Q2 2024 Silvaco Group Inc Earnings Call

August 7, 2024

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Operator: Good afternoon, and welcome to Slovaco's second quarter 2024 conference call. All participants will be in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please note, this event is being recorded. I would now like to turn the conference over to Greg McNiff, Investor Relations for Slovaco. Please go ahead.

Operator: Good afternoon and welcome to Silvaco's second quarter 2024 conference call. All participants will be in listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Operator: Good afternoon, and welcome to Svvaco's second quarter 2024 conference call. All participants will be in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please note this event is being recorded. I would now like to turn the conference over to Greg McNiff, Investor Relations for Svvaco. Please go ahead.

Speaker Change: Good afternoon and welcome to Slovakia's second quarter 2024 conference call. All participants will be in listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Operator: To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please note, this event is being recorded.

To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please note, this event is being recorded. I would now like to turn the conference over to Greg McNiff, Investor Relations for Slovakia. Please go ahead.

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

Greg McNiff: Thank you. Joining me on the call today are Rebecca Harry, Silvaco CEO, and Ryan Benton, Silvaco CFL. 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.

Greg McNiff: Thank you. Joining me on the call today are Babak Taheri, Svavaco CEO, and Ryan Benton, Svavaco 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 investor relations site at investors.svaco.com. An archived replay of the conference call will be available on this website for a limited time after the call.

Greg McNiff: Thank you. Joining me on the call today are Babak Taheri, Svavaco's CEO, and Ryan Benton, Svavaco'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 investor relations site at investors.svaco.com. An archived replay of the conference call will be available on this website for a limited time after the call.

Greg McNiff: thank you joining me on the call today go back to harry tobaco ceo and rryan beton svako of cfo

Speaker Change: As a reminder, a press release highlighting the company's results

Speaker Change: along with supplemental financial results and an earnings presentation are available on the company's IR site at investors.svaco.com. An archived replay of the conference call will be available on this website for a limited time after the call.

Greg McNiff: 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.

Greg McNiff: 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, or to turn the call over to Svaco's CEO, Babak Taheri.

Greg McNiff: 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 statement. It is important to also note that the company undertakes no obligation to update such statements except as required by law.

Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company.

Greg McNiff: 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 this conference call. The risk factors section in Svvaco'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 Svvaco CEO, Babak Taheri.

Speaker Change: 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.

Greg McNiff: It is important to also note that the company undertakes no obligation to update such statements except it's 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.

Speaker Change: It is important to also note that the company undertakes no obligation to update such statements.

Speaker Change: 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.

Greg McNiff: The risk factors section in Silvaco's most recent Form 10-Q filing with the Security Exchange Commission provides a description of these risks.

Babak Taheri: The Risk Factors section in Svvaco'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 Svvaco's CEO , Babak Taheri. Babak?

Greg McNiff: With that, I'd like to turn the call over to Silvaco's CEO, then back to Harry. The back.

Babak Taheri: Thank you, Greg. Hello, and welcome to Svlaco's second quarter earnings call. I am Babak Taheri, the CEO of Svvaco. Before discussing Svavaco'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 Invencent to mid-sized-cap firms like Cypress Semiconductor and Freescale to 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 striving for excellence.

Babak Taheri: Thank you, Greg. Hello, and welcome to Slovaco's second quarter earnings call. I am Babak Taheri, CEO of Svvaco. Before discussing Slovaco'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 Invencent to mid-sized cap firms like Cypress Semiconductor and Freescale to large cap companies like Apple.

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

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

Babak Tahari: Before discussing Silvaco's second quarter results, I'd like to provide a brief introduction of myself on the company. I have over 35 years of experience in Silicon Valley, having helped key roles with companies ranging from small cap firms like Invencens to midsize cap firms like Cypress Semiconductor and Free Scale, and large cap companies like Apple. Since joining Silvaco in October of 2018 at CTO and becoming CTO 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 some of my connector design and menu factoring through AI-driven digital twin modeling for stimulation, software innovation, and automation.

Babak Taheri: Before discussing Slovaco's second quarter results, I'd like to provide a brief introduction of myself and the company.

Babak Taheri: I have over 35 years of experience in Silicon Valley, having held key roles with companies ranging from small-cap firms like Invencent to mid-sized-cap firms like Cypress Semiconductor and Freescale and large-cap companies like Apple.

Babak Taheri: 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 striving for excellence.

Babak Taheri: Since joining Slovaco in October of 2018 as CTO and becoming CEO in 2019, I have been leading our strategic direction ensuring alignment with our vision

Babak Taheri: mission and values that include customer success, teamwork, leading by example, and strive for excellence.

Babak Taheri: 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 platform. 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.

Babak Taheri: Silvaco enables semiconductor design and manufacturing through AI-driven digital twin modeling for simulation, software innovation, and automation.

Babak Tahari: 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 micro-processors in advanced technology nodes, memory products for our 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.

Babak Taheri: Our digital twin models for simulations are provided using a combination of AI and our software platforms.

Babak Taheri: 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.

Babak Taheri: Our software platforms are considered the foundational technology behind the chip.

Babak Taheri: 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.

Babak Taheri: 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 a 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 and bookings year-over-year increased 19% and 36%, respectively.

Speaker Change: these ships are crucial for enabling artificial intelligence and iot devices that power homes factories cars trucks and cities downaround the world

Babak Tahari: Next, I will cover the financial overview. I want to touch on a few financial highlights of the second quarter. Ryan, RCFO, will go into more detail about our business model, financial results, and guidance. Q2 revenue and bookings year-over-year increased 19% and 36%, respectively. The 2024 figures include a 21.8 million in stock-based compensation or SPC expenses, and a 14.7 million acquisition-related litigation claim. I want to note that we recently announced an update regarding litigation related to an acquisition the company made in early 2018. Ryan 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 the current management team, and we do not expect this litigation to materially impact our core business operations of providing T-CAD, EVA software, and SIP solutions going forward.

Babak Taheri: The 2024 figures include $21.8 million in stock-based compensation or SBC expenses and a $14.7 million acquisition-related 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 our 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.

Speaker Change: Next, I will cover financial overview.

Brian: I want to touch on a few financial highlights of the second quarter. Brian , our CFO , will go into more detail about our business model, financial results, and guidance.

Brian: Q2 revenue and bookings year-over-year increased 19% and 36% respectively.

Brian: The 2024 figures include a $21.8 million in stock-based compensation or SBC expenses and a $14.7 million acquisition-related litigation claim.

Brian: I want to note that we recently announced an update regarding litigation related to an acquisition the company made in early 2018.

Babak Taheri: Brian will cover the related financial details, but I want to emphasize that the acquisition that is the subject of this delegation predates the arrival of our current management team, and we do not expect this delegation to materially impact our core business operations of providing TCAD, EDA software, and SIP solutions going forward. However, that gross margin was 68% impacted by SBC 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.

Babak Taheri: Brian will cover the related financial details, but I want to emphasize.

Brian: That the acquisition that is the subject of this delegation predates the arrival of current management team, and we do not expect this delegation to materially impact our core business operations of providing TCAD EDA software.

Babak Tahari: GAP gross margin was 68%, impacted by a SPC for individuals within the support organization totaled in $2.5 million. Non-GAP gross margin was 86% compared to 81% for GAP and non-GAP 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.

Babak Taheri: That gross margin was 68% impacted by SBC for individuals within the support organization totaling two and a half million dollars. 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.

Brian: SIPP solutions going forward.

Speaker Change: The app gross margin was 68% impacted by SBC for individuals within the support organization totaled in two and a half million dollars.

Brian: 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.

Babak Taheri: The increase in our non-GAAP gross margin is mainly due to higher-margin products. Our focus is on developing flexible, intelligent software solutions that allow users to analyze and simulate electronics and optics designs 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 manufacturing. Customers are drawn to Silvaco for two reasons. First, we offer differentiated platforms in the power, display, and memory markets. Thank you.

Babak Taheri: The increase in our non-GAAP gross margin is mainly due to higher margin products.

Brian: non-GAAP operating income was $1.7 million, up 104% over Q2 of 2023.

Babak Tahari: Next I will cover an overview of Silvaco solutions. Silvaco offers a diverse set of platforms as solutions for developing new semiconductors, photonics, processes, and devices. Our focus is on developing flexible intelligence after solutions that allow users to analyze and simulate electronics and optics designed directly on their desktop, laptops, and servers. Our platforms enable efficient and cost-conscious product development, supporting the entire life cycle from design conceptions to finance design and verification and validation, seamless transition and support through manufacturing. Customers are drawn to Silvaco for two reasons. First, we offer differentiated platforms in the power, display, and memory markets.

Babak Taheri: Next, I will cover an overview of Silvaco's solution. 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 designs 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, and seamless transition and support through manufacturing. Customers are drawn to Silvaco for two reasons. First, we offer differentiated platforms in the power, display, and memory market. Thank you.

Speaker Change: Next, I will cover an overview of Silvaco's solutions.

Speaker Change: and

Speaker Change: Elvaco offers a diverse set of platforms as solutions for developing new semiconductors, photonics, processes, and devices.

Speaker Change: Our focus is on developing flexible, intelligent software solutions that allow users to analyze and simulate electronics and optics designs directly on their desktops, laptops, and servers.

Speaker Change: Our platforms enable efficient and cost-conscious product development, supporting the entire lifecycle from design conception to final design and verification and validation, seamless transition and support through manufacturing.

Speaker Change: Customers are drawn to Silvaco for two reasons. First, we offer differentiated platforms in the power, display, and memory markets.

Babak Tahari: Second, we are deeply embedded in our customers around the processes, collaborating with them to develop technologies, yearning as as of their market introduction. The long-term partnership approach is highly valued by our customers. Our leading market share reflects this differentiated position. Seven of the ten largest flat-pile display companies and six of the ten largest semiconductor companies utilize our EDA platform. Similarly, eight out of the top ten flat-pile display companies use our T-CAD platforms. Additionally, as we expand our footprint in the power market in 2023, we acquired 14 new logos from our power customers, resulting in four out of the top ten largest power companies adopting our T-CAD platform.

Babak Taheri: We are deeply embedded in our customers' R&D processes, collaborating with them to develop technologies a year in advance of their. Similarly, 8 out of the top 10 flat tile display companies use RT-CAD flats. Additionally, as we expand our footprint in the power market, in 2023, we acquired 14 new logos from our power customers, resulting in four out of the 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.

Babak Taheri: We are deeply embedded in our customers' R&D processes, collaborating with them to develop technologies a 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. Seven out of the ten largest flat-panel display companies and six of the ten largest semiconductor companies utilize our EDA platform. Similarly, 8 out of the top 10 flat tile display companies use our TCAD flat tile

Speaker Change: Thank you.

Speaker Change: We are deeply embedded in our customers R&D processes, collaborating with them to develop technologies year in advance of their market introduction.

Speaker Change: The long-term partnership approach is highly valued by our customers.

Speaker Change: Our leading market share reflects this differentiated position.

Speaker Change: Seven out of ten largest flat-panel display companies and six of the ten largest semiconductor companies utilize our EDA platform.

Speaker Change: Similarly, 8 out of the top 10 flat panel display companies use our TCAD platforms.

Babak Taheri: Additionally, as we expand our footprint in the power market, in 2023, we acquired 14 new logos from our power customers, resulting in four out of the 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 cheap creation.

Speaker Change: additionally as we expand our footprint new power market in two thousand and twenty-three v acquired fourteen new logos from our power customers resulting in four out of top ten largest power companies adopting our tecad platform

Babak Tahari: We have assembled a management team and board the deep industry knowledge and public company experience. Members of our core management team average 35 years of experience in similar conductors and EDA companies. Electronic design and manufacturing software enables the value chain from a concept for the design through the final cheap 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. So the echo participate in this phase addressing a $3.1 billion sound. The second step in realizing a chip is the processing and fabrication of design on wafers.

Speaker Change: We have assembled a management team and board with deep industry knowledge and public company experience.

Speaker Change: Members of our core management team average 35 years of experience in semiconductors and EDA companies.

Speaker Change: Electronic design and manufacturing software enables the value chain from a concept for the design through the final cheap creation.

Babak Taheri: The first step in developing a chip is designing the chip using EDA software and semiconductor IP. They provide software platforms for semiconductor design, modeling, and simulation, offering differentiated products across seven markets. Selvaco participates in this phase, everything at $3.1 billion.

Babak Taheri: The first step in developing a chip is designing the chip using EDA software and semiconductor IP. We provide software platforms for semiconductor design, modeling, and simulation, offering differentiated products across seven marketplaces. Silvaco participates in this phase, addressing a $3.1 billion market. The second step in realizing a chip is the processing and fabrication of the design on wafer. We are expanding our platform's TAM into the fabrication steps of chips using our AI-based digital twin modeling platform, also known as FAP, Technology Co-Optimization. Our estimated incremental SAM for this market is currently about $500 million.

Speaker Change: The first step in developing a chip is designing the chip using EDA software and semiconductor IPs.

Speaker Change: They provide software platforms for semiconductor design, modeling, and simulation, offering differentiated products across seven market segments.

Silvaco: Silvaco participates in this phase addressing a $3.1 billion sound.

Babak Taheri: The second step in realizing a chip is the processing and fabrication of the design on wafer. We are expanding our Platforms TAM into the fabrication steps of chips using our AI-based, digital twin modeling platform, also known as FAP, for 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 fabric. They use it for performance, yield, design, and manufacturability analysis to get products to market faster and cheaper.

Silvaco: The second step in realizing a chip is the processing and fabrication of design on wafers.

Babak Tahari: We are expanding our platform's tab into the fabrication steps of chips using our AI-based digital twin modeling platform, also known as fab technology co-optimization. Our estimated incremental firm for this market currently is about $500 million. Think of this technology as a physics-based digital twin model of wafers 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 historic has taken several prototyping turns and costly design of products.

Silvaco: We are expanding our platform's TAM into the fabrication steps of chips using our AI-based digital twin modeling platform.

Silvaco: also known as FAP, Technology Co-Optimization.

Silvaco: Our estimated incremental SAM for this market currently is about $500 million.

Babak Taheri: 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 fabric. They use it for performance, yield, design, and manufacturability analysis to get products to market faster. Faster, ain't it?

Silvaco: 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.

Silvaco: They use it for performance, yield, design, and manufacturability analysis to get products to market faster and cheaper.

Babak Taheri: These digital twin models reduce the guesswork out of manufacturing and design, which historically has taken several prototyping turns and costly 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, the display market, and the advanced CMOS fabrication process in the near future. Silvaco is addressing the first two steps in the value chain of realizing a. We are not part of the supply.

Babak Taheri: These digital twin models reduce the guesswork out of manufacturing and design, which historically has taken several prototyping turns and costly 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 Visual Twin technology in a bit more detail shortly. We intend to extend this technology into the power market, the display market, and the advanced CMOS fabrication process in the near future. Slvaco is addressing the first two steps in the value chain of realizing a.

