Silvaco Group Inc (SVCO) 2024 Q2 法說會逐字稿

Good afternoon and welcome to Silvaco's second-quarter 2024 conference call. (Operator Instructions)

I would now like to turn the conference over to Greg McNiff, Investor Relations for Silvaco. Please go ahead.

Thank you. Joining me on the call today are Babak Taheri, Silvaco's CEO; and Ryan Benton Silvaco's CFO. As a reminder, a press release highlighting the company's results along with supplemental financial results and an earnings presentation are available on the company's IR site at investors.silvaco.com. An archive replay of the conference call will be available on this website for a limited time after the call.

Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

It is important to also note that the company undertakes no obligation to update such statements except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, earnings presentation, and on this conference call. The risk factors section in Silvaco's most recent form 10-Q filing with the Security Exchange Commission provides a description of these risks.

With that. I'd like to turn the call over to Silvaco's CEO, Babak Taheri. Babak?

Thank you, Greg. Hello and welcome to Silvaco's second-quarter earnings call. I am Babak Taheri, CEO of Silvaco.

Before discussing Silvaco's second-quarter results, I'd like to provide a brief introduction of myself and the company. I have over 35 years of experience in Silicon Valley having held key roles with companies ranging from small cap firms like Invensense to midsize cap firms like Cypress Semiconductor and Freescale and large cap companies like Apple. Since joining Silvaco in October of 2018 as CTO and becoming CEO in 2019, I have been leading our strategic direction, ensuring alignment with our vision, mission, and values that include customer success, teamwork, leading by example and strive for excellence.

Silvaco enables semiconductor design and manufacturing through AI driven digital twin modeling for simulation, software innovation and automation. Our digital twin models for simulations are provided using a combination of AI and our software platforms. We are proud to be ranked number two in technology computed aided design globally with our high-quality software platforms trusted by our customers worldwide.

Our software platforms are considered the foundational technology behind the chip, supporting microprocessors in advanced technology nodes, memory products for servers as well as power systems in automotive and high-performance computing that include next generation technology nodes. These chips are crucial for enabling artificial intelligence and IoT devices that power homes, factories, cars, trucks and cities around the world.

Next, I will cover financial overview. I want to touch on a few financial highlights of the second quarter. Ryan, our CFO, will go into more detail about our business model, financial results and guidance. Q2 revenue on booking year over year increased 19% and 36%, respectively.

The 2024 figures include a $21.8 million in stock-based compensation or SBC expenses and a $14.7 million acquisition related in litigation claim. I want to note that we recently announced an update regarding litigation related to an acquisition the company made in early 2018.

Brian will cover the related financial details, but I want to emphasize that the acquisition that is the subject of this litigation predates the arrival of current management team, and we do not expect this litigation to materially impact our core business operations of providing TCAD, EDA software and SIP solutions going forward.

GAAP Gross margin was 68% impacted by SPC for individuals within the support organization totaling $2.5 million. Non-GAAP gross margin was 86% compared to 81% for GAAP and non-GAAP alike in the same period last year and 83% for the full year 2023. The increase in our non-GAAP gross margin is mainly due to higher margin products. Non-GAAP operating income was $1.7 million up 104% over Q2 of 2023.

Next, I will cover an overview of Silvaco's solutions. Silvaco offers a diverse set of platforms as solutions for developing new semiconductors, photonics processes and devices. Our focus is on developing flexible intelligent software solutions that allow users to analyze and simulate electronics and optics designed directly on their desktops, laptops and servers.

Our platforms enable efficient and cost-conscious product development, supporting the entire life cycle from design conception to final design and verification and validation, seamless transition and support through manufacture. Customers are drawn to Silvaco for two reasons. First, we offer differentiated platforms in the power display and memory markets. Second, we are deeply embedded in our customers' R&D processes, collaborating with them to develop technologies year in advance of their market introduction. The long-term partnership approach is highly valued by our customers.

Our leading market share reflects this differentiated position. 7 out of 10 largest flat panel display companies and 6 of the 10 largest semiconductor companies utilize our EDA platform. Similarly, 8 out of the top 10 flat panel display companies use our TCAD platforms. Additionally, as we expand our footprint in the power market, in 2023, we acquired 14 new logos from our power customers resulting in 4 out of top 10 largest power companies adopting our TCAD platform.

