Silicom Ltd (SILC) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Third Quarter 2025 Results Conference Call. [Operator Instructions]

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 like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

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 four little statements. Such statements may include, but are not limited to, and explain the future financial 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 conditions and are subject to known and unknown risks and uncertainties and other factors.

Many of which are outside of Silicom's control, which may cause actual results that differ materially from expectations expressed or implied in the forwarding statement.

These include but are not limited to Silicom's increasing dependence for substantial revenue growth of a limited number of customers, the speed and expense to which Silicom solutions are adopted by the relevant markets.

Difficulties in the commercializing 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 in customer support activities, the impact of war, rising inflation, changing interest rates, volatile exchange rates, as well as any continuing or new effects resulting from pandemics and global economic uncertainty.

Which may in fact 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 could materially affect Silicom's results of operations and financial conditions, are discussed in Silicom's annual report on Form 20.

And other documents filed by the company that may be subsequently filed by the company from time to time with the Securities and Exchange Commission, the SEC.

Therefore, there can be no assurance that actual future results are not materially or significantly from anticipated results.

Consequently, investors are reminded not to rely on those forward-looking statements.com does not undertake to update any forward-looking statements as a result of new information on 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.

And she believes that that the presentation of these non-GAAP financial measures are 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. On a non-GAAP basis, non-GAAP financial measures disclosed by management are provided and additional information to investors to provide them with an assessing the company's financial conditions and operating results.

These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-gaps to financial GAAP financial measures are included state earnings relief which you can find them through the Commonwealth.

And with us on the line today we have Mr. Leon Eisenman; President and CEO and Mr. Iran Gillard; CFO. Leon will begin with an overview of the results followed by Iran who will provide an analysis of the financial results.

We'll then turn over the call to the question-and-answer session, and with that, I would now like to hand the call over to Luron, the CEOs. Leon, please go ahead.

Thank you, Kenny. I would like to welcome everyone to our conference call to discuss the results of the third quarter of 2025.

We are pleased with the ongoing progress that we have made in the third quarter, marked by another period of strong execution in line with our strategic plan and demonstrating solid design with momentum and success across varied product lines.

The design win momentum is trekking ahead of expectations. Since the beginning of the year, we have achieved eight major new design wins with important new customers, as well as existing ones, which builds out for us an impressive roster of design wins, the key for our expected growth from 2026 and beyond.

I remind you that our goal was to reach between seven and nine design wins for the full year of 2025. As of October, we have suppressed the lower end of our 2025 target. Range and with two months left to the end of the year, we are just one designing short of the upper end of this ambitious target range.

We see new design wings as the most tangible indicator of our progress, in addition to the breadth and depth of our opportunities fun. The focus on our core product lines, coupled with deep relationship with customers and potential new customers, has created this solid funnel.

We expect to continue to convert this channel to further design wins in 2026 and have set for ourselves a new aggressive target of between seven to nine additional design wins in the coming year spanning all product lines, including FPGAs, Ed solutions, and Smartix.

Our third quarter performance demonstrates that we are successfully advancing and meeting our milestones and our solid momentum underlies our optimism for returning to double-digit revenue growth in 2026 and beyond.

In terms of financial results for the quarter, we reported revenues of USD15.6 million in the upper half of the quarter's guidance range. Our balance sheet has remained very strong.

At September, our working capital and marketable securities totaled USD114 million including USD76 million in cash deposits and highly rated bonds with no debt representing approximately USD20 per share.

The financial strength provide us with flexibility that we need to execute on our strategy and seize opportunities as they arise. I would like to focus on our design win momentum.

In the third quarter, we secured three significant design wins, and earlier this week, we announced another important and fourth recent design.

Each win demonstrates the strength of our product portfolio, the trust of our customers' base, and most importantly, it is a solid indication of the successful implementation of our growth strategy.

Those new design means span all our product lines, FPGA, Smartix, and edge networking systems and are for a variety of applications, underscoring the continued relevance of our solutions across diverse customer needs and market segments and applications.

One of those design wins was awarded by a long-term network optimization customer of ours. This customer selected our advent a system as a platform for several of its next generation appliances.

With this expansion, our business with this customer is expected to increase dramatically to around USD4 million annually at the full run rate.