Silvaco: These digital twin models reduce the guesswork out of manufacturing and design that historically has taken several prototyping turns and costly redesign of products.

Babak Tahari: This technology has been underdevelopment since 2018. Recently announced, Macon as our strategic partner in the memory market for this technology.

Silvaco: This technology has been under development since 2018. Recently we announced Micron as our strategic partner in the memory market for this technology.

Babak Tahari: All discussed Silvaco's Visual Twin technology in a best-born detailed showcase. We intend to extend this technology into the power market, display market, and advanced CMOS application process in the 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.

Silvaco: I'll discuss the VackerVisual Twin technology in a bit more detail shortly.

Silvaco: we intend to extend this technology into the power market this playla market and advanced semo fabrication process in near future

Silvaco: to lacco is addressing their first two steps in the value chain of realizing a chip

Babak Tahari: There are three challenges in designing new products for the 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-course. This level of complexity impacts all the markets we've participated in, including memory, high-performance compute, and automotive. Second, the introduction of new materials such as GAN, silicon carbide, and quantum dosing with 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.

Babak Taheri: There are three challenges in designing new products for the semiconductor and photonics market. First, there is increasing complexity in design characterized by smaller transistors, integration of more functionality, and the addition of complex multi-core. 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 the design and fabrication process increases complexity.

Babak Taheri: There are three challenges in designing new products for the semiconductor and photonics market. First, there is increasing complexity in 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 the design and fabrication process increases complexity.

Speaker Change: We are not part of the supply chain.

Silvaco: There are three challenges in designing new products for semiconductor and photonics market.

Silvaco: First.

Silvaco: There is an increasing complexity of design characterized by smaller transistors, integration of more functionality, and the addition of complex multi-cores.

Silvaco: This level of complexity impacts all the markets we participate in, including memory, high-performance compute, and automotive.

Silvaco: Second, the introduction of new materials such as GaN, silicon carbide, and quantum dots in the design and fabrication process increases complexity.

Babak Taheri: 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 full K display panel.

Babak Taheri: 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 our products and needs. 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 full K display panel.

Silvaco: Third

Silvaco: Customers face go-to-market challenges including the rising cost of design, tools, masks, wafers, and time to market.

Silvaco: We address these challenges with our platforms and digital twin models, making our solutions critical for our customers.

Babak Tahari: This light 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 AK-QLED display panel that is made of approximately 33 million pixels to provide two platforms that enable design, modeling, and simulation starting at a single pixel level all the way to the full-cade 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 ARVR 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.

Silvaco: This slide illustrates real-life examples of what our products enable.

Silvaco: our platforms handle increasing lel of complexity these products require

Silvaco: For example, to design an 8K QLED display panel that is made of approximately 33 million pixels,

Silvaco: we provide two platforms that enable design modeling and simulation starting at a single pxel level all de way to the fullkade display panel

Babak Taheri: This is an example of a digital twin that enables customers to understand their product through simulation and not prototyping. They have enabled companies that require curved and flexible bending of displays 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.

Babak Taheri: This is an example of a digital twin that enables customers to understand their product through simulation and not prototyping. 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 ADA industry has historically utilized AI to assist chip designers at three levels, aiding in design steps, but rather in manufacturing.

Silvaco: This is an example of a digital twin that enables customers understanding of their product through simulation and not prototyping.

Silvaco: We have enabled companies that require curved and flexible bending of display for AR, VR and mobile phone applications.

Silvaco: Similarly, our capabilities extend into new semiconductor materials with applications in cars, car charging, or powering boxes within a data center.

Babak Tahari: There are four levels of artificial intelligence in EDA. As I mentioned earlier, Silvac 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 ADA industry has historically utilized AI to assist chip designers at three levels. One, optimizing historical twin performance for chip designers. Two, aiding the design step, 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 time by enabling operators in fabs to save time and reduce wafer production costs.

Babak Taheri: There are four levels of artificial intelligence in EDA. As I mentioned earlier, Silvaco leverages AI industry trends through its digital twin modeling capabilities, which allows customers to create models to reduce costs and improve time to market. The ADA industry has historically utilized AI to assist chip designers at three levels. One, optimizing historical tool performance for chip designers, to aiding the design steps. And three, generating chip designs from specifications. Silvaco has introduced a fourth level of AI, which is not in the design but rather in the manufacturing. This is where Silvaco is expanding TAM by enabling operators in fabs to save time and reduce wafer production. Here's an example of Silvaco's AI-driven FAP technology co-optimization, also known as FTCR. This slide shows a more detailed flow of how digital twin models are generated at the wafer level.

Silvaco: There are four levels of artificial intelligence in EDA.

Silvaco: 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.

Speaker Change: The ADA industry has historically utilized AI to assist chip designers at three levels.

Speaker Change: One, optimizing historical tool performance for chip designers.

Silvaco: 2. Aiding in Design Steps.

Silvaco: And three, generating chip designs from specifications.

Silvaco: Slvaco has introduced a fourth level of AI which is not in the design space.

Silvaco: but rather in the manufacturing space.

Silvaco: This is where Silvaco is expanding TAM by enabling operators in fabs to save time and reduce wafer production costs.

Babak Tahari: Here is an example of Silvaco's AI-driven fab technological optimization, also known as FTCL. This slide shows the 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 FTCL, customers can lower costs, enhance margins, and reduce time to market.

Silvaco: Here's an example of Silvaco's AI-driven fab technology co-optimization, also known as FTCO.

Silvaco: This slide shows a more detailed flow of how digital twin models are generated at the wafer level.

Babak Taheri: We utilize AI and machine learning to optimize the large amounts of data provided by the customer into an accurate model. Here's a 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 focus areas: technology, talent, and customer. We maintain an existing funnel with target companies for each of our three products.

Babak Taheri: We utilize AI and machine learning to optimize the large amounts of data provided by the customer into an accurate model. Representing you. 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 a 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.

Silvaco: We utilize AI and machine learning to optimize the large amounts of data provided by the customer into an accurate model representing the wafer.

Silvaco: AI and machine learning rapidly build and improve models that otherwise would take months to generate.

Silvaco: With AI-enabled FTCO, customers can lower costs, enhance margins, and reduce time to market.

Babak Tahari: 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 focus areas – technology, talent, customer acquisition. We maintain an existing funnel with target companies for each of our three product lines.

Speaker Change: here is the summary of our history of our acquisitions m m a is a critical part of our d na since two thousand and fifteen we have completed ten acquisitions funded by our cash flow

Babak Taheri: Our acquisition philosophy revolves around three main focus areas: technology, talent, and customer. We maintain an existing funnel with target companies for each of our three products. 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. Acquisition 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 now. With that, I'll turn it over to Ryan to review the quarter and provide.

Silvaco: Our acquisition philosophy revolves around three main focused areas, technology, talent, and customer acquisition.

Silvaco: We maintain an existing funnel with target companies for each of our three product lines.

Babak Tahari: 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.

Babak Taheri: 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, and 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 now. With that, I'll turn it over to Ryan to review the quarter and provide.

Silvaco: Now I would like to summarize our growth strategy.

Silvaco: In summary, the growth strategies that have enabled us to grow include a focus on large and expanding markets.

Silvaco: acquisitions, global agile R&D to address customer needs, leveraging direct sales in underserved market segments,

Silvaco: and deep relationships with R&D centers and academia to stay ahead of technology knowledge.

Babak Tahari: With that, I'll turn it over to Ryan to review the quarter and provide guidance. Thanks, Bobc.

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

Ryan Benton: Thanks, Bobak, and thank you for joining us for our first earnings call at the public company. My name is Ryan Benton.

Ryan Benton: And thank you for joining us for our first earnings call of the public company. My name is Ryan Benton. I'm the CFO of Subaka. 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.

Ryan: Thanks, Bobak, and thank you for joining us for our first earnings call at the public company.

Ryan Benton: I'm the CFO of Svvaco. 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 market. Today I will discuss Svaco's business model and long-term targets, review our financial results for the second quarter of 2024, and provide our outlook for Q3 and 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 their larger competitors.

Ryan Benton: 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 market. Second, as Bobak covered in his opening remarks, we're very excited about the opportunity for our digital twin modeling product to create enormous value for our customers. We intend to capitalize on this opportunity by partnering with world-class Tier 1 customers to drive product direction efficiently and thoughtfully.

Ryan Benton: My name is Ryan Benton. I'm the CFO of Svvaco.

Ryan Benton: 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.

Ryan Benton: Today, I will discuss Subaka'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 Bobc covered in his prepared remarks, we're very excited about the opportunity for our digital twin modeling product to create enormous value products. customers. Third, our ongoing investments in advanced research and development positions us to take advantage of an enormous EDA top or market, which is expected to reach 22 billion by 2030, according to a study conducted by the Grand View Research.

Silvaco: Today I will discuss Svaco's business model and long-term targets, review our financial results for the second quarter 2024, and provide our outlook for Q3 in the full year.

Ryan: Our business has several growth drivers.

Ryan: 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.

Ryan Benton: Second, as Bobak covered in his opening 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 position us to take advantage of an enormous EDA market, which is expected to reach $22 billion by 2030, according to a study conducted by Grandview 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.

Silvaco: second as bob covered in his prepared remarks we're very excited about the opportunity for our digital twind modeling product to create enormous value for our customers

Speaker Change: 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.

Ryan Benton: 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.

Speaker Change: We intend to capitalize on this opportunity by partnering with world-class tier one customers to drive product direction efficiently and thoughtfully.

Silvaco: In terms of specific markets, we're focused on delivering differentiated solutions that address unmet market needs.

Ryan Benton: And finally, with our strong financial position and operational expertise, we are actively pursuing multiple strategic acquisitions that we believe will boast of our products and ask our competitiveness and market presence, add talented engineers and scientists, and provide much needed scale.

Ryan Benton: 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 achieved gross bookings for our software and semiconductor IP products of $19.5 million, an increase of 36% year-over-year, which included 10 new customer wins, and surpassed our guidance of $17 to $18 million.

Ryan Benton: 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, an increase of 36% year-over-year, which includes 10 new customer wins, and surpassed our guidance of $17 to $18 million. I have a strong suspicion that this bookings and out is a company record.

Speaker Change: 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.

Ryan Benton: Now let's discuss our second quarter financial performance on the next slide. Turning to booking, we achieve gross booking 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 to $18 million. I have a strong suspicion that this booking amount is a company record. In terms of product strength, TK bookings were up 78% year-to-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.

Speaker Change: Now let's discuss our second quarter financial performance on the next slide.

Speaker Change: turnning the booking we achieved gross bookings for our software and metrroactiity products of nineteen point five million dollars

Speaker Change: an increase of thirty-six percent year-over-year

Speaker Change: which includes 10 new customer wins.

Ryan Benton: I have a strong suspicion that this bookings and out is a company record. In terms of product strength, TCAG bookings were up 78% year over year, driven by a memory customer for FTCO digital twin products. As of now, we don't split FTCO out as a separate product line, but we may consider it in the future.

Speaker Change: and surpassed our guidance of $17 to $18 million.

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

Speaker Change: I have a strong suspicion that this bookings and out is a company record.

Speaker Change: In terms of product strength, TCAG bookings were up 78% year-over-year, driven by a memory customer for our FTCO digital twin product.

Speaker Change: As of now, we don't split FTCO out as a separate product line, but we may consider it in the future.

Ryan Benton: We believe we're many 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.

Ryan Benton: 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 30th, 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.

Operator: Good afternoon and welcome to Silvaco's second quarter, 2024 conference call. All participants will be in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please note, this event is being recorded.

Speaker Change: 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.

Speaker Change: 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.

Ryan Benton: Turning to revenue, we generate revenue from the sale of our software and semiconductor IT 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 complexities. Generally, for a new customer or a new product sells an existing customer, we recognize software license revenue upfront upon the delivery of the license products. For the upsells of products to an existing customer, for example, to sell additional seat licenses for an extension of 10-year, the license is typically recognized at the beginning of the renewal period.

Ryan Benton: The revenue recognition for software products has some complexities. Generally, for a new customer or a new product sale to an existing customer, we recognize software license revenue upfront upon delivery of the licensed product. For the upsell of a 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. Revenue recognition for SIP tends to be straightforward, but these products are usually sold without any additional performance obligation.

Speaker Change: 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.

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

Speaker Change: providing maintenance in the form of technical enhancements and customer support over an extended period of time.

Greg McNiff: Joining me on the call today are Rebecca Harry, Silvaco CEO and Ryan Benton, Silvaco CFL. 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.

Speaker Change: The revenue recognition for software products has some complexities. Generally, for a new customer or a new product sales to an existing customer, we recognize software license revenue upfront upon the delivery of the licensed products.

Speaker Change: For the upsell of a 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.

Ryan Benton: Maintenance and services revenues recognize evenly over the contract term. The revenue recognition of SIP tends to be straightforward, and these products are usually sold without any additional performance obligation. Unless customization is involved, the revenue is typically recognized upon delivery of the technology life to the customer, for 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 services accounted is about revenue is recognized.

Ryan Benton: Maintenance and services revenue is recognized evenly over the contract term. Revenue recognition for SIP tends to be straightforward since these products are usually sold without any additional performance obligation. Unless customization is involved, 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.

Speaker Change: Maintenance and services revenue is recognized evenly over the contract term.

Greg McNiff: These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Security of 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 it's 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, earning presentation and on this conference call.

Speaker Change: the revenue recognition of sep tends to be straightforward that these products are usually sold without any additional performance obligation

Speaker Change: 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.

Speaker Change: For Q2, we posted revenue of $15 million at the high end of our guidance range, representing a 19% increase year-over-year.

Ryan Benton: For the quarter, our software solutions accounted for 74% of our total revenue, while maintenance and services accounted for 26%. Because of how revenue is recognized, we believe a good metric for growth performance is the growth rate of software licensed revenue. Software licensing revenue of $11 million grew 25% year-over-year compared to $8.8 million in the same period a year ago.

Speaker Change: For the quarter, our software solutions accounted for 74% of our total revenue, while maintenance and services accounted for 26%.

Greg McNiff: The risk factors section in Silvaco's most recent form, 10Q filing with the Security Exchange Commission provides a description of these risks.

Ryan Benton: We believe a good metric for growth performance is the growth rate of software life and 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 and TKAD at specifically FTCO. TKAD revenue was $10.4 million, up 34% year-over-year.

Speaker Change: Because of how revenue is recognized, we believe a good metric for growth performance is the growth rate of software licensed revenue.

Greg McNiff: With that, I'd like to turn the call over to Silvaco's CEO, the back to Harry. The back. Thank you, Greg.

Speaker Change: Software licensing revenue of $11 million grew 25% year-over-year, compared to $8.8 million in the same period a year ago.

Babak Tahari: Hello, and welcome to Silvaco's second quarter earnings call.

Ryan Benton: 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 to bookings, the increase in revenue was driven by strength and TCAD, specifically FTCO. TCAD revenue was $10.4 million, up 34% year-over-year. Rounding out the portfolio, EDA revenue was up a half a million dollars, 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.