We have assembled a management team and board with deep industry knowledge and public company experience. Members of our core management team average 35 years of experience in semiconductors and EDA companies. Electronic design and manufacturing software enables the value chain from a concept for the design through the final chip creation.

The first step in developing a chip is designing the chip using EDA software and semiconductor IPs. They provide software platforms for semiconductor design modeling and simulation, offering differentiated products across seven market segments. Silvaco participates in this phase, addressing a $3.1 billion SAM.

The second step in realizing a chip is the processing and fabrication of design on wafers. We are expanding our platforms TAM into the fabrication steps of chips using our AI based digital twin modeling platform, also known as Fab Technology Co-Optimization.

Our estimated incremental SAM for this market currently is about $500 million. Think of this technology as a physics based digital twin model of a wafer that customers use to simulate rather than prototype a wafer and fabricate. They use it for performance, yield, design, and manufacturability analysis to get products to market faster and cheaper.

These digital twin models reduce the guesswork out of manufacturing and design that historically has taken several prototyping turns and cost the redesign of products. This technology has been under development since 2018. Recently, we announced Micron as our strategic partner in the memory market for this technology.

I'll discuss Silvaco's digital twin technology in a bit more detail shortly. We intend to extend this technology into the power market, display market, and advanced seamless fabrication process in near future. Silvaco is addressing the first two steps in the value chain of realizing a chip. We are not part of the supply chain.

There are three challenges in designing new products for semiconductor and photonics market. First, there is the increasing complexity of design characterized by smaller transistors, integration of more functionality, and the addition of complex multi-cores. This level of complexity impacts all the markets we participate in, including memory, high-performance compute and automotive.

Second, the introduction of new materials such as GaN, silicon carbide, and quantum dots in this design and fabrication process increases complexity. Third, customers face go-to-market challenges including the rising cost of design, tools, masks, wafers, and time to market. We address these challenges with our platforms and digital twin models, making our solutions critical for our customers.

This slide illustrates real-life examples of what our products enable. Our platforms handle the increasing level of complexity these products require. For example, to design an 8K QLED display panel that is made of approximately 33 million pixels, we provide two platforms that enable design, modeling, and simulation starting at a single pixel level all the way to the 4K display panel.

This is an example of a digital twin that enables customers understanding of their product through simulation and not prototyping. They have enabled companies that require curved and flexible bending of display for AR/VR and mobile phone applications. Similarly, our capabilities extend into new semiconductor materials with applications in cars, car charging, or powering boxes within a data center.

There are four levels of artificial intelligence in EDA. As I mentioned earlier, Silvaco leverages AI industry trends through our digital twin modeling capabilities, which allows customers to create models to reduce costs and improve time to market. The EDA industry has historically utilized AI to assist chip designers at three levels: one, optimizing historical tool performance for chip designers; two, aiding in design steps; and three, generating chip designs from specifications.

Silvaco has introduced a fourth level of AI which is not in the design space but rather in the manufacturing space. This is where Silvaco is expanding TAM by enabling operators in fabs to save time and reduce wafer production costs. Here is an example of Silvaco's AI-driven Fab Technological Co-Optimization also known as FTCO.

This slide shows a more detailed flow of how digital twin models are generated at the wafer level. We utilize AI and machine learning to optimize the large amounts of data provided by the customer into an accurate model representing the wafer. AI and machine learning rapidly build and improve models that otherwise would take months to generate. With AI enabled FTCO, customers can lower costs, enhance margins and reduce time to market.

Here is the summary of our history of our acquisitions. M&A is a critical part of our DNA. Since 2015, we have completed 10 acquisitions funded by our cash flow. Our acquisition philosophy revolves around three main focused areas: technology, talent, customer acquisition. We maintain an existing funnel. We target companies for each of our three product lines.

Now, I would like to summarize our growth strategy. In summary, the growth strategies that have enabled us to grow include a focus on large and expanding markets acquisitions, global agile R&D to address customer needs, leveraging direct sales in underserved market segments, and deep relationships with R&D centers and academia to stay ahead of technology knowledge.

With that, I'll turn it over to Ryan to review the quarter and provide guidance.

Thanks, Babak, and thank you for joining us for our first earning call as a public company. My name is Ryan Benton. I'm the CFO of Silvaco.