This highlights the natural progression of our deep relationship with this customer from networking cards to FPGA smart cards and now to edge systems.

More broadly, it reflects our strong customer partnership drive, repeat and expanding engagement across all our product lines while also laying the groundwork for other opportunities, including additional innovative aid platforms currently under discussion.

We also achieved the first design win with the US-based provider of multi-site networking solutions which selected our customized edge device to enhance scalability, security, and efficiency across its customer base.

Initial deployments are expected to begin by year end 2025 with a projected run rate of approximately million dollars annually in 2026.

Importantly, the customer is pursuing several additional sizable projects, each with multi-million dollar revenue potential, and is in discussion with us regarding another customized edge product for a separate use case together representing a significant long-term growth opportunity.

Earlier this week, we secured a design from a leading SAA provider which selected our edge networking system combined with a Silicom mix to support wired 5G and Wi-Fi connectivity.

Initial orders amounted to approximately USD500 with full deployment run rate expected to reach around USD3 million annually. We see strong further potential, and we are discussing with this customer the adoption of an additional Silicom platform.

We were particularly excited to achieve our second quantum cryptography related win from a tech giant with a span of just a few months, providing strong validation of our leadership in this critical emerging space and serving as a reference point for further opportunities.

The design was from a global application delivery leader for our advanced FPGA smart card incorporating SSL hardware acceleration and post-quantum cryptography offload.

This solution will enable the customer to deliver high performance, enhanced scalability, and simplified secure connections. Ramp up is expected through 2026 with annual revenues anticipated to reach USD2 million run rate.

Although quantum computers are not likely to be widely available for several years. Suppliers of communications equipment and services must plan now in order to defend effectively against harvest now decryptator attack strategies.

We are seeing that regulators and enterprises are already preparing for the future security threat they pose to privacy since quantum attacks have the potential to break today's widely used encryption standards.

Forward-looking companies are therefore moving early to integrate PQC into their architectures to ensure business continuity, with emerging privacy and compliance requirements, and position themselves as leaders in secure infrastructure in the post quantum world.

Our PQC ready smart cards put Silicom ahead of the adoption curve at the forefront of this future transition.

The fact that we already offer a mature PQC ready solution differentiate differentiates us clearly as an advanced technology partner, bring bringing us interest from both equipment suppliers and service providers.

All those design means demonstrate again the value of our broad portfolio and our sterling reputation as a trusted partner.

Each of those wins represents a combination of extensive technical collaboration and customer trust, reinforcing our strategy of building enduring relationships that evolve into multiple high value engagements. Together, the design wins achieved throughout 2025.

Establish a solid foundation for accelerated growth from 2026 onwards and strengthen our confidence in maintaining our momentum into 2026 and importantly marking our return to long-term double-digit revenue growth.

The opportunities final remains broad spanning all our product linesed systems, Smartin, and STGA solutions, addressing both new and existing customers across multiple industries and multiple applications.

I urge you to review our investor presentation available on our website, which highlights many of those opportunities as well as examples of those that have successfully passed through the opportunity funnel to become design wins and source of recurring revenues.

As we move into 2026, we expect to see many more opportunities in our funnel transform into design wins with numerous new opportunities for all of our product lines consistently entering the funnel.

As I mentioned earlier, our newly announced target for 2026 is to achieve seven to nine new design wins, driving forward our growth strategy and providing the foundation for sustainable long-term value creation at Silicom.

In terms of guidance for the fourth quarter of 2025, we expect revenues in the range of USD15 to USD16 million and we continue to anticipate double-digit annual growth rate in 2026 and beyond.

Our overall objective remains unchanged to create significant long-term value for our shareholders by achieving EPS above USD3 which we expect to reach as revenues scale to USD150 to USD160 million range.

Importantly, a faster ramp up of certain high potential deals currently in the pipeline would accelerate this timeline, enabling us to achieve our strategic goals ahead of schedule.

In summary, we are very pleased with our continued progress in 2025. With eight major new design wins already secured year-to-date, well within the target range for the full year.

We are executing ahead of the plan and building strong momentum across all our product lines. We remain focused on continuing to build long-term customer relationships and expand our design wind funnel, providing a solid foundation for the accelerated double-digit growth we expect from 2026.