Ryan Benton: 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. 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. Turning to operating expenses and a $14.7 million acquisition-related litigation claim charge, 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.

Babak Tahari: I am Babak Tahari, CEO of Silvaco. Before discussing Silvaco's second quarter results, I'd like to provide a brief introduction of myself on the company. I have over 35 years of experience in Silicon Valley having helped key roles with companies ranging from small cap firms like Invencens to midsize cap firms like Cypress semiconductor and free scale and large cap companies like Apple.

Speaker Change: Maintenance and service revenue for Q2 was $3.9 million compared to $3.7 million in the same period last year.

Speaker Change: This represents a 7% year-over-year increase.

Speaker Change: Additionally, however, we added $2.8 million to the RPO balance during the quarter for maintenance and service.

Speaker Change: On a product basis, similar to bookings, the increase in revenue was driven by strength in TCAD, and specifically FTCO.

Babak Tahari: Since joining Silvaco in October of 2018 at CTO and becoming CTO 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 some of my connector design and menu factoring through AI-driven digital twin modeling for stimulation, software innovation, and automation. Our digital twin models for simulations are provided using a combination of AI and our software platforms.

Speaker Change: TCAB revenue was $10.4 million, up 34% year-over-year.

Ryan Benton: Rounding out before the EVA revenue was up to $1.9 million, which was up 20% year-over-year, while fifth revenue was down approximately $700,000 per 30% year-over-year as a result of the last scenario agreement with the strategic partner, which was renewed midway through the second quarter. Turning through our split between geographic regions, the America is represented 51% of total sales for Q2, which is essentially the EVA. This market grew nicely due to the aforementioned increase in TKAD sales. Asia represented 41% of sales, of which the People's Republic of China with the largest market at 17% of total sales.

Speaker Change: Rounding out the portfolio, EDA revenue was up a half a million dollars.

Speaker Change: which was up 20% year-over-year while SIP revenue was down approximately $700,000 per 30% year-over-year.

Speaker Change: as a result of a lapse in a resolve agreement with a strategic partner, which was renewed midway through the second quarter.

Ryan Benton: 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.

Speaker Change: Turning to our split between geographic regions, the Americas represented 51% of total sales for Q2, which is essentially the US.

Speaker Change: This market grew nicely due to the aforementioned increase in TCAD sales.

Babak Tahari: 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 micro-processors in advanced technology nodes, memory products for our 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.

Speaker Change: Asia represented 41% of sales, of which the People's Republic of China was the largest market at 17% of total sales.

Ryan Benton: 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. Cap gross margin was 68% impacted by stock base compensation expense of $2.5 million.

Ryan Benton: EMEA was flat year-over-year and made up 8% of total sales.

Speaker Change: The MEA was flat year over year and made up 8% of total sales.

Ryan Benton: 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 of gap financial results, along with the reconciliation between gap and non-gap results, can be found in our earnings press release in the appendix of the presentation and within the supplemental financials on our website. Gap 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, tripping a large part by strong TKAD and EVA license revenue growth.

Speaker Change: Before turning to gross margins, expenses, and profitability, I'd like to note that I will be discussing non-GAAP results going forward.

Speaker Change: As a reminder, our GAAP financial results along with a 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.

Speaker Change: cap gris margin was sixty-eightpercent in fected by stock-based compensation expense of two point five million dollars

Ryan Benton: Non-GAAP gross margin was 86% in the second quarter, up compared to 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-gap 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 margin.

Speaker Change: 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.

Babak Tahari: Next, I will cover financial overview. I want to touch on a few financial highlights of the second quarter.

Ryan Benton: This puts 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.

Speaker Change: this put put us a eighty-seven percent non-gaap gross margin for the first half a great result

Babak Tahari: Ryan, RCFO, will go into more detail about our business model, financial results, and guidance. Q2 revenue and bookings year-over-year increased 19% and 36% respectively. The 2024 figures include a 21.8 million in stock-based compensation or SPC expenses and a 14.7 million acquisition related litigation claim.

Speaker Change: We remain focused on optimizing our product mix to leverage the current cost structure, thereby enhancing margins.

Ryan Benton: Turning to operating expenses, our gap 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 to the second quarter were $11.2 million, compared to $9.3 million in the same period last year. The increase in cost year by year is split fairly evenly across each category of research and development, sales and marketing, and general administrative. The increase in R&D is a result of expanding the engineering team. The increase in the sales and marketing is a result of higher sales commission due to higher sales.

Ryan Benton: Turning to operating expenses, our GAAP operating expenses were $47.9 million, which includes $19.3 million in stock-based compensation expenses and a $14.79 acquisition-related litigation claim. 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, and the increase in sales and marketing is largely a result of higher sales commissions due to higher sales.

Speaker Change: Turning to operating expenses.

Speaker Change: 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.

Babak Tahari: I want to note that we recently announced an update regarding litigation related to an acquisition the company made in early 2018. Ryan 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 T-CAD, EVA software, and SIP solutions going forward.

Speaker Change: Our non-GAF operating expenses for the second quarter were $11.2 million compared to $9.3 million in the same period last year.

Speaker Change: 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.

Speaker Change: The increase in R&D is a result of

Speaker Change: The increase in the sales and marketing is largely a result of higher sales commissions due to higher sales.

Ryan Benton: and the GNA increases largely the result of taking on costs associated with becoming a public company. A lot of the GNA costs we have added are essentially fixed costs. Going forward, we did not expect GNA costs to scale at the same rate of sales. So then that is non-depth operating income and non-depth operating margin for $1.7 million and 11%, respectively. Up from $1 million and 6% in Q2 2023.

Ryan Benton: And the GNA increase is largely a result of picking on costs associated with becoming a public company. A lot of the G&A costs we have added are essentially fixed costs. Going forward, we do not expect G&A costs to scale at the same rate of sale.

Speaker Change: And the GNA increase is largely a result of picking on costs associated with becoming a public company.

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

Speaker Change: a lot of the gna cost we have added our essentiialally fixed costs going forward we dodennot expect gna costs to scale at the same rate of sales

Ryan Benton: So then that is non-GAAP operating income and non-GAAP operating margin of $1.7 million and 11%, respectively, up from $1 million and 6% in Q2 2023. That just puts us at $5 million and 16% non-gap operating income and non-gap operating margin for the first half. Also, a great result.

Speaker Change: so inventa non-gaap operating income can non-gaap operating margin where one point seven million dollars and leven percent respectively up from one million dollars in six percent in q two two thousand and twenty- three

Ryan Benton: This put us at $5 million and 16% non-depth operating income and non-depth operating margin for the first half. Also, great results.

Speaker Change: This put us at $5 million and 16% non-GAAP operating income and non-GAAP operating margin for the first half. Also great results.

Ryan Benton: Our net income for the quarter was the 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 basic and deleted was a loss of $1.55 per share. Non-GAAP EPS basic and diluted came in at $0.7, up from $0.4 in the same period last year. This put us at non-GAAP EPS of 19 cents basic and 18 cents depleted for the first half. Indeed, a great result.

Ryan Benton: Our net income for the quarter was a loss of $38.4 million, which again 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 basic and diluted was a loss of $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.

Speaker Change: 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.

Babak Tahari: Next I will cover an overview of silvaco solutions. Silvaco offers a diverse set of platforms as solutions for developing new semi-conductors, photonics, processes, and devices. Our focus is on developing flexible intelligence after solutions that allow users to analyze and simulate electronics and optics designed directly on their desktop, laptops, and servers. Our platforms enable efficient and cost-conscious product development supporting the entire life cycle from design conceptions to finance design and verification and validation, seamless transition and support through manufacturing.

Speaker Change: Our non-GAAP net income for the quarter was $1.8 million, up from $0.8 million in the same period last year.

Speaker Change: Our EPS basing and diluted was a loss of $1.55 per share.

Speaker Change: non-GAAP EPS Basic and Diluted came in at $0.07, up from $0.04 in the same period last year.

Speaker Change: This put us at non-GAAP EPS of 19 cents basic and 18 cents diluted for the first half. Indeed a great result.

Ryan Benton: 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, with a second quarter free cash flow with an outflow of $6.3 million, down from the $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 in the timing of billing customers.

Speaker Change: Turning to our balance sheet, we ended the quarter with $102.3 million in cash, cash equivalents, and marketable securities.

Speaker Change: This of course is after the receipt of the proceeds of the IPO and the payoff of the company's debt.

Ryan Benton: For the second quarter, free cash flow with an outflow of $6.3 million, down from the $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, in fact, however, by IPO-related expenses of $1.8 million in one-time litigation costs of approximately $1 million.

Speaker Change: But the second quarter free cash flow with an outflow of 6.3 million dollars down from the 1.6 million dollar inflow in the same period last year.

Babak Tahari: 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 around the processes, collaborating with them to develop technologies, yearning as as of their market introduction. The long-term partnership approach is highly valued by our customers. Our leading market share reflects this differentiated position. Seven are of ten largest flat-pile display companies and six of the ten largest semiconductor companies utilize our EDA platform.

Speaker Change: The relative change in accounts receivable accounted for the largest part of the variance, $6.8 million, which reflects the lumpiness in the timing of billing of customers.

Ryan Benton: This is also impacted, however, by IPO-related expenses of $1.8 million and one-time litigation costs of approximately $1 million. Now I want to discuss in a little more detail the press release on July 24th regarding an update to the ongoing litigation and its impact on our financial results. The case concerns a dispute with respect to an earn-out arising from an acquisition the company made in March of 2018, which predates Bobak 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 pre-judgment interest.

Speaker Change: This is also impacted, however, by IPO-related expenses of $1.8 million and one-time litigations costs of approximately $1 million.

Ryan Benton: Now I want to discuss a little more detail of the press release on July 24th regarding an update to the ongoing litigation and its impact on our financial results. The case pertaining to a dispute with respect to an turnout arising from an acquisition, the company made in March of 2018, which predates Bob back in myself. The jury awarded the opposing party $11.3 million in damages under breach of contract-related claims, along with the potential for an award of statutory pre-judgment interest. If the court chooses to award pre-judgment interest, we estimate that it will be between $3.4 and $3.8 million as of June 30th, 2024.

Ryan Benton: If the court chooses to award prejudgment interest, we submit that it will be between $3.4 and $3.8 million as of June 30, 2024. As a result, we reported a charge to the litigation claim, accrued expenses, and other current liabilities of $14.7 million. The jury also found the company and related co-defendants liable for certain fraud-related claims and awarded the opposing parties $6.6 million. This amount does not stack on top of the breached contract claims. It's an either or situation.

Speaker Change: now to discuss a little more detail the press ase on july twenty fourth regarding an update to the ongoing litigation and it and its impact on our financial results

Speaker Change: the case pertains toadispute with respect to an earn out ising from an acquisition the company made in march of two thousand and eighteen which predates bob ap in myself

Babak Tahari: Similarly, eight out of the top ten flat-pile display companies use our T-CAD platforms. Additionally, as we expand our footprint in the power market in 2023 we acquired 14 new logos from our power customers resulting in four out of top ten largest power companies adopting our T-CAD platform.

Speaker Change: The jury awarded the opposing parties 11.3 million dollars in damages under breach of contract related claims.

Ryan Benton: If the court chooses to award prejudgment interest, we estimate that it will be between $3.4 and $3.8 million as of June 30, 2024, including the possibility of post-trial motions and appeals. For the third quarter of 2024, we expect non-GAAP gross margin to be similar in the range of 85 to 88 percent.

Speaker Change: along with the tential for an award of statutory prejudgment interest

Speaker Change: If the court chooses to award prejudgment interest, we estimate that it will be between $3.4 and $3.8 million as of June 30, 2024.

Ryan Benton: As a result, report 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 party $6.6 million. This amount does not stack on top of the breach of contract claims. It's an either-or situation. Immunitive damages relating to the fraud claims will be considered adhering scheduled for August- 2016. 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.

Speaker Change: As a result, we reported a charge to litigation claim, approved expenses, and other current liabilities of $14.7 million.

Babak Tahari: We have assembled a management team and board the deep industry knowledge and public company experience. Members of our core management team average 35 years of experience in similar conductors and EDA companies. Electronic design and manufacturing software enables the value chain from a concept for the design through the final cheap 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.

Speaker Change: The jury also found the company and related co-defendants liable for certain fraud related claims and awarded the opposing parties $6.6 million.

Speaker Change: This amount does not stack on top of the breach of contract claims. It's an either-or situation.

Ryan Benton: Units of damages relating to the fraud claims will be considered at a hearing scheduled for August 16th. 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.

Speaker Change: Units of damages relating to the fraud claims will be considered at a hearing scheduled for August 16th.

Speaker Change: Any punitive damages awarded would be incremental to the $6.6 million awarded.

Speaker Change: 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.

Ryan Benton: Candidly, for Satan by the result, we respect the jury's verdict, but 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.

Ryan Benton: 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 Bobak noted, we do not expect this ruling and related award to materially impact our core business operations of providing TCAD, PDA software, and SFE solutions going forward.

Speaker Change: 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.

Babak Tahari: So the echo participate in this phase addressing a $3.1 billion sound. The second step in realizing a chip is the processing and fabrication of design on waifers. We are expanding our platform's tab into the fabrication steps of chips using our AI based digital twin modeling platform also known as fab technology co-optimization. Our estimated incremental firm for this market currently is about $500 million. Think of this technology as a physics based digital twin model of waifers that customers use to simulate rather than prototype a waifer and fabricate.

Ryan Benton: And perhaps even more importantly, as Bob Eck noted, we do not expect this ruling and related award to materially impact our core business operations of providing TKAD, PDA software, and SFE solutions going forward.

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

Ryan Benton: Alongside 2022 and 2020 results, 2024 guidance is on here to show our momentum.

Ryan Benton: 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 comfortably 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.

Speaker Change: Alongside 2022 and 2023 results, 2024 guidance is on here to show our momentum.

Ryan Benton: All over review, our third quarter and 2024 guidance and more detail on the 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 growth 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 kick to our financial targets and provide much needed scale.

Bobak: I'll review our third quarter and 2024 guidance in more detail on a later slide.

Speaker Change: With that as a foundation, in terms of long-term guidance,

Speaker Change: We believe that we can constantly target 15 to 25 percent plus top-line organic growth in the coming few years.

Speaker Change: we see a pre clear path to nety percent plus gross margin in twenty-five percent plus operating margin over a similar time horizon driven by our focus on expanding our footprint across the key markets we've highlighted

Babak Tahari: 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 historic has taken several prototyping turns and costly design of products. This technology has been underdevelopment since 2018.

Ryan Benton: We also intend to leverage creative M&A for talent 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 will also bolster revenue streams and drive margin expansion through synergies and efficiency. Some notable highlights from the quarter include 10 new customer wins with industry-leading companies in industries including automotive, power, semiconductors, memory, and wireless connectivity. Additionally, we launched our digital client product and renegotiated a key technology agreement, which extended the term for an additional five years.

