inventory accounts receivable net of accounts payable of $3,000,000 and $77,000,000 in cash, cash equivalents and highly rated marketable securities with no debt. That ends my summary. I would like to hand back over to the operator for questions and answers session. [indiscernible] Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. The handset before pressing the number. Please stand by while we poll for your questions. The first question is from Ryan Kunz of Needham and Company.

Please go ahead. Thanks for the question. And great to hear about the progress with your new design wins there.

Are there particular milestones you're tracking for those design wins?

After you had these initial orders and contracts with these customers that you can maybe I'm not looking for specifics, but just at a high level, what sort of milestones you're tracking and how you feel about the progress of those wins? As we look forward over the next few quarters? Thank you.

So every design is a little bit different. But in general, there's once we get the wind, there's the first stage where we need to probably need to do some customizations for the customer, maybe some development. That's obviously one milestone we need to keep track of is our internal process of the development and customization sure with the customer everything is clear on the specs and what they're supposed to get and when. Once we are ready, shipping samples or shipping first shipment to the customer. Want to see they're happy. We want to see we get their green light for mass production. That's another very important milestone. And the third one is when we start mass production, start shipping the products, we [indiscernible] work very closely with them to see that they're happy with that, that they're selling to their customers. Their customers are happy. That's I would say the third main milestone. But every project is a little bit different.

That's great. Thank you for that. And it sounds like one of your design wins is with an Altera Are you seeing an increased [indiscernible] from customers to roll out FPGA based [indiscernible] Cards or interface?

We see quite a lot of demand in every one of our let's say, main product lines. So FPGA is definitely one of them, Altera is definitely a key partner for us for our FPGA business. So definitely, we see a lot of interest in that market. And the proof for that is that we actually saw a design win as we published earlier this year And we also announced just recently actually last week a cooperation we're doing with an IP partner of ours called Magneticum, which we announced a strategic partnership with them that allows us now to bring together a product that is very critical for the cybersecurity and other network vendors' equipment. To protect their equipment and solutions not only for today, but for post quantum encryption that will become very, very important soon. So this is something that we both investing in and also seeing a lot of traction in.

Great. And maybe one more if I could.

What are your thoughts around tariffs and how that gets implemented that something you expect your customers to pay or we have to or you have to pay that and maybe have to add a line item around tariffs? What's your thinking around around the tariff situation? I know it's fluid right now, but any kind of baseline would be helpful.

Yes. So as you said it's very fluid. So that's number one. Least at the moment, Silicom, we do not see an immediate impact Our products at the moment are exempt. Because of their classification So they're exempt from any tariff right now. Definitely monitor that very closely and stay very alert. To see how that pans out eventually. We're looking at different models and what would make sense. If we would make a change, what kind of change, I think it's very fluid, as you said, And right now, since our products are exempt, we don't see any immediate demand We just keep in touch with our customer, hear their thoughts, and just [indiscernible] tracking whatever we comes out. So we'll make sure that we can react if we need to react when something comes out.

Okay. That's great. That's all I got. Thank you.

The next question is from Christopher Wormson. Of DNB. Please go ahead.

Yes, thanks for taking my question. [indiscernible] having a look at some of the assignments you have in your in your pipeline with the [indiscernible] infrastructure, storage networking kind of thing, 10,000,000 units? Per year. Sorry. [indiscernible] trying to understand like what kind of applications you are seeing here more specifically driving this kind of step change in your in your growth in the next years? Compared to historical levels? So I mean, I think I would also refer you to our investor presentation to look at the pipeline a little bit. We try to to give the pipeline over three main product and that is over our SmartNICs, over our FPGA product, [indiscernible] And we see quite a lot of demand in all of them. We see in cybersecurity definitely that's one area that really requires us to put out new products out there, higher speeds in networking are needed. More acceleration and offloading from the main CPU is needed as encryptiondecryption and compressiondecompression is becoming more challenging as the main CPUs need to do more and more We see also with our edge systems more and more as we also provide higher end solutions into the market, we're able to support our customers not only with lower end system but also with our higher end systems.

We've seen a few examples of those design wins in the last year. So I think overall, we see a lot of demand for networking. There's a lot of networking needs out there And we are as we work very closely with customers, they really trust us on on the R and D level and later on in the mass production level. We are the right partner for them, and they keep bringing to us more and more business Just an example for that is the last three design wins we announced are from existing customers. Basically trusting us with more and more projects, And those customers have a lot of hardware projects So it's lot of our pipeline is also from existing customers not only new customers. The next question is from Don McKiernan of Landauld Securities. Please go ahead.

Thank you.

Did you already give an update on your share buyback program and what occurred during the quarter?

We moved forward during the first quarter. We purchased a few hundred a few dozen thousands of buyback shares. That's the update. So just like, 36,000 shares is all you bought back?

Can you repeat your question? Yes. How many shares did you buy? The quarter and at average price? [indiscernible] First of all, I would say that during the last five quarters, I mean starting 2024, purchased over 700,000 shares The portion in quarter one was a little bit less than 100,000 shares.

Okay.

Why wouldn't you buy more? Or the market conditions just didn't allow you. What can you explain This is a result of the activity in the market in each day. When the volume is not so high, it means that the portion that we are able to purchase is is limited.

Right.

And how much do you have left in your current in terms of dollars, your current share buyback program?

During During I would say that during the last year we purchased over $8,000,000 And what's left? Devon then?

Can you repeat?

Yes. How much is left in the buffer? How much is left? About $8,000,000 Okay. Thank you. And my next question, last question A year and a half ago when revenues declined some of your major customers were still working off excess inventory.

Some of your larger opportunities, Has that passed? And are they going to start reordering their larger quantities? Or are those opportunities gone away? I'm sorry, I couldn't hear the first part of the question. Can you repeat?

Yes.

I believe about a year and a half ago, you had some large opportunities So in closed design wins and those customers that built up excess inventory during COVID and they were working off those inventories on large deployments and they were going to then come back and reorder product as I recall.

From you once they worked off their internal inventories.

So I mean, we did mention there's excess inventories to some of our customers. And we do see some relief in that said we will continue to see that in 2025. We see some relief Some customers are coming and buying back against some things they didn't buy for a while. I wouldn't say this problem completely went away. [indiscernible] Partially, it went away We think it will continue throughout 2025. And will we'll see some ramp up coming back. Each project is different and each situation is different. I don't know to say that all of them will come back. Really depends. Depends on the situation. We don't know exactly how it will come back because technology moves on, situations within certain companies changes along the way, We hope that many of them will come back and will buy more. We keep in touch with them. But really changes from case to case. Know for sure, this is something we said back then, that we know for sure that not because we don't know exactly. Who will come back, and we know that maybe some of them will not. So that is again, something we're tracking very closely. Is good and bad here, some did, some did not.

Some we're still keeping track and hopefully their business will pick up. But [indiscernible] hope that answers your question.

Yeah. Thank you. And good luck. Thank you.

Thank you.

If there are any additional questions, please press 1. If you wish to cancel your request, please press 2. Please standby while we poll for more questions. There are no further questions at this time. Before I ask Mr. Eisenmann, to go ahead with his closing statement I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website www.silicomusa.com. Mr. Eisenbaum? Would you like to make your concluding statement?

Thank you, operator. You everybody for joining the call and for your interest in Silicom. We look forward to hosting you on our next call in three months. Good day.

Thank you. This concludes Silicom's first quarter twenty twenty five results conference call. Thank you for your participation. You may go ahead and disconnect.