I joined the company in August of 2023, bringing over 30 years of experience as a finance executive, the majority of which has been in the public markets. Today, I will discuss Silvaco's business model and long-term targets, review our financial results for the second quarter of 2024 and provide our outlook for Q3 in the full year.

Our business has several growth drivers. First, we have a global presence which allows us to address customer needs for global Tier 1 customers with a white glove high touch approach that we believe many of our customers can't get from our larger competitors. Second, as Babak covered in his prepared remarks, we're very excited about the opportunity for our digital twin modeling product to create enormous value for our customers. Third, our ongoing investments in advanced research and development positions us to take advantage of an enormous EDA software market which is expected to reach $22 billion by 2030 according to a study conducted by the Grand View research.

We intend to capitalize on this opportunity by partnering with world class Tier 1 customers to drive product direction efficiently and thoughtfully. In terms of specific markets, we're focused on delivering differentiated solutions that address unmet market needs. And finally, with our strong financial position and operational expertise, we are actively pursuing multiple strategic acquisitions that we believe will bolster our products, enhance our competitiveness and market presence, add talented engineers and scientists, and provide much needed scale.

Now, let's discuss our second quarter financial performance on the next slide. Earning the bookings, we achieve gross bookings for our software and semiconductor IT products of $19.5 million, an increase of 36% year to year which includes 10 new customer wins and surpassed our guidance of $17 million to $18 million. I have a strong suspicion that this bookings amount is a company record.

In terms of product strength, TCAD bookings were up 78% year over year, driven by a memory customer for FTCO digital plan product. As of now, we don't split FTCO out as a separate product line, but we may consider it in the future.

We believe remaining performance obligation or RPO is an important indicator as it provides visibility into orders booked that have not yet been recognized as revenue. RPO as of June 30, 2024, was $33.2 million, 47% of which is expected to be recognized as revenue in the next 12 months.

Turning to revenue, we generate revenue from the sale of our software and semiconductor IP products. Software products are typically sold with post contract support, providing maintenance in the form of technical enhancements and customer support over an extended period of time.

The revenue recognition for software products has some complexity. Generally, for a new customer or a new product sale to an existing customer, we recognize software license revenue upfront upon the delivery of the license products. Or the upsell of the product to an existing customer, for example, the sale of additional seat licenses or an extension of tenure, the license is typically recognized at the beginning of the renewal period.

Maintenance and services revenue is recognized evenly over the contract term. The revenue recognition of SIP tends to be straightforward as these products are usually sold without any additional performance obligation. Unless customization is involved, the revenue is typically recognized upon delivery of the technology license to the customer, or in some cases, once the cash is received from the customer.

For Q2, we posted revenue of $15 million at the high end of our guidance range, representing a 19% increase year over year. For the quarter, our software solutions accounted for 74% of our total revenue while maintenance and service is accounted for 26%. Because of how revenue is recognized, we believe a good metric for growth performance is the growth rate of software license revenue. Software licensing revenue of $11 million grew 25% year over year compared to $8.8 million in the same period a year ago.

Maintenance and service revenue for Q2 was $3.9 million compared to $3.7 million in the same period last year. This represents a 7% year-over-year increase. Additionally, however, we added $2.8 million to the RPO balance during the quarter for maintenance and service.

On a product basis, similar bookings, the increase in revenue was driven by strength in TCAD and specifically FTCO. TCAD revenue was $10.4 million, up 34% year over year. Rounding out the portfolio, EDA revenue was up $0.5 million, which was up 20% year over year, while SIP revenue was down approximately $700,000 or 30% year over year as a result of a lapse in a resale agreement with a strategic partner which was renewed midway through the second quarter.

Turning to our split between geographic regions. The Americas represented 51% of total sales for Q2, which is essentially the US. This market grew nicely due to the aforementioned increase in TCAD sales. Asia represented 41% of sales of which the People's Republic of China was the largest market at 17% of total sales. EMEA was flat year over year and made up 8% of total sales.

Before turning to gross margins, expenses and profitability, I'd like to note that I'll be discussing non-GAAP results going forward. As a reminder, our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results can be found in our earnings press release in the appendix of the presentation and within the supplemental financials on our website.

GAAP gross margin was 68% impacted by stock-based compensation expense of $2.5 million. Non-GAAP gross margin was 86% in the second quarter, up compared to the 81% for GAAP and non-GAAP alike in the same period last year, driven in large part by strong TCAD and EDA license revenue growth. This put us at 87% non-GAAP gross margin for the first half, a great result. We remain focused on optimizing our product mix to leverage the current cost structure, thereby enhancing margins.