Speaker Change: We also intend to leverage the creative M&A for talent and technology, helping us accelerate our timeline to get to our financial targets and provide much needed scale.

Ryan Benton: 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.

Speaker Change: We believe our strong financial position enables us to pursue strategic acquisition opportunities that not only enhance our competitiveness and market presence, but will also bolster revenue streams and drive margin expansion through synergies and efficiencies.

Ryan Benton: A notable highlight from the quarter includes 10 new customer wins, with industry lending companies, and industries including automotive, power semiconductors, memory, and wireless connectivity. Additionally, we launched our digital client product and renegotiated a key technology agreement, which extended the term for an additional five years. These achievements underscore commitment to innovation and customer satisfaction.

Babak Tahari: Recently announced, Macon as our strategic partner in the Memory Market for this technology. All discussed Silvaco's Visual Twin technology in a best-born detailed showcase. We intend to extend this technology into the power market, display market, and advanced CMOS application process in near future.

Speaker Change: Some notable highlights from the quarter include 10 new customer wins with industry-leading companies in industries including automotive, power semiconductors, memory, and wireless connectivity.

Speaker Change: Additionally, we launched our digital twin 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.

Ryan Benton: These achievements underscore our commitment to innovation and customer satisfaction, positioning us as well for continued growth and success. Turning to our guidance for T3 for 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 to $18 million and for the full year to be in the range of $67 to $71 million, a range higher than we had previously anticipated.

Ryan Benton: Positioning is well for continuing growth and success.

Babak Tahari: Silvaco is addressing the first two steps in the value chain of realizing a chip. We are not part of the supply chain.

Ryan Benton: Turning to our guidance for T3 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 to $18 million, in the full year to be in a range of $67 to $71 million for range higher than we had previously anticipated. As we all know, our software sales can be complex, and the application to 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 large elements are negotiated.

Speaker Change: Turning to our guidance for T3 in the full fiscal year.

Babak Tahari: 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-course. This level of complexity impacts all the markets we've participated, including memory, high-performance compute, and automotive. Second, the introduction of new materials such as GAN, silicon carbide, and quantum dosing with 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.

Speaker Change: For bookings, building upon the great momentum we had from Q2, we expect gross bookings for Q3 to be in the range of 16 to 18 million dollars, and the full year to be in a range of 67 to 71 million dollars, a range higher than we had previously anticipated.

Ryan Benton: 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. However, 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.

Speaker Change: As we all know, our software sales can be complex.

Speaker Change: 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.

Ryan Benton: Bookings in my opinion remain a great leading indicator of the performance and relative strength with 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 to 16.5 million dollars, which would represent a 4 to 10 percent increase from the third quarter of 2023.

Speaker Change: 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.

Ryan Benton: 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 to $16.5 million, which would represent a 4% to 10% increase from the third quarter of 2023.

Speaker Change: 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

Babak Tahari: We address these challenges with our platforms and digital twin models making our solutions critical for our customers. This light 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 AK-QLED display panel that is made of approximately 33 million pixels to provide two platforms that enable design, modeling and simulation starting at a single pixel level all the way to the full-cade display panel.

Speaker Change: This demand, coupled with our strategic initiatives,

Speaker Change: and the solid execution of our land-in-expanse strategy gives us confidence in our ability to achieve our targets.

Speaker Change: On the topic of revenue for the 3rd quarter 2024, we expect revenue to be in the range of 15.5 to 16.5 million dollars, which would represent a 4 to 10% increase from the 3rd quarter 2023.

Ryan Benton: For the full fiscal year, we are maintaining a revenue outlook of 63 to 66 million, which would represent a 16 to 22 percent increase from 2023. For non-GAAP gross margins, we're at 87 percent 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 percent. For the full year, we're forecasting a slightly higher range of 85 to 89 percent.

Ryan Benton: For the full fiscal year, we are maintaining a revenue outlook of 63 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 percent. 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 for June.

Speaker Change: for the full fiscal year we are maintaining our revenue outlook of sixty-three to sixty-six million which would represent a sixteen to twenty-two percent increaseed from two thousand and twenty three

Speaker Change: For non-GAAP gross margins, we're at 87% year-to-date through June .

Babak Tahari: 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 ARVR 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.

Speaker Change: For the third quarter of 2024, we expect non-GAAP gross margin to be similar in the range of 85 to 88 percent.

Speaker Change: For the full year, we're forecasting a slightly higher range of 85 to 89 percent.

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

Speaker Change: For non-GAAP operating income, we are at $5 million year-to-date for June .

Ryan Benton: For Q3, we expect non-GAAP operating income to be in the range of $1.8 to $2.8 million. For the full year, we maintain our expectation of non-GAAP operating income being in the range of $8 to $11 million, which would be an increase from 2023 of between 93% and 161%. And with that, Bob Eiffin and I will be happy to take your questions. Operator? Thank you.

Speaker Change: For Q3, we expect non-GAAP operating income to be in the range of $1.8 to $2.8 million.

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

Babak Tahari: There are four levels of artificial intelligence in EDA. As I mentioned earlier, Silvac 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 ADA industry has historically utilized AI to assist chip designers at three levels. One, optimizing historical twin performance for chip designers. Two, aiding the design step 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 time by enabling operators in fabs to save time and reduce wafer production costs.

Operator: And with that, Bob Akinai will be happy to take your question, Operator. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.

Speaker Change: And with that, Bobak and I would be happy to take your questions. Operator?

Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Blaine Curtis on Jeffries. You may proceed.

Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions.

Blaine Curtis: Our first question comes from Blaine Curtis with Jeffrey C. May proceed.

Blaine Curtis: Hey, thanks for taking my question. I want to ask about the FTCL 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?

Babak Tahari: Hey, thanks for seeing my question. I want to ask you about the FCC market. You laid off a pretty big tan 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?

Speaker Change: Our first question comes from Blaine Curtis with Jeffries. You may proceed.

Blaine Curtis: Hey, thanks for taking my question. I want to ask about the FTCL 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?

Babak Taheri: Thanks Ryan, this is Slovak. That's a great question. Now, we certainly said we were already at a stage in which we had engaged in discussions with our other customers in that same space, which is our digital twin monolith TTO platform. And as I had mentioned before, we are actually discussing this to expand it 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 these is fabrication of any kind, if you will, including... at www.srvaco.com.

Babak Tahari: Thanks, Blaine.

Ryan Benton: Thanks, guys.

Blaine Curtis: Thanks, guys.

Babak Tahari: This is about, well, that's a great question. No, we have research that said we are already at this age in which we have engaged discussions with our other customers in that same state, which is our visual signal of TTO 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 at the most, we have customers that we are discussing these things with them now.

Slovak: Thanks Blaine, this is Slovak. That's a great question. Now we have a survey that...

Speaker Change: We are already at a stage in which we have engaged discussions with our

Speaker Change: and other customers in that same space, which is our digital twin model FTPO platform. And as I had mentioned before, we are actually discussing this to expand.

Babak Tahari: Here is an example of Silvaco's AI-driven fab technological optimization also known as FTCL. This slide shows the 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 FTCL customers can lower costs, enhance margins and reduce time to market.

Ryan Benton: as well as...

Speaker Change: is to other markets such as power, as well as

Speaker Change: The next step after power is actually advanced demos. We have customers that we are discussing these things with now. And then the last one of these is, you know, fabrication of any kind, if you will, including...

Babak Tahari: And then the last but not least is the fabrication of any kind, if you will, including tablets or tablets. And as the last thing I was mentioning 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 been six months, so a year, so we are on schedule to that, and we are hoping to make some of you share already.

Speaker Change: and have a sort of, or have light.

Speaker Change: and as 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.

Speaker Change: It's between six months to a year, so we are on schedule to that, and we are hoping to make some of that from either this year or early next year.

Blaine Curtis: 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 sort of December, it seems like our backs would be up a bunch.

Blaine Curtis: The question for Ryan, I might be answering my own question, but if you take the annual guide and see what it 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 question, is 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 layering in.

Speaker Change: thanks inthenic

Speaker Change: A question for Ryan, I might be answering my own question, but if you take the annual guide and see what it 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.

Ryan Benton: So 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 you know, kind of how you think about those costs. 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 last year.

Speaker Change: 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 layering in.

Ryan Benton: So the first question, if you look at the guidance, yes, I think you could back into a little bit of an uptick in 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 as a lot of the sales force, in particular, their commission structure enables them to hit certain accelerators that happen in Q4 on the sales and marketing line. In separate on the R&D front, we are hiring. So, for anyone that knows good engineers, send them our way.

Ryan Benton: So the first question, if you look at the guidance, yes, I think you could back into a little bit of an uptick in 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 as a lot of the sales force, in particular, their commission structure enables them to hit certain accelerators that happen in Q4 on the sales and marketing line. In separate on the R&D front, we are hiring. So for any one of those good engineers, send them our way.

Babak Tahari: 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 segment and deep relationships with R&D centers and academia to stay ahead of technology knowledge.

Ryan Benton: 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.

Ryan Benton: A lot of the sales force, in particular, is the commission structure that enables them to hit certain accelerators with that in Q4 on the self and marketing line.

Speaker Change: A lot of the sales force in particular, their commission structure enables them to hit certain accelerators that happen in Q4 on the sales and marketing line.

Ryan Benton: So we're adding, you know, we're looking for a good bit of talent to kind of augment the team that we're, the technology team that we're in the process of hiring for Q3 and Q4 and expenses 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'll kind of hit in the fourth quarter. But, you know, I think we've tried to be, you know, probably conservative in terms of how we expect expenses to hit. And then your second question was about legal expenses. I assume you're referring to the litigation. I don't know if that's the words in your mouth, but can you please rephrase it?

Ryan Benton: So we're adding, you know, we're looking for a good bit of talent to kind of augment the team that we're, the technology team that we're in the process of hiring for Q3 and Q4 and expenses will come. And there's a little bit of waiting in terms of some of the accounting charges in the G&A area that will kind of hit in the fourth quarter. But, you know, I think we've tried to be, you know, probably conservative in terms of how we expect expenses to hit. And then your second question was about legal expenses. I assume you're referring to the litigation. I don't know if that fits in your mouth, but can you please rephrase it?

Ryan Benton: Separately, on the R&D, we are hiring. So, for any one of those good engineers, send them away. So we're adding, you know, we're looking for a good bit of talent to kind of augment the team, that we're a technology team that, you know, when the process is hiring, Q3 and Q4, it's best to come. And there's a little bit of weighting in terms of some of the accounting charges in the GNA area that we'll kind of get in the Q4, but, you know, I think we've tried to be, you know, probably conservative in terms of how we expect expenses to hit.

Speaker Change: separately on the rd we are hiring so for anyone of those good engineers in in our way so we're adding

Ryan Benton: With that, I'll turn it over to Ryan to review the quarter and provide guidance. Thanks, Bobc. And thank you for joining us for our first earnings call of the public company.

Speaker Change: We're looking for a good bit of talent to kind of augment the team that we're, the technology team that, you know, we're in process of hiring Q3 and Q4, and 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'll kind of hit in the fourth quarter.

Ryan Benton: My name is Ryan Benton. I'm the CFO of Subaka. 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.

Ryan Benton: I think we've tried to be appropriately 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 that works in your mouth, but can you please rephrase?

Ryan Benton: And then your second question was about the legal expenses that's in here referring to the location. I don't know if it works in your mouth, but can you please your first? You reference that you're going to appeal some. Just kind of curious if, you know, what that cost would be if it's notable and we should be thinking about modeling anything. And so, Blake, thanks for, thanks for asking, you know, as you know, we also had I killed the other expenses, which is part of those numbers. In terms of the litigation, you know, the timing of any of these payments would depend on several factors, including whether the party doing truly set up this litigation or the company pursues for strong motions and appeals.

Ryan Benton: Today, I will discuss Subaka'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 Bobc covered in his prepared remarks, we're very excited about the opportunity for our digital twin modeling product to create enormous value products, customers.

Blaine Curtis: You referenced that you're going to appeal, so I'm just kind of curious what that cost would be, if it's notable, and we should be thinking about modeling it.

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

Subbalay: Subbalay, thanks for asking. You know, as you know, we also have an IPO, a legal extension.

Ryan Benton: which is part of those numbers. In terms of litigation, you know, the timing of any of these payments would depend on several factors, including whether the parties eventually settle this litigation or the company pursues post-trial motions and appeals.

Ryan Benton: If the matter does not sell on the company pursues in a field, the affluent process would take one or two years. And, you know, at the beginning, we'll have some expenses in terms of the litigation and the filing, but then there's a gap period there that we wait for the affluent for a huge time and judges. So, it is very hard and difficult to forecast these times, but as we, as the time goes by, we go to life guidance and what we can can write now; it's very difficult to forecast.

Ryan Benton: Third, our ongoing investments in advanced research and development positions us to take advantage of an enormous EDA top or 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.

Ryan Benton: If the matter is not settled and the company pursues an appeal, the applet process would take one or two years, and at the beginning we'll have some expenses in terms of litigation and filings, but then there's a gap period there that...

Ryan Benton: In the beginning, we'll have some extensions in terms of how the...

Ryan Benton: Is there any way to put out the Portuguese time?

Speaker Change: there then we way without the perriulous timeand and judge to self it is very hard and difficult to forecast because betimecome but as we

Ryan Benton: .. It is very hard and difficult to forecast at this time, but as the time goes by, we will provide guidance as we take... Right now, it is very difficult to forecast.

Speaker Change: As the time goes by, we will provide guidance as to what we think, and right now, it's very difficult to forecast.

Ryan Benton: Yeah, and I'll just add one point, obviously, you know, in the second quarter there was a trial. Thanks for watching. Yeah, and don't forget the fact that we are still in the midst of it

Ryan Benton: Yeah, and I'll just add one point; obviously, you know, in the second quarter there was a trial, which is, you know, as you get the expenses 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.

Speaker Change: Yeah, I'll just add one point. Obviously, you know, in the second quarter there was a trial, which is...

Ryan Benton: Yeah, and don't forget the fact that we are still in the midst of it, and us commenting any more beyond that we'd rather not.

Ryan Benton: you know, at significant expense associated with that.

Speaker Change: yes and then still forget the fact that we are so the id of it and upcom and more beyond that we've rather notjust

Ryan Benton: Beyond that, we'd rather not do so.

Ryan Benton: Now let's discuss our second quarter financial performance on the next slide. Turning to booking, we achieve gross booking 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 to $18 million. I have a strong suspicion that this booking amount is a company record. In terms of product strength, TK bookings were up 78% year-to-year driven by a memory customer for FTCO digital plan product.

Ryan Benton: We'd rather not just not.

Blaine Curtis: Okay, thanks so much.

Operator: Thank you, sir. Thank you.

Speaker Change: Okay, thanks so much.

Charles sheet: Our next question comes from Charles Sheet with Needleman Company; he may proceed. Hi, bye-bye, back to Ryan. Good to hear from you on the first official earnings conference call.

Speaker Change: Thank you, sir.

Operator: Our next question comes from Charles Hsu with Needham and Company. He may proceed.

