Title

Presentation

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Silicom First Quarter 2025 Results Conference Call. All participants are present in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. You should have all received by now the company’s press release. If you have not received it, please contact Silicom’s Investor Relations team at EK Global Investor Relations at 1(212) 378-8040 or view it in the news section of the company’s website, www.silicom-usa.com. I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Kenny Green: Thank you, operator. I would like to welcome all of you to Silicom’s quarterly results conference call. Before we start, I would like to draw your attention to the following Safe Harbor statement. This conference call contains forward-looking statements. Such statements may include, but are not limited to, anticipated future financial and operating results and Silicom’s outlook and prospects. Those statements are based on management’s current beliefs, expectations and assumptions which may be affected by subsequent business, political, environmental, regulatory, economic and other factors and conditions and are subject to known and unknown risks and uncertainties and factors, many of which are outside of Silicom’s control, which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements.

These include, but are not limited to, Silicom’s increasing dependence for substantial revenue growth on a limited number of customers the speed and extent to, which Silicom solutions are adopted by the relevant markets, difficulties in the commercialization and marketing of Silicom’s products and services maintaining and protecting brand recognition, protection of intellectual property, competition, 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-19 pandemic and global economic uncertainty, which may impact customer demand through customers exercising greater caution and selectivity with their short-term IT investment plans.

The factors noted are not exhaustive. Further information about the company’s business, including information about factors that can 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 with the Securities and Exchange Commission. Therefore, there 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 statements Silicom does not undertake to update any forward-looking statements as a result of new information or future events or developments, except as may be required by law.

In 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 are 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 is useful to investors’ understanding and assessment of the company’s ongoing cooperation 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 to provide them with an alternative method for assessing the company’s financial condition and operating results.

These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to financial GAAP measures are included in today’s earnings release, which you can find on Silicom’s website. And with us on the line today, we have Mr. Liron Eizenman, President and CEO; and Mr. Eran Gilad, CFO. Liron will begin with an overview of the results followed by Eran, who will provide the analysis of the financials. We will then turn the call over to the question-and-answer session. And with that, I would now like to hand the call over to Liron. Liron, please go ahead.

Liron Eizenman: Thank you, Kenny. I would like to welcome everyone to our conference call to discuss the results of the first quarter of 2025. We 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 increase shareholder value. In addition, we saw significant design win momentum and made strong progress growing our mid and long-term pipeline. The 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. In terms of the financial results, we delivered revenues of $14.4 million, 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 million, including $77 million 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 2026. To remind you, the long-term financial goals of our strategic plan are to deliver an EPS above $3 based on revenues between $150 million and $160 million. 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.

Our renewed focus on our core product lines coupled with a deep relationship 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, the 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 new 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 a global network test equipment company, which together encompasses our full product range, from smart mix and FPGA-based product to our advanced edge systems.

All three are repeat customers of ours that already rely 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. This customer placed an initial purchase order to cover its new product introduction needs, and we expect mass deployment to begin in early 2026. Once the product ramps up, we expect the total business with this customer to be $2.5 million 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 mix and our reliability as a design partner.

Customers such as this represents the backbone of our business with the potential to secure new design wins with a shorter sales cycle process, contributing to a growing base of revenues. Number two, we also won a design win with a U.S.-based security — cybersecurity leader, choosing our latest Alterra-based 400-gig FPGA smart card 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 million per year. This design win represents the successful conclusion of many months of collaborative effort with the customer. As a full service supplier, we worked closely with the customer to meet the future set and performance requirements to deliver them as a complete solution, fully integrated and tested within a server.

This demonstrates the added value of Silicom’s engineering talent who customers often view as an extension of their own R&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 and the delivery capability. Number three, a major U.S. cybersecurity customer of ours awarded us a design win for a customized version of 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 that are incorporated within the system together with our deep wireless know-how were key factors in securing the win.