Turning to operating expenses. Our GAAP operating expenses were $47.9 million which includes $19.3 million in stock-based compensation expenses and a $14.7 million acquisition-related litigation claim charge. Our non-GAAP operating expenses for the second quarter were $11.2 million compared to $9.3 million in the same period last year. The increase in cost year over year is split fairly evenly across each category of research and development, sales and marketing, and general and administrative.

The increase in R&D is a result of expanding the engineering team. The increase in the sales and marketing is largely a result of higher sales commissions due to higher sales. And the G&A increase is largely a result of taking our costs associated with becoming a public company.

A lot of the G&A cost we have added are essentially fixed costs. Going forward, we do not expect G&A cost to scale at the same rate of sales. So the net is non-GAAP operating income and non-GAAP operating margin for $1.7 million and 11% respectively, up from $1 million and 6% in Q2 2023. This put us at $5 million and 15% non-GAAP operating income and non-GAAP operating margin for the first half, also great results.

Our net income for the quarter was a loss of $38.4 million, which again also included the charges for stock-based compensation and the acquisition related litigation claim charge. Our non-GAAP net income for the quarter was $1.8 million, up from $0.8 million in the same period last year. Our EPS basing and diluted was a loss of a $1.55 per share.

Non-GAAP EPS basic and diluted came in at $0.07, up from $0.04 in the same period last year. This put us at non-GAAP EPS of $0.19 basic and $0.18 diluted for the first half. Indeed, a great result.

Turning to our balance sheet, we ended the quarter with $102.3 million in cash, cash equivalents and marketable securities. This, of course, is after the receipt of the proceeds of the IPO and the payoff of the company's debt. For the second quarter, free cash flow was an outflow of $6.3 million, down from a $1.6 million inflow in the same period last year.

The relative change in accounts receivable accounted for the largest part of the variance $6.8 million, which reflects the lumpiness and the timing of billing of customers. This is also impacted, however, by IPO-related expenses of $1.8 million in onetime litigations costs of approximately $1 million.

Now, I want to discuss a little more detail the press release on July 24 regarding an update to the ongoing litigation and its impact on our financial goals. The case pertains to a dispute with respect to an earnout arising from an acquisition the company made in March of 2018, which predates Babak and myself.

The jury awarded the opposing parties $11.3 million in damages under breach of contract related claims, along with the potential for an award of statutory prejudgment interest. If the court chooses to award prejudgment interest, we estimate that it will be between $3.4 million and $3.8 million as of June 30, 2024. As a result, we recorded a charge to litigation claim, approved expenses and other current liabilities of $14.7 million.

The jury also found the company and related co-defense liable for certain fraud related claims and awarded the opposing parties $6.6 million. This amount does not stack on top of the breach of contract claims. It's an either-or situation. Punitive damages relating to the fraud claims will be considered at a hearing scheduled for August 16.

Any punitive damages awarded would be incremental to the $6.6 million awarded. After the hearing, the opposing parties will have the option to choose either amount, presumably the higher amount. But in no circumstances will they receive both remedies.

Candidly, we're saddened by the result. We respect the jury's verdict. But at the same time, the company believes it has strong legal grounds for appeal on multiple issues and is actively evaluating its legal strategies and options, including the possibility of post-trial motions and appeals.

And perhaps even more importantly, as Babak noted, we do not expect this ruling and related award to materially impact our core business operations of providing TCAD, EDA software, and SIP solutions going forward.

Alongside 2022 and 2023 results, 2024 guidance is on here to show our momentum. I'll review our third quarter and 2024 guidance in more detail on a later slide. With that as a foundation, in terms of long-term guidance, we believe that we can constantly target 15% to 25%-plus top-line organic growth in the coming few years.

We see a pretty clear path to 90%-plus gross margin and 25%-plus operating margin over a similar time horizon, driven by our focus on expanding our footprint across the key markets we've highlighted. We also intend to leverage a creative M&A for talent and technology, helping us accelerate our timeline to get to our financial targets and provide much needed scale.