Charles Hsu: Thank you.

Operator: Our next question comes from Charles Hsu with Needham & Company. He may proceed.

Charles Hsu: Hi Babak and Ryan, good to hear from you on the first official earnings conference call. I really just want to start with the first question about your revenue from China. One of your larger EDA peers who has reported had to take down their overall China revenue expectation for this year, and they're expecting China to be down this year. I did look at your numbers for Q1 and Q2. It does seem like the China revenue run rate has been a little bit lower than last year.

Charles Hsu: Hi Babak and 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 peers who has reported had to take down their overall Chinese revenue expectation for this year, and they're expecting Chinese revenue to be down this year. I did look at your numbers for Q1 and Q2. It does seem like the China revenue run rate has been a little bit lower than last year.

Charles Hsu: Hi, Babak Ryan, good to hear from you on the first official earnings conference call.

Ryan Benton: Really just want to start with the first question about your revenue from China. Your one of your larger EDA peers, who has reported that had to take down their overall China revenue expectation for this year, and they're 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 four year 2024 compared with the last year?

Charles Hsu: I really just want to...

Speaker Change: Start with the first question about your revenue from China.

Charles Hsu: your one of your larger EDA peer who has reported

Ryan Benton: As of now, we don't split FTCO out as a separate product line, but we may consider it in the future. We believe we're many 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 IT products.

Charles Hsu: I had to take down their overall China revenue expectation for this year and they're expecting China to be down this year. I do look at your numbers for Q1 and Q2, it does seem like the China revenue run rate has been a little bit lower than last year. So I kind of...

Charles Hsu: So I kind of want to get a sense of how you think about Chinese 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 will be the reason behind it?

Charles Hsu: So I kind of want to get a sense, how do you think about Chinese 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 will be the reason behind it? Yeah, that's it.

Charles Hsu: I 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 will be the reason behind?

Ryan Benton: And is it up or down, and what will be the reason behind? Yeah, that's a very good question. But let me give it a minute. May answer first, and I'll dive into a better explanation. Overall, we think of if it's down, compared to last year, how we're compared to our competitors. There are local competitors there. We do not provide many of the solutions we provide. Specifically, if you think of our technology CAD, T CAD product line, there is very few and far level of maturity to the point that they can they can provide the solutions we have.

Ryan Benton: 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 complexities. Generally for a new customer, or a new product sells an existing customer, we recognize software license revenue upfront upon the delivery of the license products. For the upsells of products to an existing customer, for example, to sell additional seat licenses for an extension of 10-year, the license is typically recognized at the beginning of the renewal period.

Babak Taheri: Yeah, that's a very good question, but let me give the main answer first, and I'll dive into a better explanation later. Overall, we think it'll be a bit down compared to last year. However, in comparison to our competitors there, as you know, local competitors there do not provide many of the solutions we provide, and specifically, if you think of our Technology CAD, TCAD product line, there are very few and far below the level of maturity to the point that they can provide the solutions we have.

Charles Hsu: Yeah, that's a very good question, but let me give the main answer first, and I'll dive into a better explanation later. Overall, we think it'll be a bit down compared to last year.

Babak Taheri: Yeah, that's a very good point.

Babak Taheri: Yeah, that's a very good question, but let me give the main answer first and I'll dive into a better explanation.

Babak Taheri: However, in comparison to our competitors there, as you know, local competitors there do not provide many of the solutions we provide, and specifically, if you think of our TechnologyCat, TCAT product line, there are very few and far from the level of maturity to the point that they can provide the solutions we have. We do have TCAT products, especially in power and display, as well as some memory, some specialty memory companies in China. In addition, we do have differentiated IP.

Speaker Change: overall we think on bit down comfort to last year how comverage our competitors there as you know local competitors there do not provide many of the solution we provide specific if you think out our techchology cat cad product cli hi

Babak Taheri: there is very few and far level of maturity to the fund that they can.

Babak Tahari: We do have T CAD product, especially in power and display, as well as some memory, some specialty memory companies in China. In addition, we do have the pressure that IP part of the down part of IP business unit. And the fact that China is there coercing it in the sense that, as you know, we've done a brand new one of our contracts until, I would say, April of this year. There was a gap, and that gap we're attaching up to the second impact of the China business that we think that's going to come back up in that respect.

Babak Taheri: 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. That's part of the down side of the IP business unit, and the fact that China is there correlates 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 gap, and that gap we're catching up with.

Babak Taheri: and they can provide the solutions we have.

Babak Taheri: We do have TCAD products, especially in...

Babak Taheri: in power and display, as well as some memory, some specialty memory companies in China. In addition, we do have differentiated IP.

Babak Taheri: Part of the downfall in the IP business unit and the fact that China is there 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 gap, and that gap we're catching up with. That was the second impact of the China business that we think is going to come back up in that respect. But overall, I think more importantly, if you want to add anything, I think overall we'll be down, and a bit down because of the IP gap we had and because of some of the overall market for China. You're absolutely right. It's down, but usually companies that have differentiated products get less impacted, but they get impacted, and we are part of that less impacted company.

Speaker Change: audioup that down part of ps which you

Speaker Change: and the fact that china is there related in the sense that as you know we did not bring ia one of our contracts until i would say the case does not a difdifferent this year there was a gap gap 'reattaching up the peth of the second impacttive china business that

Babak Taheri: That was the second impact of the China business that we think is going to come back up in that respect. Overall, I think, more importantly, if you want to add anything, I think overall we'll be down, and a bit down because of the IP gap we had and because of some of the overall Chinese market. You're absolutely right. It's down.

Ryan Benton: For the quarter, our software solutions accounted for 74% of our total revenue, while maintenance and services accounted is about revenue is recognized. We believe a good metric for growth performance is the growth rate of software life and 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.

Babak Tahari: But overall, I think large parts are from long history, and I think overall will be down because of the IP gap we have and because of some of the overall market for China. You're absolutely right, it's down. But, as usually, ADA companies that have expensive products get less impacted; what they get impacted, and you're a part of that less impacted company.

Babak Taheri: as you think that'sfin to come back something that that's that respect but overall and i think land part from long you're doing that anything i think over all will be down and a bit down because of

Babak Taheri: the IP gap we had and because of some of the overall market for China, Europe , so we can write this down. But usually, companies that have differentiated products get less impacted, but they get impacted and we are part of that less impacted company.

Babak Taheri: Usually, companies that have differentiated products get less impacted, but they get impacted, and we are part of that.

Charles sheet: Thank you.

Ryan Benton: 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 and TKAD at specifically FTCO. TKAD revenue was $10.4 million up 34% year-over-year. Rounding out before the EVA revenue was up to $1.9 million which was up 20% year-over-year while fifth revenue was down approximately $700,000 per 30% year-over-year as a result of the last scenario agreement with the strategic partner which was renewed midway through the second quarter.

Charles Hsu: Thank you. Maybe a second question, because you guys have the exposure to things like a power display and memory. These are analog type of devices. We all know that some parts of the semiconductor industry did well last year. This year, they were in a sort of pretty good – a little bit tougher period, but inventory remains high. Business results are a little bit mixed for that part of the semiconductor market. Because of your exposure to that part of the market, other than China being down, the non-China business, based on your guidance, looks like it's still very strong this year. How do I reconcile between the two different trends? I mean, the analog, guys, and yeah.

Charles sheet: 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. The down was did well last year.

Charles Hsu: Thank you. Maybe a second question, because you guys have...

Charles Hsu: have the exposure to like a power, display, memory. These are analog.

Charles Hsu: type of devices. We all know that part of the semiconductor.

Babak Tahari: This year, there were a sort of a pretty a little bit of a 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, the non-China business based on your guidance looks like it's still very strong. This year, how do I reconcile between the two different trends, I mean that all analog guys and yeah. Yeah, that's an excellent point. You're right. Analog did amazing last year in terms of the hopes of the semiconductor market.

Charles Hsu: Industry

Charles Hsu: Dow did well last year. This year they were in a sort of a pretty, a little bit tougher period. Inventory remains high.

Charles Hsu: 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.

Ryan Benton: Turning through our split between geographic regions the America is represented 51% of total sales for Q2 which is essentially the EVA. This market grew nicely due to the aforementioned increase in TKAD sales. Asia represented 41% of sales of which the People's Republic of China with the largest market at 17% of total sales. EMEA was flat year-over-year and made up 8% of total sales.

Speaker Change: 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, the analog, guys, and yeah. Yeah, that's an excellent point. You're right. Analog did amazing last year in terms of the whole semiconductor market.

Ryan Benton: We actually wrote that wave analog is not doing as well this year. However, one component that we do sell is not just display of power, but they're also selling to automotive, which is a little bit. The automotive market is done, but the tools to generate the next generation of product for auto load is not the second component of these what we call semiconductor IP or IP. And 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 the US and other regions, we are strong as you know. The US is our strongest region, and that moment is in the continued budget line.

Speaker Change: We actually wrote that wave.

Speaker Change: analog is not doing out from this year however one component that we do so is not just display em power but they re also selling to automotive which a little bit d a boy market is done much the tool to generate the next generation of par for our or the the are

Ryan Benton: Before turning to gross margins expenses and profitability I'd like to note that I'll be discussing non-gap results going forward. As a reminder of gap financial results along with the reconciliation between gap and non-gap results can be found in our earnings press release in the appendix of the presentation and within the supplemental financials on our website. Gap gross margin was 68% impacted by stock-based compensation expense of $2.5 million. Non-gap gross margin was 86% in the second quarter, up compared to the 81% for gap and non-gap alike in the same period last year, tripping a large part by strong TKAD and EVA license revenue growth.

Babak Taheri: The second component of it is what we call semiconductor IP or IP, and 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 up and running. In terms of the U.S. and other regions, we are strong; as you know, the U.S. is our strongest region, and that momentum is going to continue, but Ryan, go ahead and add something. Yeah, no, I think it's all right, and certainly we are.

Speaker Change: The second component will be used.

Speaker Change: but the customer connector IP or IP. And for other markets that we provide to China, not only automotive but also IoT devices.

Speaker Change: And those are some of the businesses that we keep actually up and going. In terms of U.S. and other regions, we are strong. As you know, the U.S. is our strongest region. And that momentum is going to continue.

Ryan Benton: Yeah, I think it's all right. And certainly we're super excited about the FTCO product and the contribution of the semiconductor market. However, if we look at the first half on a booking basis, you know, power over 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.

Ryan Benton: Yeah, no, I think it's all right, and certainly we're super excited about the FTCO product and its contribution to the memory market. However, if we look at the first half on a booking basis..., you need to do that.

Speaker Change: Yeah, no, 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,

Ryan Benton: This puts us at 87% non-gap 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 gap 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-gap operating expenses to the second quarter were $11.2 million, compared to $9.3 million in the same period last year.

Speaker Change: Power was still our largest market, so 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.

Charles sheet: And we thank you.

Charles sheet: That's all from me. Thank you.

Speaker Change: I agree.

Charles Hsu: Great question. Thanks, sir.

Charles Hsu: Great question; thanks, sir.

Charles Hsu: Thank you, that's all from me.

Operator: All right.

Speaker Change: equation andso

Operator: Our next question comes from Craig Ellis with B-Riley Securities. You may proceed.

Craig Ellis: The question goes from Craig Ellis with B. Riley Securities. You may proceed.

Charles Hsu: Thank you.

Craig Ellis: Yeah, thank you for taking the question and congratulations on the momentum and 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 mentioned that they existed in auto, power, memory, and in other areas.

Speaker Change: Our next question comes from Craig Ellis with B. Reilly Securities. You may proceed.

Craig Ellis: 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.

Speaker Change: Yeah, thank you for taking the question and congratulations on the momentum and the business guys. I wanted to go back to the statement in the prepared remarks that identified there were 10 new customer wins.

Ryan Benton: The increase in cost year by year is split fairly evenly across each category of research and development, sales and marketing and general administrative. The increase in R&D is a result of expanding the engineering team. The increase in the sales and marketing is a result of higher sales commission due to higher sales, and the GNA increases largely the result of taking on costs associated with becoming a public company. A lot of the GNA costs we have added are essentially fixed costs, going forward we did not expect GNA costs to scale at the same rate of sales.

Speaker Change: In the quarter, and I think it was identified that they existed in auto power memory and.

Craig Ellis: 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 meeting?

Ryan Benton: 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 cents, my understanding is that the company's pipeline tends to be a little bit longer issue engage before you close a win. How does the 10 wins compare to what you expected going into the quarter?

Speaker Change: and 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?

Speaker Change: 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?

Ryan Benton: So then that is non-depth operating income and non-depth 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 16% non-depth operating income and non-depth operating margin for the first half also great results. Our net income for the quarter was the loss of $38.4 million which again also included the charges for stock based compensation and the acquisition related litigation claim charge.

Ryan Benton: So, Greg, yes, a great question. Yes, we did say 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 customers, which the area is added. Typically, depending on the market, your your average thing the type of the you know this is the process that we call language. We've landed in those customers, and as you know, we have a very specific metrics by recent plans for finding these customers. At our cycle times between land and expand, typically average is 6 to 12 months, I would say.

Babak Taheri: So Greg, that's a great question. Yes, we did say we had 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. So that's the 10 customer areas we've added, typically depending on the market you're advertising in. The type of the, you know, this is the process that we call language.

Greg McNiff: So Greg, that's a great question. Yes, we did say we have added 10 new customers to add a bit more color. These customers included five new power customers.

Babak Taheri: four new automotive customers and one solar power. We're landing in those customers, and as you know, we have a very specific metrics by which we plan to expand these. At our cycle times between land and expanse, typically averages 6 to 12 months, I would say. So I would expect...

Babak Taheri: Four new automotive customers and one solar power customer.

Babak Taheri: So that's the 10 customer areas we've added.

Speaker Change: typically, depending on the market you're you're adversing

Ryan Benton: Our non-gap net income for the quarter was $1.8 million up from $0.8 million in the same period last year. Our EPS basic and deleted was a loss of $1.55 per share. Non-gap EPS basic and deleted came in at $0.7 up from $0.4 in the same period last year. This put us at non-gap EPS of 19 cents basic and 18 cents depleted 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.

Babak Taheri: We're landing those customers, and as you know, we have very specific metrics by which we plan to expand these. At our cycle times between land and expanse, typically averages 6 to 12 months, I would say. So I would expect... a couple days, 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, did you want to add anything?

Speaker Change: This is the process that we call language.

Babak Taheri: We have landed in those customers, and as you know, we have a very specific metrics by which we plan to expand these customers.

Babak Taheri: at our cycle times between land and expanse, typically averages 6-12 months I would say. So I would expect...

Ryan Benton: So I would expect the companies that be landed in the 6 to 12 months to go expand depending on several factors. One is the mixer products, the type of product and as well as the licensing that we sign them up whether it's one year to year to year would have you and why are you doing that?

Babak Taheri: the companies that we land in within 6-12 months to go expand, depending on several factors. One is the mix of products.