We expect demand to continue to build for our ad systems, smart network interface cards and innovative products that integrated to 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 2025 with revenues of $2 million per year at the full run rate. This win expands the relationship that Silicom has been building with a client for several years, ramping up the range of products sold from network interface cards to complex edge systems. Those types of wins are now our focus, building steady, long-term and trusting relationships that give rise to multiple deals leveraging a reliable 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 the 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. This combination, along with the growing number of potential new customers, who are currently evaluating and testing our product 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 Edge systems, Smart NICs 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 turn 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 with small to medium design wins, as well as potential deals in the range of double-digit millions 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 about $3 based on revenues in the range of $150 million to $160 million over the long-term. A fast ramp-up of a few of the potential deals we have in the pipeline may 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-digit growth for 2025 with double-digit growth expected for 2026. For the second quarter, we expect between $14.5 million and $15.5 million 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 focus 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 positioned us well for double-digit growth from 2026 onwards. As I’ve mentioned, we aim to achieve seven to nine design wins in 2025, of which three have already won, which demonstrates we are well on track. Looking further ahead, our focus remains on delivering long-term shareholder value, targeting an EPS above $3 on annual revenues of $150 million to $160 million.

As I said, a faster ramp-up of a few of the potential deals we have within the pipeline may help us to achieve this goal faster. We have a solid design win roster, full of Tier 1 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, we are optimistic about our ability to execute our 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 Eran for a detailed review of the quarter results. Eran, please go ahead.

Eran Gilad: Thank you, Liron, and good day to everyone. Revenues for the first quarter of 2025 were $14.4 million, similar to the $14.4 million reported in the first quarter of last year. The geographical revenue breakdown over the last 12-months was as follows: North America, 78%; Europe and Israel, 14%; Far East and Rest of the World, 8%. During the last 12 months, our top — our two 10%-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 to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the first quarter of 2025 was $4.4 million, representing a gross margin of 30.3%, compared to a gross profit of $4.1 million or gross margin of 28.5% in the first quarter of 2024. As discussed previously, our short to mid-term expected gross margin range is between 27% to 32%. And as our revenues grow from current levels over the longer term, it is expected to increase towards the upper end. Operating expenses in the first quarter of 2025 were $6.7 million, compared with $6.8 million reported in the first quarter of 2024. Operating loss for the first quarter of 2025 was $2.4 million, compared to an operating loss of $2.7 million as reported in the first quarter of 2024.

Net loss for the quarter was $2.1 million, compared to a net loss of $2.4 million in the first quarter of 2024. Loss per share in the quarter was $0.37. This is compared with loss per share of $0.38 as reported in the first quarter of last year. Now turning to the balance sheet. As of March 31, 2025, our working capital and marketable securities amounted to $119 million, including $14 million in high-quality inventory, accounts receivable net of accounts payable of $3 million and $77 million 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-answer session. Operator?

Operator: Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from Ryan Koontz of Needham & Company. Please go ahead.

Q – Ryan Koontz: Hi, thanks for the question. 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 have 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.

Liron Eizenman: So every design win 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 customization for the customer, maybe some development. So that’s obviously one milestone we need to keep track of is our internal process of the development and customization, make sure with the customer, everything is clear on the specs and what they’re supposed to get and when. Once we already were shipping samples or shipping first shipment to the customer, we want to see they’re happy. We want to see we get their green light for mass production, but that’s another very important milestone. And the third one is when we start mass production, start shipping them the products, we work very closely with them to see that they are happy with that, that they’re selling it to their customers.

Their customers are happy. That’s — I would say, the third main milestone. But every project is a little bit different.

Ryan Koontz: That’s great. Thanks for that and it sounds like one of your design wins is with an Alterra design? Are you seeing an increased mix and requirement from customers to roll FPGA-based NIC cards or interface?

Liron Eizenman: 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. Alterra 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 of that is that we actually saw a design win as we published earlier this year. And we also announced just recently — actually last week, cooperation we’re doing with an IP partner of ours called Eideticom, where 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 are both investing in and also seeing a lot of traction in it.

Ryan Koontz: Great. And maybe one more, if I could. What are your thoughts around tariffs and how that gets implemented? Is that something you expect your customers to pay? Or will you have to pay that and maybe have to at a line item around tariffs, what you’re thinking around the tariff situation. I know it’s fluid right now, but any kind of baseline would be helpful.