We believe our strong financial position enables us to pursue strategic acquisition opportunities that not only enhance our competitiveness and market presence but also bolster revenue streams and drive margin expansion through synergies and efficiencies. Some notable highlights from the quarter include 10 new customer wins, with industry leading companies and industries including automotive power, semiconductors, memory and wireless connectivity.

Additionally, we launched our digital product and renegotiated a key technology agreement which extended the term for an additional five years. These achievements underscore our commitment to innovation and customer satisfaction, positioning us well for continued growth and success.

Turning to our guidance for Q3 in the full fiscal year. For bookings, building upon the great momentum we had from Q2, we expect gross bookings for Q3 to be in the range of $16 million to $18 million, in the full year to be in a range of $67 million to $71 million, a range higher than we had previously anticipated.

As we all know, our software sales can be complex, and the application of the associated revenue recognition rules can be complex as well. On our side, the timing of revenue from a particular deal can be difficult to forecast until the final terms of the larger elements are negotiated.

Bookings, in my opinion, remain a great leading indicator of the performance and relative strength of the business, and we're happy with how things are trending. We are seeing robust momentum across our key markets, driven by an increasing adoption of our software solutions and positive feedback from new and existing customers. This demand coupled with our strategic initiatives and the solid execution of our land and expand strategy gives us confidence in our ability to achieve our targets.

On the topic of revenue for the third quarter of 2024, we expect revenue to be in the range of $15.5 million to $16.5 million, which would represent a 4% to 10% increase from the third quarter 2023. For the full fiscal year, we are maintaining our revenue outlook of $63 million to $66 million, which would represent a 16% to 22% increase from 2023.

For non-GAAP gross margins, we're at 87% year-to-date through June. For the third quarter of 2024, we expect non-GAAP gross margin to be similar in the range of 85% to 88%. For the full year, we're forecasting a slightly higher range of 85% to 89%. For non-GAAP operating income, we are at $5 million year-to-date through June.

For Q3, we expect non-GAAP operating income to be in the range of $1.8 million to $2.8 million. For the full year, we maintain our expectation of non-GAAP operating income to be in the range of $8 million to $11 million, which would be an increase from 2023 of between 93% and 161%.

And with that, Babak and I would be happy to take your questions. Operator?

(Operator Instructions) Blayne Curtis, Jeffries.

Hey, thanks for taking my question. I wanted to ask you about the FCTO market. You laid out a pretty big TAM with some end markets. I mean, obviously, you have this lead memory customer. Do you need to get to a certain point with that customer before you can start addressing the other end markets? Or is that something you're engaging with now?

Thanks, Blayne. This is Babak. Well, that's a great question.

No, we have a shortly said we are already at a stage in which we have engaged discussions with our other customers in that same space, which is our digital twin model of FCTO platform. And as I had mentioned before, we are actually discussing this to expand this to other markets such as power, as well as the next step after power is actually advanced CMOS. We have customers that we are discussing these things with now.

And then the last one of this is fabrication of any kind if you will, including fabless or fablite. And the last thing I would mention in this case is we had also said the cycle time to bring on new customers since we announced this in May time frame, it's within six months to a year. So we are on schedule to that, and we are hoping to make some announcement either this year or early next.

Thanks. And then a question for Ryan. I might be answering my own question, but if you take the annual guide and see what implies for December, it seems like OpEx would be up a bunch. So I just want to see if that's right and then maybe the second part of it. And this is where I might be answering my own questions, it's just the cost of this legal. If you can kind of frame what that would be and kind of how you think about those costs later on.

So the first question, if you look at the guidance, yes, I think you could back into a little bit of an uptick of operating expenses in Q4. And some of that is kind of a natural seasonality trend with a similar seasonal trend in Q4 of last year. A lot of the sales force in particular is the commission structure enables them to hit certain accelerators that happen in Q4 on the sales and marketing line.

Separately on the R&D, we are hiring. So for anyone of those good engineers, send them our way. So we're adding -- we're looking for a good bit of talent to augment the team that we're -- the technology team that we're in process of hiring. In Q3 and Q4, the expense will come.

And there's a little bit of waiting in terms of some of the accounting charges in the G&A area that we're kind of hit in the fourth quarter. But I think we've tried to be probably conservative in terms of how we expect expenses to hit. And then your second question was about the legal expenses. I assume you're referring to the litigation. I don't know if the words in your mouth, but can you please rephrase

You referenced that you're going to appeal. So I'm just kind of curious if you know what that cost would be, if it's notable, and we should be thinking about modeling anything?