Speaker Change: The type of product.

Ryan Benton: 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, did you want to add anything? I mean, I guess just the thing I would add anecdotally, Greg, is I think tomorrow is my one-year anniversary, and having been here,

Ryan Benton: 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 with an outflow of $6.3 million down from the $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 in fact, however, by IPO-related expenses of $1.8 million in one-time litigation costs of approximately $1 million.

Ryan Benton: I mean I guess the just the thing about that anecdotally critical is I think I think tomorrow is my one year anniversary and having been here right at one calendar year it's I've seen the over during that 12 month that's kind of seen the evolution of certain customers you know big big name big market caps you know that would land it either just prior to me arriving or after saying how those engagements are evolving and just it does go a lot longer.

Ryan Benton: I mean, I guess just the thing I would add anecdotally, Greg, is that I think tomorrow is my one year anniversary. And having been here for right at one calendar year, I've seen, over the course of those 12 months, the evolution of certain customers. Big names, big market caps, you know, that were landed either just prior to me arriving or after, and seeing how those engagements are evolving and just, it does go well.

Speaker Change: Right at one calendar year it's I've seen the over during that 12 months. I've kind of seen the evolution of certain customers

Babak Taheri: You know, big names, big market caps, you know, that were landed either just prior to me arriving or after, and seeing how those engagements are evolving, and just, it does bode well for the long term.

Ryan Benton: That's helpful, Brian, and then the back the follow-up question for you is more about the color that you're hearing issue 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 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 a bookings trends that should look beyond this year and into next year?

Charles Hsu: That's helpful, Brian. And then, Babak, 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 that's related to some of the choppiness we've seen in the global macro over the last couple months. So, bookings 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 pick up?

Craig Ellis: That's helpful, Brian. And then, Babak, the follow-up question for you is more about the color that you're hearing as you interact with some of Sylvaco'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 months. So, bookings 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 affect us?

Charles Hsu: That's helpful, Brian . And then, Babak, the follow-up question for you is more about the color that you're hearing as you interact with

Ryan Benton: Now I want to discuss a little more detail of the press release on July 24th regarding an update to the ongoing litigation and its impact on our financial results. The case pertaining to a dispute with respect to an turnout arising from an acquisition, the company made in March of 2018, which predates Bob back in myself. The jury awarded the opposing party's $11.3 million in damages under breach of contract-related claims, along with the potential for an award of statutory pre-judgment interest.

Babak Taheri: Some of.

Charles Hsu: 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 months. So bookings certainly looked like they came in strong, but can you just talk about

Charles Hsu: areas where as you engage with customers, you're seeing some acceleration and seeing

Charles Hsu: 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?

Charles Hsu: 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.

Ryan Benton: If the court chooses to award pre-judgment interest, we estimate that it will be between $3.4 and $3.8 million as of June 30th, 2024. As a result, report 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 party's $6.6 million. This amount does not stack on top of the breach of contract claims.

Ryan Benton: Thank you. Yeah, that's a great question.

Babak Taheri: Thank you.

Babak Taheri: Yeah, that's a great question. So to add, I'll make an overall comment. If you know better, a bit better than anyone else, that the CDA market food pack is very different from the actual market.

Babak Tahari: So I'll make an overall comment, which you know better than anyone else, that the market's impact is very different than the actual marketing impact. And the other way to say, if a product, a modern market goes down, a lot of market goes down, that means the sales of a lot of products go down. That means the unit space is all in low. And however, as you know, EVA companies, like I sort of, I like to call ourselves going forward to digital companies like us to simulate and model designs. And our impact directly at the time in which the market gets impacted is not a thing at a cycle from those markets.

Babak Taheri: Yeah, that's a great question. So to add, I'll make an overall comment, which you know better than anyone else, that CDA market impact is very different than the actual marketing impact.

Babak Taheri: Yeah, that's a great question. So to add, I'll make an overall comment. If you know better, better than anyone else, that the CDA market impact is very different from the actual market,

Ryan Benton: It's an either-or situation. Immunitive damages relating to the fraud claims will be considered adhering scheduled for August- 2016. 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. Candidally, for satan by the result, we respect the jury's verdict, but 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-rial motions and appeals.

Babak Taheri: And the other way to say it, if the automotive market goes down or the analog market goes down, that means the sales of analog products... That means the unit space is always lower. However, as you know, typically, companies like us, or I like to call ourselves going forward, companies like us, we simulate and model designs. And our impact directly at the time in which the market gets impacted is, I think, another cycle from those markets.

Speaker Change: And another way to say this, if automotive market goes down or analog market goes down, that means the sales of analog products go down.

Babak Taheri: That means the unit space is always lower.

Speaker Change: However, as you know, typically VA companies like us, or I like to call ourselves going forward, we talk to companies like us, we simulate and model designs.

Speaker Change: and our impact directly at the time in which the market gets impacted is out of think and out of cycle of those markets.

Babak Taheri: We work on advanced process technology nodes; we work on advanced R&D for our customers. What we see right now in many areas that advance R&D projects that are going on now, the only market that we see that would potentially impact us is power in specific regions of the world, not everywhere, and the... And that's the area in which we have already strengthened for us, going to new customers, adapting, just last quarter, five power companies, four automotive companies, and solar power.

Babak Tahari: We work on the advanced process technology; we work on the advanced R&D of our customers. What we see right now in many areas that are in these 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 everything. And that's the area in which we have already strengthened for us. I'm going to new customers adapting just last quarter. There's five power companies for our automotive companies and solar powers. And the surprising thing that people don't realize is they're still at that time, beginning now.

Speaker Change: We work on advanced process technology nodes, we work on advanced R&D of our customers.

Ryan Benton: And perhaps even more importantly as Bob Eck noted, we do not expect this ruling and related award to materially impact our core business operations of providing TKAD, PDA software, and SFE solutions going forward.

Speaker Change: see right now in many areas of that adv are the projects that are going to now the only market that we see that with impact potentially us would be power in specific regions in the world not every

Ryan Benton: Alongside 2022 and 2020 results, 2024 guidance is on here to show our momentum. All over review, our third quarter and 2024 guidance and more detail on the 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 growth margin and 25% plus operating margin over a similar time horizon.

Babak Taheri: and

Speaker Change: And that's the area in which we have already strengthened for us.

Speaker Change: I'm going to new customers and I've seen just last quarter another five power companies, four automotive companies, and solar power. And the surprising thing that people don't realize is there's still advanced R&D getting done in solar power, there's still advanced R&D getting done in automotive.

Babak Taheri: The surprising thing that people don't realize is that there's still advanced R&D getting done in solar power. There's still advanced R&D getting done in the automotive industry. There's still advanced R&D getting done in power, and it's the same in every market. There are competitors; some will survive, some will not, and in terms of our customers, that's an extreme comment I would say. Some will survive, some will do better, and some will do great. And we tend to get impacted less by those companies that reduce their R&D because of other companies that have offset it. Hence, we have not seen an overall downtrend for R&D and the DBA market. That's really helpful.

Babak Tahari: Solar powers are still at that time, beginning now. It's still at that time, beginning and power. And in like in any market, there's competitors; some of us are live, some will not. And in terms of our customers, or that's an extreme common it would take. Some will survive, some will do better, and some will do great. And, you know, we tend to getting back and left by those companies that we do so are, and because of other companies that have offsetting; however, we have nothing and overall downtrend for on V and VD market yet.

Speaker Change: It's because I've been trying to get into the tower.

Babak Taheri: There are competitors. Some will survive, some will not. In terms of our customers, that's an extreme comment I would say. Some will survive, some will do better, and some will do great. We tend to get impacted less by those companies that reduce their R&D because there are other companies that have offset it. We have not seen an overall downtrend in R&D and in the market.

Ryan Benton: 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 kick 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.

Babak Taheri: And like in any market...

Babak Taheri: There are competitors, some will survive, some will not. In terms of our customers, that's an extreme comment I would say. Some will survive, some will do better, and some will do great. And we tend to get impacted less by those.

Babak Taheri: Companies that reduce their R&D because of other companies that offset it, however, we have not seen an overall downtrend for R&D and BDA market yet.

Ryan Benton: A notable highlight from the quarter include 10 new customer wins, with industry lending companies, and industries including automotive, power semiconductors, memory, and wireless connectivity. Additionally, we launched our digital client product and renegotiated a key technology agreement which extended the term for an additional five years. These achievements underscore commitment to innovation and customer satisfaction. Positioning is well for continuing growth and success.

Ryan Benton: So that's really helpful color. Thanks for the comments, but back to Ryan.

Craig Ellis: That's really helpful, Culler. Thanks for the comments, Bebek and Ryan.

Ryan Benton: Thank you, sir. Thank you.

Speaker Change: That's really helpful, Culler. Thanks for the comments, Bebek and Ryan.

Blair Abernathy: Our next question comes from Blair Abernathy with Rosenblatt Securities. Hi, nice quarter, guys. Just first question is just around the bookings.

Babak Taheri: Thank you, sir.

Operator: Our next question comes from Blair Abernethy with Rosenblatt Securities. Please proceed.

Speaker Change: Thank you.

Babak Taheri: Our next question comes from Blair Abernethy with Rosenblatt Securities. You may proceed.

Blair Abernethy: Hi, nice quarter guys. Just first question is just around the the bookings, you know, I look at it's strong quarter of this quarter obviously helped by the FTCO but just as you kind of look at the first half versus the second half that looks you know you're in guidance to 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 need BFTCO impact in Q2? Yeah, so I would say.

Speaker Change: Hi, nice quarter guys.

Ryan Benton: You know, if I look at a strong quarter, this quarter obviously helped by the FTCO, but just as you kind of look at the first half versus the second half that looks, you know, you're in guidance to 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 lead BSTCO impact in Qtube? Yeah, so I would say, you know, from a seasonality standpoint, we always talk about the barbell shapes, so there tends to be stronger Q1 and Q4 and slower Q2 and Q3 traditionally.

Babak Taheri: um

Speaker Change: This first question is just around the bookings. You know, if I look at, I mean, Strong Quarter, this quarter, obviously helped by the FTCO, but just...

Ryan Benton: Turning to our guidance for T3 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 to $18 million in the full year to be in a range of $67 to $71 million for range higher than we had previously anticipated. As we all know our software sales can be complex and the application to associated revenue recognition rules can be complex as well.

Speaker Change: as you kind of look at the first half purchasase the second half that looks your're in 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 it's really just as a result of

Ryan Benton: Yeah, so I would say, you know, from a seasonality standpoint, we always talk about the barbell shapes, so there tends to be stronger Q1 and Q4 and slower Q2 and Q3. Traditionally, I think the main point is that, from a booking standpoint, certainly Q2, we're super proud of it, and having the, you know, the first large FGCO booking is exciting. And you're right; you've done the two-function math correctly in terms of our range for the four years. That would imply a range that would be, you know, similar or slightly down.

Speaker Change: of NBFTCO Impact and Q-Tubes.

Speaker Change: Yeah, so I would say, you know, like from a seasonality standpoint, we always, we talk about the barbell shapes, so there tends to be stronger Q1 and Q4 and kind of slower Q2 and Q3 traditionally.

Ryan Benton: On our side, the timing of revenue from a particular deal can be difficult to forecast until the final terms of the large elements are negotiated. Bookings in my opinion remain a great leading indicator of the performance and relative strength with 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.

Ryan Benton: I think the, the main point is that I mean, from a talking standpoint, certainly Q2, we're super proud of it in having the, you know, the first large FTCO booking is exciting. And you're right, you've done the two fact, two function math correctly in terms of our range for the full years that would imply that a range that would be, you know, a similar part of slide it down, but it's adding you just really just an artifact of such a great, a great Q2. But certainly, it's too would be the overall you know guidance for the year.

Speaker Change: I think the main point is that, I mean, from a bugging standpoint, certainly Q2, we're super proud of it.

Ryan Benton: Subway, thanks for asking us, you know, as you know, we also had I kill the other sense of which is part of those numbers. In terms of mitigation, you know, the timing of any of these payments would depend on several factors, including whether the party is eventually set, obviously, Gation or the company pursues strong motions and appeals. If the matter is not set up in a company pursues a field that at the output process would take one or two years, and you know, at the beginning, we'll have some expenses in terms of mitigation, and that is the filing, but in terms of the gap, period there is that.

Babak Taheri: and having the, you know, the first large FGCO booking is exciting. And you're right, you've done the two-function math correctly in terms of our range for the four years that would imply.

Ryan Benton: 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 to 16.5 million dollars, which would represent a 4 to 10 percent increase from the third quarter of 2023. For the full fiscal year, we are maintaining a revenue outlook of 63 to 66 million, which would represent a 16 to 22 percent increase from 2023.

Ryan Benton: But I think it's really just an artifact of such a great Q2, certainly when you look at the overall guidance for the year. It's, it's, you know, if we had our guidance, it would be a great result. Yeah.

Babak Taheri: that would be similar or slightly down, but I think it's really just an artifact of such a great key too.

Babak Taheri: certainly it's to look at the overall guidance for the year. It's, you know, we had our guidance. It's a great result. Yeah, I'm sure I answered your question fully, yes.

Ryan Benton: It's too we you know we had a guidance to create results. Yeah, I'm happy to answer your questions both. Yeah. Okay. That's great. Thank you.

Babak Taheri: But certainly, if you look at the overall, you know, guidance for the year, it's, you know, if we had our guidance, it's a great result. Yeah, I'm sure I answered your question fully.

Blair Abernethy: Yeah, I'm glad that your short answer to your question is a bullet. Yes. Yeah, okay.

Blair Abernethy: That's great. Thank you.

Ryan Benton: And then just, you know, on the actual FTCO, is I guess two questions here: is micron.

Speaker Change: That's great. Thank you.

Speaker Change: On the actual FTCO, I guess two questions here. Is Micron, your first memory customer, with the solution, are they rolling out as expected timing-wise?

Babak Tahari: You first memory customer with the solution are they rolling out as expected time wise and then how is the pipeline of opportunities for new next new customers shaping up. Yeah. And thank you for asking that question. As you know, we have a strategic relationship with my friends, and we continue working with them in terms of in terms of other. As I mentioned to Blaine, we are having quite a few discussions with people in customers in power as well as advance email notes. And those are the customers that we find to bring up the FTCO. You actually make good progress in them, and the cycle time for those of the head.

Ryan Benton: For non-gap gross margins, we're at 87 percent year-to-date through June. For the third quarter of 2024, we expect non-gap gross margin to be similar in the range of 85 to 88 percent. For the full year, we're forecasting a slightly higher range of 85 to 89 percent. For non-gap operating income, we are at $5 million year-to-date through June. For Q3, we expect non-gap operating income to be in the range of $1.8 to $2.8 million. For the full year, we maintain our expectation of non-gap operating income to be in the range of $8 to $11 million, which would be an increase from 2023 of between 93 percent and 161 percent.

Speaker Change: How is the pipeline of opportunities for next new customers shaping up?