Liron Eizenman: Yes. So as you said, it’s very fluid. So that’s number one. At least at the moment, Silicom, we do not see immediate impact. Our products at the moment are exempt, because of their classification. So they are exempt from any tariff right now. We 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, but 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 keep tracking whatever we — whatever comes out. So we’ll make sure that we can react if we need to react when something comes out.

Ryan Koontz: Okay, that’s great. That’s all I got. Thank you.

Operator: The next question is from Christopher [Indiscernible] of DNB. Please go ahead.

Unidentified Analyst: Yes, thanks for taking my question. Yes, just having a look at some of the design wins you have in your pipeline with the ad data infrastructure, storage network and kind of saying 10 million units — $10 million per year, sorry. Just trying to understand like what kind of applications you are seeing here more specifically driving this kind of step change in your growth in the next years, compared to historical levels?

Liron Eizenman: 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 give the pipeline over three main product lines. And that is over our Smart NIC, over our FPGA product and over our edge systems. 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 encryption, decryption and compression decompression 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 their 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 — both on the R&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 — a lot of our pipeline is also from existing customers, not only new customers.

Operator: The next question is from Don McKiernan of Landolt Securities. Please go ahead.

Don McKiernan: Thank you. Did you already give an update on your share buyback program and what occurred during the quarter?

Eran Gilad: We moved forward during the first quarter, we purchased a few hundred — a few dozen thousands of buyback shares. It’s the update.

Don McKiernan: So just like 36,000 shares is all you bought back?

Eran Gilad: Can you repeat your question?

Don McKiernan: Yes. How many shares did you buy in the quarter and at what average price?

Eran Gilad: First of all, I would say that during the last 5 quarters, I mean, starting 2024, we purchased over 700,000 shares. The portion in quarter 1 was a little bit less than 100,000 shares.

Don McKiernan: Okay. Why wouldn’t you buy more or the market conditions just didn’t allow you. What can you explain?

Eran Gilad: 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 limited.

Don McKiernan: Right. And how much do you have left in your current in terms of dollars your current share buyback program?

Eran Gilad: During, I would say that during the last year, we purchased over $8 million.

Don McKiernan: And what’s left, $7 million then, $7 million left.

Eran Gilad: Can you repeat?

Don McKiernan: Yes, how much is left and…

Eran Gilad: How much is left? About $8 million.

Don McKiernan: Okay. Thank you. And my next question, last question. 1.5 years ago, when revenues declined, some of your major customers were still working off excess inventory on some of your larger opportunities. Has that passed? Are they going to start reordering their larger quantities? Or are those opportunities gone away.

Liron Eizenman: I’m sorry, I couldn’t hear the first part of the question. Can you repeat?

Don McKiernan: Yes. I believe about 1.5 years ago, you had some large opportunities in closed design wins and those customers have 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.

Liron Eizenman: So I mean we did mention there’s excess inventories to some of our customers, and we do see some relief in that. We said we will continue to see that in 2025. We see some release. 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. Partially it went away. We think it will continue throughout 2025, and 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. It really depends on the situation. We don’t know exactly how it will come back, because technology moves on, situations within certain companies, changes a long way. We hope that many of them will come back and we’ll buy more.

We keep in touch with them, but it really changes from case to case. We know for sure, this is something we said back then that we know for sure that’s not — we don’t know exactly we will come back, and we know that maybe some of them will not. So that is, again, something we’re tracking very closely. There’s good and bad years, some did, some did not. Some were still keeping track and hopefully, their business will pick up. But I hope that answers your question.

Don McKiernan: Yes. Thank you and good luck. Thank you.

Liron Eizenman: Thank you.

Operator: [Operator Instructions] There are no further questions at this time. Before I ask Mr. Eizenman 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.silicom-usa.com. Mr. Eizenman, would you like to make your concluding statement?

Liron Eizenman: Thank you, operator. Thank 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.

Operator: Thank you. This concludes Silicom’s first quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.