So Blayne, thanks for asking. But you know, as you know, we also have had IPO legal extensive, which is part of those numbers. In terms of litigation, the timing of any of these payments would depend on several factors including whether the parties eventually set up this litigation, or the company pursues post-trial motions in the fields.

If the matter is not settled and the company pursues an appeal, the [affid] process would take one or two years. And at the beginning, we'll have some extensive in terms of litigation and filings. But then there's a gap period there that you wait for the affid court to give us time and judges. So it is very hard and difficult to forecast this at this time. But as we -- as the time goes by, we will provide guidance as what we think. And right now, it's very difficult to forecast.

Yeah, and I'll just add one point. Obviously, you know, in the second quarter here, there was a trial which has significant expense associated with that.

Yeah. And don't forget the fact that we are still in the midst of it. And us commenting anymore beyond that, we rather not.

Okay, thanks so much.

Charles Shi, Needham and Company.

Hi, Babak, Ryan. Good to hear from you on the first official earnings conference call. Really just want to start with the first question about your revenue from China. One of your larger EDA peer who has reported had to take down their overall China revenue expectation for this year, and they are expecting China to be down this year.

I do look at your numbers for Q1 and the Q2. It does seem like the China revenue run rate has been a little bit lower than last year. So I kind of want to get a sense how do you think about China revenue overall for the remainder of the year and for the full year 2024 compared with the last year? And is it up or down? And what would be the reason behind?

Yeah, that's a very good question. But let me give you the main answer first and all before to dive into a better explanation. Overall, we think it'll be a bit down compared to last year. However, in compared to our competitors there -- as you know, local competitors there do not provide many of the solutions we provide. Specifically, if you think of our technology TCAD product line that we use, there is very few and far level of maturity to the point that they can provide the solutions we have.

We do have TCAD products especially in power and display, as well as some memory, some specialty memory companies in China. In addition, we do have differentiated IP part of the down, part of IP business units. And the fact that China is very correlated in the sense that, as you know, we did not renew one of our contracts until I would say April of this year, there was a GAAP. And that GAAP, we are catching up if that was the second impact of the China business that we think that's going to come back up in that respect.

But overall, I think large part (inaudible) if you add anything, I think, overall, we'll be down and a bit down because of the IP GAAP we had and because of some of the overall market for China, Europe, so if you write it down. But that usually, the eight companies that have differentiated products get less impacted. But they get impacted, and part of that less impacted companies.

Thank you. Maybe a second question. Because you guys have the exposure to like a power, display, memory. These are analog type of devices. We all know that part of the semiconductor industry was did well last year. This year, they were in a sort of a pretty -- a little bit tougher period. The inventory remains high, business results a little bit mixed for that part of the semiconductor market.

Because of your exposure to that part of the market, but other than China being down, but the non-China business, based on your guidance, it looks like it's still very strong this year. How do I reconcile between the two different trends? I mean all analog guides and yeah.

Yeah, that's an excellent point. You're right. Analog is amazing. Last year, in terms of the whole semiconductor market, we actually wrote that wave.

Analog is not doing as well this year. However, one component that we do sell is not just display and power. But they also sell into automotive, which a little bit -- the automotive market is done. But the tools to generate the next generation of product for automotive is not.

The second component of it is what we call semiconductor IP or IP for other markets that we provide to China, not only automotive, but also IoT devices. And those are some of the businesses that we keep actually up and going. In terms of US and other regions, we are strong. As you notice, US is our strongest region, and that momentum is going to continue.

But Ryan, go ahead and add some.

Yeah, I think it's all right. And certainly, we're super excited about the FTCO product and the contribution of the memory market. However, if we look at the first half on a booking basis, power are still our largest market. So really, really strong there, and we certainly expect that strength to continue into the second half of 2024. And we expect power to be our largest market.

Thank you. That's all for me.

Great question. Thanks, Charles.

Craig Ellis, B. Riley Securities.

Yeah. Thank you for taking the question and congratulations on the momentum in the business guys. I wanted to go back to the statement in the prepared remarks that identified there were 10 new customer wins in the quarter, and I think it was identified that they existed in auto power memory and in other areas. So the two related questions, are these -- one, can you help us understand if any of these are particularly material from a revenue standpoint, and if so, when? And two, since my understanding is that the company's pipeline tends to be a little bit longer as you engage before you close a win, how does the 10 wins compare to what you expected going into the quarter?