Blair Abernethy: And then just, you know, on the actual FTCO, I guess, there are two questions here. Is Micron, your first memory customer with the solution, rolling out as expected timing wise? And then how is the pipeline of opportunities for next new customers shaping up? Yeah. OK.

Babak Taheri: Thank you for asking that question. As you know, we have a strategic relationship with Micron, and we continue to work with them. In terms of other areas, as I mentioned to Blaine, we are having quite a few discussions with people and customers in power, as well as advanced CMOS nodes. And those are the areas that we plan to bring to FGCL. We've actually made good progress on them, and the cycle time for those, as I said, is 6 to 12 months.

Speaker Change: Yeah, thank you for asking that question.

Babak Taheri: As you know, we have a strategic relationship with Microns and we continue working with them.

Speaker Change: in terms of other areas as well.

Speaker Change: I mentioned to Blaine, we are having quite a few discussions with people in, or customers in power, as well as advanced CMOS nodes.

Babak Taheri: And those are the customers that we plan to bring up with FGCL. We've actually made good progress in them. And the cycle time for those, as I said, is 6 to 12 months. We are about two months into that cycle time.

Operator: And with that, Bob Akinai will be happy to take your question, operator. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.

Babak Tahari: It's six to 12 months. We have about two months into that cycle time. So hoping by end of this year at this and out, we're pushing to give you some hand to work as customers before the end of the year, and that's our goal.

Babak Taheri: We are about two months into that cycle time. So, I'm hoping by the end of this year, at least, we're pushing to be able to give you sincere hands from our customers before the end of the year, and that's our goal. And one thing that I want to mention, this AI-based FAP technology with positional modeling capabilities, and also... It requires some customization because if you go from a memory product to an advanced CMOS product to any other kind of fabrication process, including the top, if you're talking with it, a very low geometry node versus a mid-geometry node.

Babak Taheri: So, I'm hoping by the end of this year, at least we're pushing to be able to give you sincere hands from our customers before the end of the year, and that's our goal. And one thing that I want to mention, this AI-based FabTechnology Compositional Modeling Capability. It requires some customization because if you go from a memory product to an advanced CMOS product to any other kind of fabrication process, including the top, if you're talking with it, a very low geometry node versus a mid-geometry node.

Babak Taheri: So, I'm hoping by the end of this year, at least, you know, we're pushing to be able to get this into the hands of our customers before the end of the year, and that's our goal. And one thing that I want to mention, this is an AI-based...

Babak Tahari: And one thing that I want to mention is this an AI based. And the fact of all the propositional modeling capabilities and also if you require some customization because if you go from a memory product to it, as I see most products way to any other kind of fabrication process, including the fact that you're talking about it. But very low geometry, no one versus a meat geometry, no. So there are some kind of musicians that need to be done. And frankly, part of the fact that it takes us six months to 12 months to really get it killed, which is an ultimate, ultimate result of all this, is to do some of that.

Blaine Curtis: Our first question comes from Blaine Curtis with Jeffrey C. May proceed. Hey, thanks for seeing my question. I want to ask you about the FCC market. You laid off a pretty big tan 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, Blaine.

Babak Taheri: and a practical use of positional modeling capabilities. And also...

Babak Taheri: It requires some customization, because if you go from a memory product to an advanced CMOS product to any other kind of fabrication process, including within the fab, if you're talking about a

Babak Tahari: This is about, well, that's a great question. No, we have research that said, we are already at this age in which we have engaged discussions with our other customers in that same state, which is our visual signal of TTO 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 at the most, we have customers that we are discussing these things with them now.

Babak Taheri: So there are 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 it healed, which is the ultimate result 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 markets or products that they're looking at.

Babak Taheri: So there are some customizations that need to be done, and frankly, part of the fact that it takes us six months to 12 months to really get it healed, which is the ultimate result 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 markets or products that they're looking at.

Speaker Change: very low geometryyou know versus in the geometry know so there are some custom posiciions that needs to be done and frankly part of the fac that he takes us six months twelve months to

Speaker Change: to really get appeal it's just an ultimate ultimately results of all aces

Ryan Benton: That's the addition at a time so that they can evaluate and analyze products for those markets that their own products that they're using. Okay, great. Thank you.

Babak Taheri: to do some of that advanced customization ahead of time so that they can evaluate and analyze our products for those markets that their own products that they're looking at.

Blair Abernethy: Okay, great. Thank you.

Charles Hsu: Okay, great. Thank you.

Ryan Benton: And then last question just over on the IP business.

Charles Hsu: Okay, great. Thank you. And then last question, just over on the IP.

Ryan Benton: Obviously, the NXP relationship renewed. How is that business sort of shaping up from here? Are we sort of all along the bottom of this business now? And so what do you kind of looking at for growth in the medium term on your IP business?

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

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

Charles Hsu: business.

Charles Hsu: Obviously, the NXP relationship renewed, how is that business sort of shaping up from here? Are we 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?

Babak Taheri: So in terms of an APU relationship, yes, it did renew in April. It's coming along nicely.

Ryan Benton: So, so it's a new relationship. It's coming coming up nicely and as a matter of fact, we did we did some business in Q2 although we had we have posed the contract in the future. But the expectation is that it's going to come back very quickly and increase. And we have found the new customer attractions with that. In terms of overall IP, as I mentioned before, we are developing a certain kind of IP that gets us into more advanced technology notes and higher interfaces and that. But if you've not been focusing on and you do have customers that are waiting for their products that we will deliver in Q3 and Q4 time frame.

Babak Taheri: So, we haven't had a clear relationship yet. We did renew April . It's coming up nicely, as a matter of fact. We did some business in Q2, although...

Babak Taheri: 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 where it is very quickly and increase. We have found new customer attractions with that. In terms of overall IP, as I mentioned before, we are developing a certain kind of IP that gets us into more advanced technology nodes and higher speed interfaces. And that's what the team has been focusing on.

Babak Taheri: 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 where it is very quickly and increase. We have found new customer attractions with that. In terms of overall IP, as I mentioned before, we are developing a certain kind of IP that gets us into more advanced technology nodes and higher-speed interfaces. And that's what the team has been focusing on, and we do have customers that are waiting for their products that we will deliver in the Q3 and Q4 timeframes. So the overall growth of the IP business will be higher than what you've seen in the earlier stages.

Babak Tahari: 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 sort of December, it seems like our backs would be up a bunch. So 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 you know, kind of how you think about those cost 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.

Babak Taheri: We have closed the contract in the near future, but the expectation is that it's going to come back to where it's at very quickly and increase.

Babak Taheri: and we have found new customer attractions with that. In terms of overall IP, as I mentioned before, we are developing certain kind of IP that gets us into more advanced technology nodes and higher.

Babak Taheri: the interfaces and that.

Babak Tahari: And some of that is kind of a natural seasonality trend with a similar seasonal trend in Q4 last year. A lot of the sales force in particular is the commission structure that enables them to hit certain accelerators with that in Q4 on the self and marketing line. Separately on the R&D, we are hiring. So for any one of those good engineers, send them away. So we're adding, you know, we're looking for a good bit of talent to kind of augment the team, that we're a technology team that, you know, when the process is hiring, Q3 and Q4, it's best to come.

Babak Taheri: what the team have been focusing on and we do have customers that are waiting for their

Babak Taheri: And we do have customers that are waiting for their products that we will deliver in the Q3 and Q4 timeframes. So the overall growth of the IP business will be higher than what you've seen in the earlier days.

Speaker Change: products and i will givewill

Ryan Benton: So, overall growth of IP business will be higher than what you see in the area. Okay, great.

Babak Taheri: that

Babak Taheri: We will deliver between Q3 and Q4 timeframes. So the overall growth of IP business will be higher than what you've seen in the earlier research.

Charles Hsu: Okay, great. Thanks very much, Neste.

Blair Abernethy: Okay, great. Thanks very much, Nisht.

Ryan Benton: Thanks very much.

Chris Tancar: Thank you. Question comes from Chris Tancar with TD Cowan. You may proceed.

Speaker Change: Okay, great. Thanks very much, guys.

Operator: Our next question comes from Chris Sankar with TD Cowen. Please proceed.

Operator: The next question comes from Chris Tancar with the TD County Maple Seas.

Chris Sankar: Thank you.

Babak Tahari: And there's a little bit of weighting in terms of some of the accounting charges in the GNA area that we'll kind of get in the Q4, but, you know, I think we've tried to be, you know, probably conservative in terms of how we expect expenses to hit. And then your second question was about the legal expenses that's in here referring to the location, I don't know if it works in your mouth, but can you please your first?

Speaker Change: cornext question comes from chris scar with td coon you may proceed

Robert Mertens: Hi, this is Robert Mertens on behalf of Chris Sankar. Congratulations on a strong quarter and thanks for taking my question. I guess the first one was your bookings came in higher than prior guidance, and it looked like a lot of the strength was from the TCAD business. From the TCAD business, could you just provide some color around the strength you witnessed in the quarter compared to what you were 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 softer outlook would be more FTCO related digestion from that main customer?

Robert Mertens: Hi, this is Robert Mertens on behalf of Chris Sankar. Congratulations on a strong quarter and thanks for taking my question. I guess the first one was your bookings came in higher than prior guidance, and it looked like a lot of the strength was from the TCAD business. From the TCAD business, could you just provide some color around the strength you witnessed in the quarter compared to what you were 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 FTCO related digestion from that main customer?

Robert Mertens: Hi, this is Robert Mertens on for Chris Tancar. Grats 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 looked like a lot of the strength was from the TKAD business. Could you just provide some color around the strength you witnessed in the quarter compared to what you were 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 FTCO-related digestion from that main customer?

Robert Mertens: Yes.

Robert Mertens: Hi, this is Robert Mertens on for Krish Sankar. 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 looked like a lot of the strength was

Robert Mertens: From the TCAD business, could you just provide some color around the strength you witnessed in the quarter compared to what you were expecting a quarter ago and then within the bookings?

Babak Tahari: You reference that you're going to appeal some just kind of curious if, you know, what that cost would be if it's notable and we should be thinking about modeling anything. And so, Blake, thanks for, thanks for asking, you know, as you know, we also had I killed the other expenses, which is part of those numbers. In terms of the litigation, you know, the timing of any of these payments would depend on several factors, including whether the party doing truly set up this litigation or the company pursues for strong motions and appeals.

Robert Mertens: being a little bit lower in the september outlook as it faed to assume that the softter outlook would be more f t c o related digestion from that main customer

Babak Taheri: That's a very good question. As we mentioned, we had two main growth areas in terms of obtaining many TK and EVA, both, not just one. And the fact of the matter that we reported a very high level of bookings growth in Q2 with the fact that, yes, we did have our digital twin product for the first time that we announced that we had bookings and revenue from. We also had very strong demand for our EDA tools, which are analog custom, and those are the main two RFI's that we develop around the joint assets.

Babak Taheri: That's a very good question. As we mentioned, we had two main growth areas in terms of obtaining many TK and EVA, both, not just one. And the fact of the matter that we reported a very high level of bookings growth in Q2 with the fact that, yes, we did have our digital twin product for the first time that we announced it. We had bookings and revenue from it. We also had very strong demand for our EDA tools, which are...

Ryan Benton: That's a very good question. So, as we mentioned, we had two main growth areas in terms of booking many TKAD and both TKAD and EBA, both not one. The fact of the matter that we recorded every high-level bookings go into the series, the fact that we actually did have our digital twin, our for the first time that we announced it. We had bookings and revenue from. We also had very strong demand for our EBA tools to share a lot of questions. Those are the main two odd outlines that we developed. Why are you doing that?

Babak Taheri: That's a very good question.

Babak Taheri: As we mentioned, we had two main growth areas in terms of bouqueting, mainly T-CAN and EVA, both, not one.

Babak Tahari: If the matter does not sell on the company pursues in a field, the affluent process would take one or two years. And, you know, at the beginning, we'll have some expenses in terms of the litigation and the filing, but then there's a gap period there that we wait for the affluent for a huge time and judges. So, it is very hard and difficult to forecast these times, but as we, as the time goes by, we go to life guidance and what we can can write now, it's very difficult to forecast.

Babak Taheri: The fact of the matter is that...

Babak Taheri: We reported a very high level bookings growth in Q2 in the fact that yes, we did have our digital twin product for the first time that we announced it. We had bookings and revenue from.

Babak Taheri: Tools which are analog custom.

Babak Taheri: We also had very strong demand for our EDA tools, which are analog custom.

Babak Taheri: And those are the main two RFIs that we developed.

Babak Taheri: doing that. Yeah

Babak Taheri: And those are the main two pipelines that we developed. Ryan, did you want to add something? Yeah, I mean, I guess I would say that, you know, in my prepared remarks, I talked about how the bookings...

Ryan Benton: Yeah, I mean, I guess I would say that, you know, in my prepared remarks, I talked about how the booking order I suspected was the company record. And the only reason why I kind of used language that's specifically hedging was just because the company has a long history and without going and checking off, you know, all those previous years to confirm the number.

Ryan Benton: Yeah, I would say that in my prepared remarks, I talked about how the bookings quarter I suspected was the company record, and the only reason why I can use language that specifically hedging was just because the company had long history and without going and checking off all those previous years to confirm the number. But I truly believe it is, by a long shot. For example, the Q3 guide in terms of bookings, that if not for such a strong Q2, it would have been a record itself. So even it was down sequentially, it might be a really strong core.

Ryan Benton: I guess I would say that, you know, in my prepared remarks, I talked about how the booking order I suspected was a company record. And the only reason why I kind of used language that was specifically hedging was just because the company has a long history and without going and checking off, you know, all those previous years to confirm the number. But I truly believe it is, and by a long shot.

Babak Tahari: Yeah, and I'll just add one point, obviously, you know, in the second quarter there was a trial, which is, you know, as you get the expenses 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'd rather not just not.

Ryan Benton: or I suspected was a company record. And the only reason why I can use language that's specifically hedging was just because the company has a long.

Ryan Benton: history and without going and checking off you know all those kind of previous years to confirm the number but I truly believe it is and and and by it by a long shot and for example the Q3 guide

Ryan Benton: But I truly believe it is and by a long shot. And, for example, the Q3 guide in terms of bookings, if not for such a strong Q2, I think it would have been a record itself. So even though it's down sequentially, it might be really strong.

Ryan Benton: And for example, the Q3 guide in terms of bookings, if not for such a strong Q2, I think it would have been a record itself. So even though it's down sequentially, it might be a really strong...

Operator: Okay, thanks so much. Thank you, sir. Thank you.

Charles sheet: Our next question comes from Charles Sheet with Needleman Company, he may proceed. Hi, bye-bye, back to Ryan. Good to hear from you on the first official earnings conference call.

Ryan Benton: In terms of bookings, if not for such a strong Q2, I think it would have been a record itself. So even though it's down sequentially, it might be a really strong...

Ryan Benton: That's a good point, but you know, in the past few years, we've been speeding through every quarter, every time we have reported somebody's human records for us, so we're not doing it. The second quarter was an exception.