With our unique technologies, a highly satisfied and growing customer base, a motivated team, as well as strong balance sheet to support all our endeavors, we are ideally positioned for 2026 and beyond, with the ultimate goal of delivering significant long-term value for our shareholders.

We look forward to updating you on our progress as we close our 2025 and heading to 2026, which we believe will be an inflection infection year for Silicom.

With that, I will now hand over the call to Eran Gilad for a detailed review of the quarter results. Eran, please go ahead.

Thank you Liron and good day to everyone. Revenues for the third quarter of 2025 were USD15.6 million 6% ahead of the USD14.8 million reported in the third quarter of last year.

The geographical revenue breakdown over the last 12 months was as follows. North America 75%, Europe and Israel 17%, Far East and the rest of the world, 8%.

During the last 12 months, we had one10% plus customer, which accounted for about 14% of our revenues.

I will be presenting the rest of the financial results on a non-ge 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 expenses.

For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today.

Gross profit for the third quarter of 2025 was USD5 million representing a gross margin of 31.8% compared to a gross profit of USD4.2 million or gross margin of 28.8% in the third quarter of 2024.

While I note that our short to midterm expected growth margin range remains between 27% to 32%, we are very pleased with achieving a growth margin at the higher end of this range ahead of our strategic plan model.

Operating expenses in the third quarter of 2025 were USD7.4 million compared with USD6.5 million reported in the third quarter 2024.

Our operating expenses in the quarter were higher than expected due to the relative weakness of the US dollar. The currency in which we report versus the Israeli shekel and the Danish throne, the main currencies in which a large portion of our expenses are generated.

Operating loss for the third quarter of 2025 was USD2.4 million compared to an operating loss of USD2.3 million as reported in the third quarter of 2024.

Net loss for the quarter was USD2.1 million compared to a net loss of USD1.7 million in the third quarter of 2024.

Loss per share in the quarter was USD0.36. This is compared with loss per share of USD0.28 as reported in the third quarter of last year.

Now turning to the balance sheet, as of September 30, 2025, our working capital and marketable securities amounted to USD114 million including USD46 million in high-quality inventory and USD76 million in cash equivalents, bank deposits, and highly rated multiple securities with no debt.

That ends my summary. I would like to end back to the operator for the questions and answers session, operator.

Thank you, ladies and gentlemen. [Operator Instructions]

The first question is from Ray Koontz from Needham.

Hi this is Jeff Hobson on to Ryan Konz from Needham.

Just wanted to understand maybe more where, Silicom could fit in with the ongoing, AI narrative. Obviously, AI have a place in AI, but I would think there are also specialized situations where, your guys' next, could be utilized, so just maybe, some more info on that.

Absolutely. So when we look at AI, we see opportunities in a few different product lines, maybe even all product lines, to be more accurate.

So on the one side, we see opportunities for our necks, our high speed nicks, 400 gig nicks. Those are just, the right equipment you need for the inference systems as well as the training systems. So this is one area that we think this could be very good potential.

Another area is with the FPGA because a lot of things are not really well defined still I would say in AI systems and there's a lot of proprietary communication and protocols that FPGA can bridge the GAAP there where AI's are not available right now and probably will not be in the foreseeable future.

And the third one is also on the edge systems where we are able to see opportunities. Opportunities for edge interference. We actually just had a webinar together with Intel about it yesterday showing some some use cases of AI at the edge, and we feel there's opportunities with all of them.

Some of those are more advanced right now. Some of them are more early exploratory, but I think we definitely have opportunities in all of them.

Thank you. And then looking at the presentation, you also have some large opportunities with service providers and, some telco equipment.

Just curious of the spending environment in those two, in the telecom industry, if that's getting better or if there's, certain things that are pushing spending or new types of hardware there.

Yeah, I mean, we have discussions with both service providers as well as OEMs and enterprises, service providers, we have like one, also tier two, tier three service providers.

Some of them are the really big telcos and some of them are smaller. We definitely see for our products for our type of products, we see the need, customers see the need, they actually need our products for the next generation.

And to support their customers. So this is something that that we feel will have good opportunities. We probably will also have designs with service providers, so we feel good about it.

Perfect, thank you, I'll pass it on.

[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.sillicom-usa.com.

Mr. Eizenmann, would you like to make your concluding statement?

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.

Thank you. This concludes Silicom's third quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.