So Craig, that's a great question. Yes, we did, and we have added 10 new customers to add a bit more color. These customers included five new power customers, four new automotive customers, and one solar power customer. So that's the 10 customer, which area you added.

Typically, depending on the market you're addressing, the cycle of -- this is the process that we call landing. And we've landed in those customers. And as you know, we have a very specific metrics by which we plan to expand in these customers.

At our cycle times between land and expand, typically, average is 6 to 12 months, I would say. So I would expect the companies that we land in within 6 to 12 months to go expand depending on several factors. One is the mix of products, the type of product, and as well as the licensing that we sign them up for whether it's one year, two year, three year, or what have you.

And Ryan, do you want to add anything?

I mean, I guess just the thing I would add anecdotally, Craig, is I think tomorrow is my one-year anniversary. And having been here right at one calendar year, it's -- during that 12 month, I've kind of seen the evolution of certain customers, big names, big market caps that were landed just prior to me arriving or after seeing how those engagements are evolving and just -- it does bode well for the long term.

That's helpful, Ryan. And then the back -- the follow up question for you is more about the color that you're hearing as you interact with some of Silvaco's key customers and key potential customers. And it's related to some of the choppiness we've seen in the global macro over the last couple of months.

So booking certainly looked like they came in strong. But can you just talk about areas where, as you engage with customers, you're seeing some acceleration and seeing things actually turn up? And are there any areas that are being negatively impacted by some of the macro weakness we've been seeing? And how does that cause you to think about bookings trends as you look beyond this year and into next year? Thank you.

Yeah, that's a great question. So I'll make an overall comment. If you know better than anyone else that EDA market impact is very different than the actual market impact. Another way to say, if automotive market goes down or analog market goes down, that means the sales of analog products go down. That means the units they sell is lower.

However, as you know, EDA, typically -- the companies like us like to call ourselves going forward (inaudible) companies like us to stimulate, and model, design. And our impact directly at the time we reach the market gets impacted, it's out of sync and out of from those markets.

We work on advanced. Process technology knows we work on advanced R&D of our customers. What we see right now in many areas that advanced, R&D projects that are going on now, the only market that we see that would impact potentially us would be power in specific regions of the world, not every plan.

And that's the areas in which we have already strengthened for us going to new customer, adapting just last quarter (inaudible) five power companies, four automotive companies and solar power. And the surprising thing that people don't realize is they're still at that time getting done. In solar power, they're still at that time getting done in automative. They're still at that time getting done in power.

And like in any market, there's competitors. Some would survive, some will not. And in terms of our customers that -- or I would -- that's an extreme comment, I would say. Some will survive, some will do better, and some will do great. And then we tend to get impacted less by those companies that reduce their R&D because there are other companies that have offset it. However, we have not seen an overall downtrend for R&D and EDA market yet.

That's really helpful color. Thanks for the comments, Babak and Ryan.

Blair Abernethy, Rosenblatt Securities.

Hi. Nice quarter guys. Just first question is just around the bookings. If I look at -- I mean, it's strong quarter this quarter, obviously helped by the FTCO. But I just -- as you kind of look at the first half versus the second half, that looks -- your guidance is sort of implying a slightly slower second half in bookings. Is that -- is there any seasonality that we should be looking at here? Or is this really just as a result of maybe FTCO impact in Q2?

Yeah. So I would say like from a seasonal standpoint, we always -- we talked about the barbell shape. So there tends to be stronger Q1 and Q4 and kind of slower Q2 and Q3 traditionally. I think the main point is that -- I mean from a booking standpoint, certainly, Q2, we're super proud of it. And having the first large FTCO booking is exciting.

And you're right. You've done the two function math correctly in terms of our range for the full years that would imply a range that would be similar or slightly down. But I think it's really just an artifact of such a great Q2. But certainly, if you look at the overall guidance for the year, we had our guidance a great result.

Yeah. And to answer to your question is both. Yeah.

Yeah. Okay.

That's great. Thank you. And then just on the actual FTCO is I guess two questions here. Is Micron, your first memory customer with the solution, are they rolling out as expected timing wise? And then how is the pipeline of opportunities for next new customers shaping up?