Ryan Benton: That's a good point, but you know, in the past few years, we've been speeding through every quarter. Every time we have reported, so far, it's been a reference for us. Well, it's not you. Yeah.

Ryan Benton: That's a good point. But you know, every time we reported, so why did you work for us? Well, it's not really. Yeah, second quarter was an exception to me. And of course on it, again, back then, whoever asked the previous question, a season of typically a slow core from a seasonally perspective. And so that number is obviously a significant guiding to a significant increase on a year-over-year basis, which is a good, important measure. No, I've told you so, yeah. So again, going back, yes, FECO had a role in it. As the role of FECO and other customers, there's a label to actually forecast those more accuracy as they pan out.

Ryan Benton: or

Babak Tahari: Really just want to start with the first question about your revenue from China, your one of your larger EDA peer, who has reported that had to take down their overall China revenue expectation for this year and they're 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.

Ryan Benton: That's a good point, but you know, in the past few years we've been...

Speaker Change: getving every quarter we yes every time we report of vice re a for us not you second quarter was exception

Babak Taheri: And of course, again, I think whoever asked the previous question, a seasonal, typically a slow quarter from a seasonality perspective, and so that number is obviously a significant guide to a significant increase on a year-over-year basis, which is a good indicator. No, absolutely. So yeah, so again, going back, yes, FDCO has a role in it, as the role of FCO in other customers will be able to actually forecast those more accurately as they pan out in terms of Q3 and Q4 forecasts.

Ryan Benton: And of course, again, I think whoever asked the previous question, a seasonal, typically a slow quarter from a seasonality perspective, and so that number is obviously pointing to a significant increase on a year-over-year basis, which is a good, important point. No, absolutely not.

Ryan Benton: And of course, 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 significant, guiding to a significant increase on a year-over-year basis, which is a good, important measure.

Ryan Benton: No, absolutely not. So yeah, so again, going back, yes, FDCO has a role to play in it.

Speaker Change: now i ppos so yet and so again going back yes ly see how they're rolling it been done done

Ryan Benton: as we roll out F2CO in other customers, we will be able to actually forecast those more accurately as they pan out, but also...

Babak Tahari: 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 four year 2024 compared with the last year? And is it up or down and what will be the reason behind? Yeah, that's a very good question. But let me give it a minute. May answer first and I'll dive into a better explanation. Overall we think of if it's down, compared to last year, how we're compared to our competitors there are local competitors there.

Ryan Benton: as the role of FSEO in other customers.

Ryan Benton: We will be able to actually forecast those more accurately as they pan out but also Q3 and Q4 forecasts.

Ryan Benton: But also Q3 and Q4 forecast is just a mixture of products that we look at. So nothing surprised. Okay. Okay, I got it. Thank you. That's very helpful. Thanks, sir.

Ryan Benton: of Q3 and Q4 forecasts. It's just a mixture of products that we've looked at, so nothing surprising.

Robert Mertens: It's just a mixture of products. So, nothing surprising. Okay. I got it.

Ryan Benton: It's just a mixture of products that we've looked at, so nothing surprising.

Robert Mertens: Okay, I got it. Thank you. That's very helpful. Thanks, sir.

Christian Schwab: Thank you.

Robert Mertens: Okay, I got it. Thank you. That's very helpful. Thanks, Jeff.

Christian Schwab: Our next question comes from Christian Schwab with Craig Allen Capital Group. You may proceed. Christian Schwab, your line is now open.

Operator: Our next question comes from Christian Schwab with Craig Hallam Capital Group. You may proceed. Christian Schwab, your line is now open, and I'm not showing any further questions at this time. I would now like to turn the call back over to Babak Tahir for any closing remarks. Yeah, I was.

Babak Tahari: We do not provide many of the solutions we provide. Specifically, if you think of our technology CAD, T CAD product line, there is very few and far level of maturity to the point that they can they can provide the solutions we have. We do have T CAD product, especially in power and display, as well as some memory, some specialty memory companies in China. In addition, we do have the pressure that IP part of the down part of IP business unit.

Operator: Our next question comes from Christian Schwab with Craig Hallam Capital Group. You may proceed.

Operator: Christian Schwab, your line is now open.

Operator: And I'm not showing any further questions at this time.

Babak Tahari: I would not like to turn the call back over to Babak Tahir for any closing remarks. Yeah, I wanted to thank you for attending this. This is a coveted event for me and for Ryan, having our analyst on the call and doing this for the first time for the blackout. It's it's very sure of us and we enjoyed doing this video. I wanted to thank you again, and I want to also mention, with the poll board, to send you a quarter. Thank you so much. Thank you.

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

Babak Taheri: I wanted to thank you for attending this. This is a coveted event for me and for Ryan, and having our analysts on the call and doing this for the first time for Slvaco. It's very surreal for us, and we enjoyed doing this with you. 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.

Babak Taheri: I wanted to thank you for attending this coveted event for me and for Ryan and for having our analysts with us.

Babak Tahir: Yeah, I wanted to thank you for attending this week.

Babak Taheri: on the call and doing this for the first time...

Babak Taheri: This is a coveted event for me and for Ryan.

Babak Taheri: doing this for the first time for Svvaco, it's very surreal for us, and we enjoyed doing this video. 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.

Babak Taheri: having our analyst on the call.

Babak Tahari: And the fact that China is there coercing it in the sense that, as you know, we've done a brand new one of our contracts until, I would say, April of this year, there was a gap and that gap we're attaching up to the second impact of the China business that we think that's going to come back up and that respect. But overall, I think large parts are from long history and I think overall will be down because of the IP gap we have and because of some of the overall market for China, you're absolutely right, it's down. But as usually, ADA companies that have expensive products get less impacted, what they get impacted and you're a part of that less impacted company. Thank you.

Babak Taheri: and doing this for the first time for Slvaco.

Babak Taheri: Bye.

Babak Taheri: It's very surreal for us and we enjoyed doing this video. 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.

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

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

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

Babak Tahari: Maybe a second question because you guys have have the exposure to like a power display memory. These are analog type of devices. We all know that part of the semiconductor industry. The down was did well last year. This year, there were a sort of a pretty a little bit of a 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 looks like it's still very strong.

Speaker Change: Subscribe to our YouTube channel for more videos on Cisco CSV training with GNS3!

Babak Tahari: This year, how do I reconcile between the two different trends, I mean that all analog guys and yeah. Yeah, that's an excellent point. You're right. Analog did amazing last year in terms of the hopes of the 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 of power, but they're also selling to automotive, which is a little bit.

Babak Tahari: The automotive market is done, but the tools to generate the next generation of product for auto load is not the second component of these what we call semiconductor IP or IP. And 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 the US and other regions, we are strong as you know, the US is our strongest region and that moment is in the continued budget line.

Babak Tahari: Yeah, I think it's all right. And certainly we're super excited about the FTCO product and the contribution of the semiconductor market. However, if we look at the first half on a booking basis, you know, power over 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. And we Thank you.

Operator: That's all from me. Thank you.

Craig Ellis: All right. The question goes from Craig Ellis with B Riley Securities. You may proceed. 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.

Ryan Benton: Can you help us understand if any of these are particularly material from a revenue standpoint and if so when? And two cents my understanding is that the company's pipeline tends to be a little bit longer issue engage before you close a win. How does the 10 wins compare to what you expected going into the quarter?

Babak Tahari: So Greg yes a great question. Yes we did say 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 the area is added. Typically depending on the market your your average thing the type of the you know this is the process that we call language. We've landed in those customers and as you know we have a very specific metrics by recent plans for finding these customers.

Babak Tahari: 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 be landed in the 6 to 12 months to go expand depending on several factors. One is the mixer products, the type of product and as well as the licensing that we sign them up whether it's one year to year to year would have you and why are you doing that?

Babak Tahari: I mean I guess the just the thing about that anecdotally critical is I think I think tomorrow is my one year anniversary and having been here right at one calendar year it's I've seen the over during that 12 month that's kind of seen the evolution of certain customers you know big big name big market caps you know that would land it either just prior to me arriving or after saying how those engagements are evolving and just it does go a lot longer.

Babak Tahari: That's helpful Brian and then the back the follow up question for you is more about the the color that you're hearing issue 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 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 a bookings trends that should look beyond this year and it's a next year. Thank you.

Babak Tahari: Yeah, that's a great question. So I'll make a overall comment, which you know, better than anyone else, that the market's impact is very different than the actual marketing impact. And the other way to say, if a product, a modern market goes down, a lot of market goes down, that means the sales of a lot of products go down. That means the unit space is all in low. And however, as you know, EVA companies, like I sort of, I like to call ourselves going forward to digital companies like us to simulate and model designs.

Babak Tahari: And our impact directly at the time in which the market gets impacted is not a thing at a cycle from those markets. We work on the advanced process technology, we work on the advanced R&D of our customers. What we see right now in many areas that are in these 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 everything.

Babak Tahari: And that's the area in which we have already strengthened for us. I'm going to new customers adapting just last quarter. There's five power companies for our automotive companies and solar powers. And the surprising thing that people don't realize is they're still at that time, beginning now. Solar powers are still at that time, beginning now. It's still at that time, beginning and power. And in like in any market, there's competitors, some of us are live, some will not.

Babak Tahari: And in terms of our customers, or that's an extreme common it would take. Some will survive, some will do better, and some will do great. And, you know, we tend to getting back and left by those companies that we do so are, and because of other companies that have offsetting however, we have nothing and overall downtrend for on V and VD market yet.

Ryan Benton: So that's really helpful color. Thanks for the comments, but back to Ryan. Thank you, sir. Thank you.

Blair Abernathy: Our next question comes from Blair Abernathy with Rosenblatt Securities. Hi, nice quarter guys. Just first question is just around the bookings. You know, if I look at a strong quarter, this quarter obviously helped by the FTCO, but just as you kind of look at the first half versus the second half that looks, you know, you're in guidance to 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 lead BSTCO impact in Qtube?

Blair Abernathy: Yeah, so I would say, you know, from seasonality standpoint, we always talk about the barbell shapes, so there tends to be stronger Q1 and Q4 and slower Q2 and Q3 traditionally. I think the, the main point is that I mean, from a talking standpoint, certainly Q2, we're super proud of it in having the, you know, the first large FTCO booking is exciting. And you're right, you've done the two fact, two function math correctly in terms of our range for the full years that would imply that a range that would be, you know, a similar part of slide it down, but it's adding you just really just an artifact of such a great, a great Q2.

Blair Abernathy: But certainly it's too would be the overall you know guidance for the year. It's too we you know we had a guidance to create results. Yeah, I'm happy to answer your questions both. Yeah. Okay. That's great. Thank you.

Babak Tahari: And then just you know on the actual FTCO is I guess two questions here is micron. You first memory customer with the solution are they rolling out as expected time wise and then how is the pipeline of opportunities for new next new customers shaping up. Yeah. And thank you for asking that question. As you know, we have a strategic relationship with my friends and we continue working with them in terms of in terms of other.

Babak Tahari: As I mentioned to Blaine, we are having quite a few discussions with people in customers in power as well as advance email notes. And those are the customers that we find to bring up the FTCO. You actually make good progress in them and the cycle time for those of the head. It's six to 12 months. We have about two months into that cycle time. So hoping by end of this year at this and out, we're pushing to give you some hand to work as customers before the end of the year and that's our goal.

Babak Tahari: And one thing that I want to mention is this an AI based. And the fact of all the propositional modeling capabilities and also if you require some customization because if you go from a memory product to it, as I see most products way to any other kind of fabrication process, including the fact that you're talking about it. But very low geometry, no one versus a meat geometry, no, so there are some kind of musicians that need to be done.

Babak Tahari: And frankly, part of the fact that it takes us six months to 12 months to really get it killed, which is an ultimate, ultimate result of all this is to do some of that. That's the addition at a time so that they can evaluate and analyze products for those markets that their own products that they're using. Okay, great. Thank you.

Babak Tahari: And then last question just over on the IP business. Obviously the NXP relationship renewed. How is that business sort of shaping up from here? Are we sort of all along the bottom of this business now? And so what do you kind of looking at for growth in the medium term on your IP business? So, so it's a new relationship. It's coming coming up nicely and as a matter of fact, we did we did some business in Q2 although we had we have posed the contract in the future.

Babak Tahari: But the expectation that is that it's going to come back to very quickly and increase. And we have found the new customer attractions with 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 interfaces and that. But if you've not been focusing on and you do have customers that are waiting for their products that we will deliver in Q3 and Q4 time frame. So, overall growth of IP business will be higher than what you see in the area. Okay, great. Thanks very much. Thank you.

Robert Mertens: Question comes from Chris Tancar with TD Cowan. You may proceed. Hi, this is Robert Mertens on for Chris Tancar. Grats 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 looked like a lot of the strength was from the TKAD business. Could you just provide some color around the strength you witnessed in the quarter compared to what you were 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 FTCO-related digestion from that main customer?

Ryan Benton: That's a very good question. So as we mentioned, we had two main growth areas in terms of booking many TKAD and both TKAD and EBA, both not one. The fact of the matter that we recorded every high-level bookings go into the series, the fact that we actually did have our digital twin, our for the first time that we announced it. We had bookings and revenue from. We also had very strong demand for our EBA tools to share a lot of questions.

Ryan Benton: Those are the main two odd outlines that we developed. Why are you doing that? Yeah, I would say that in my prepared remarks, I talked about how the bookings quarter I suspected was the company record and the only reason why I can use language that specifically hedging was just because the company had long history and without going and checking off all those previous years to confirm the number. But I truly believe it is by a long shot.

Ryan Benton: For example, the Q3 guide in terms of bookings that if not for such a strong Q2, it would have been a record itself. So even it was down sequentially, it might be a really strong core. That's a good point. But you know, every time we reported so why did you work for us? Well, it's not really. Yeah, second quarter was an exception to me. And of course on it, again, back then, whoever asked the previous question, a season of typically a slow core from a seasonally perspective.

Ryan Benton: And so that number is obviously a significant guiding to a significant increase on a year-over-year basis, which is a good, important measure. No, I've told you so, yeah. So again, going back, yes, FECO had a role in it. As the role of FECO and other customers, there's a label to actually forecast those more accuracy as they pan out. But also Q3 and Q4 forecast is just a mixture of products that we look at. So nothing surprised. Okay. Okay, I got it. Thank you. That's very helpful. Thanks, sir. Thank you.

Christian Schwab: Our next question comes from Christian Schwab with Craig Allen Capital Group. You may proceed. Christian Schwab, your line is now open.

Operator: And I'm not showing any further questions at this time.

Babak Tahari: I would not like to turn the call back over to Babak Tahir for any closing remarks. Yeah, I wanted to thank you for attending this. This is a coveted event for me and for Ryan having our analyst on the call and doing this for the first time for the blackout. It's it's very sure of us and we enjoyed doing this video. I wanted to thank you again and I want to also mention with the poll board to send you a quarter. Thank you so much. Thank you.

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

Q2 2024 Silvaco Group Inc Earnings Call

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