Yeah, thank you for asking that question. As you know, we have a strategic relationship with Micron. And we continue working with them. In terms of other areas, as I mentioned, to Blayne, we are having quite a few discussions with people in -- well, customers in power as well as advanced CMOS nodes. And those are the customers that we plan to bring up to the FCTO.

We've actually made good progress in them. And the cycle time for those, as I said, it's 6 to 12 months. We have -- we're about two months into that cycle time. So hoping by end of this year at least announce -- we're pushing to get this into hands of our customers before the end of the year. And that's our goal.

And one thing that I want to mention this AI-based Fab Technology Co-Optimization on modeling capabilities. Also, it requires some customization because if you go from a memory product to a CMOS product to any other kind of fabrication processes, including within the fab, if you were talking with the very low geometry node versus unique geometry node.

So there's some customizations that need to be done. And frankly, part of the fact that it takes us 6 months to 12 months to really get a deal, which is the ultimate results of all this, is to do some of that advanced customization ahead of time so that they can evaluate and analyze our products for those market or products that we're looking at to sell.

Okay, great. Thank you. And then last question just over on IP business. Obviously, the NXP relationship renewed. How is that business sort of shaping up from here? Are sort of along the bottom of this business now? And so what are you kind of looking at for growth in the medium term on your IP business?

So (inaudible) relationship, yes, it did renew April. It's coming up nicely. And as a matter of fact, we did some business in Q2, although we had closed the contract in mid-Q2. But the expectation is that it's going to come back to very quickly. And we have found attractions for that in terms of overall IP, as I mentioned before, we are developing certain kind of IP that gets us into more advanced technology notes and higher speed interfaces and that what the team have been focusing on and we do have customers that are waiting for their products that we will, we will we will deliver in Q3 and Q4 time frame. So the overall growth of IP business will be higher than what you.

Okay. Great. Thanks very much, Miss.

Krish Sankar, TD Cowen.

Hi, this is Robert Mertens on for Chris Sancar Congrats on the strong quarter and thanks for taking my question. I guess the first one was your bookings came in higher than prior guidance and it looks like a lot of the strength was from the TCAD business. Could you just provide some color around the strength you witnessed in the quarter compared to what you're expecting a quarter ago and then within the bookings being a little bit lower in the September outlook, is it fair to assume that the software outlook would be more FCCO related digestion from that main customer?

That's a very good Question. So, and as we mentioned, we had two main growth areas in terms of booking many ticket and both T&E VA both not one.

And the fact of the matter that we reported a very high-level digit bookings in Q2 is the fact that yes, we did have a digital train product for the first time that we announced that we had bookings and revenue from.

We also had very strong as demand for our EDA tools which are our customer.

And those are the main two, our clients that we got right in June.

Yeah, I mean, I guess I, I would say that, you know, in my prepared marks, I talked about how the bookings order I suspected was a company record. And the only reason why I can use language that specifically hedging was just because the company has a long history and without going and, and, and checking off, you know, all those kind of previous years to confirm the number. But II, I truly believe it is. And by a long shot and for example, the, the Q3 guide in terms of bookings that if not for such a strong Q2, I think it would, it would have been, it would have been a record itself. So even though it's down sequentially, it's, it might be a really strong port,

That's a good point. But, you know, it would impact the read every quarter every time we have reported so far for us. But second quarter was exceptionally.

And, and of course, on again, I think whoever asked the previous question, a seasonal, typically a slow quarter from a seasonality perspective. And so that that number is obviously a sign guiding to a significant increase on a year over year basis.

No, absolutely. So, yeah, so again, going back, yes, FPCO had a role in it as the rollout there to show other customers.

We will be able to actually forecast those more accuracy as, as they pan out. But, but also Q3 and Q4 forecast, it's just a mix of products looked at so nothing surprised.

Okay, got it. Thank you. That, that's very helpful.

Christian Schwab, Craig Hallam Capital Group.

And I'm not showing any further questions at this time. I would not like to turn the call back over to Babak to hear for any closing remarks.

Yeah, I wanted to thank you for attending this. We this is a coveted event for me and for Ryan and having our analyst on the call and doing this for the first time for the black call. It's, it's very surreal for us, enjoy doing this with you. And I wanted to thank you again and I wanted to also mention we look forward to seeing you in the quarter. Thank you so much.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.