Q4 2024 Silicom Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Silicon fourth quarter 2024 results Conference call. All participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session. As a reminder, this conference is being recorded you should have all received by.
Now the Companys press release, if you have not received it please contact silicon <unk> Investor Relations team at U K Global Investor Relations at one to one to 378040 or view it in the news section of the company's website www dot silicon that's USA dot com.
Speaker Change: I would now like to hand over the call to Mr. Kenny Green of Ek Global Investor Relations. Mr. Green would you like to begin please thank you operator.
Kenny Green: I'd like to welcome all of you to sort of comes <unk> quarterly results conference call before we start I would like to draw your attention to the following safe Harbor statement.
Kenny Green: This conference call contains forward looking statements such statements may include but are not limited to anticipated future financial and operating results and silicones outlook and prospects.
Kenny Green: Those statements are based on management's current beliefs expectations and assumptions, which may be affected by subsequent business political environmental regulatory economic and other conditions.
Kenny Green: Subject to known and unknown risks and uncertainties and other factors many of which are outside of silicones control, which might cause actual results to differ materially from expectations expressed or implied in the forward looking statements.
Kenny Green: These include but are not limited to telecoms, increasing dependence for substantial revenue growth on a limited number of customers.
Kenny Green: And the extent to which silicon solutions are adopted by the relevant market.
Kenny Green: Difficulties in the commercialization and marketing of silicones products and services, maintaining and protecting brand recognition protection of intellectual property competition disruptions to manufacturing and sales and marketing.
Kenny Green: Element and customer support activities the impact of war in Israel and in the Ukraine, rising inflation changing interest rates volatile exchange rates as well as any and continuing on new effects, resulting from the COVID-19, pandemic and global economic uncertainty, which may impact customer demand through customers exercising greater caution in select.
Kenny Green: <unk> with a short term investment plans.
Kenny Green: The factors noted on not exhaust it.
Kenny Green: Further information about the company's businesses, including information about factors that could materially affect silicones yourselves of operations and financial condition. All discussed in Silicones annual report on form 20-F, and other documents filed by the company and that May be subsequently filed by the company from time to time with the Securities and Exchange Commission. Therefore, there can be no assurance that actual.
Kenny Green: Future results will not differ materially from anticipated results. Consequently, investors I'll remind you not to rely on these forward looking statements silicon does not undertake to update any forward looking statement as a result of new information or future events or developments, except as may be quiet by law.
Kenny Green: In addition, following the Companys disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this call.
Kenny Green: Such non-GAAP measures are used by management to make strategic decisions forecast future results and evaluate the Companys current performance.
Kenny Green: <unk> believes that the presentation of these non-GAAP financial measures are useful to investors understanding and assessment of the company's ongoing cooperation and prospects for the future.
Kenny Green: Unless otherwise stated it should be assumed that financials discussed in this conference call will be on a non-GAAP basis non-GAAP financial measures disclosed by management are provided as additional information to investors.
Kenny Green: In order to provide them with an alternative method for assessing the company's financial condition and operating results. These measures are not in accordance with or a substitute for GAAP.
Kenny Green: Full reconciliation of non-GAAP to GAAP financial measures are included in the states earnings release.
Speaker Change: You can find on silicones website with us on the line today are Mr. Rerun, Eisaman, President and CEO and Mr.
Speaker Change: Iran. Gilad CFO Deron will become will begin with an overview of the results followed by Ron who will provide the analysis of the financials. We will then turn the call over to the question and answer session.
Speaker Change: I would now like to turn the call over to Lee Ron. Please go ahead.
Speaker Change: Thank you Kenny.
Lee Ron: Welcome everyone to our conference call to discuss the results of the fourth quarter and full year 2024, we are pleased with our achievement this quarter delivering financial results in line with the expectations and even more importantly, we made continuous progress in line with our strategic plan aimed at bringing renewed revenue growth profitability and ultimately.
Speaker Change: Increased shareholder value.
Speaker Change: Strategically I'm happy to say that we are on track and doing the best quarter. We saw strong design win momentum increasing the visibility of our potential mid to long term revenue growth those achievements highlights the effectiveness of our strategy and position us well with a potential revenues from recent wins expected to ramp up from 2020.
Speaker Change: Six a renewed focus on our core product lines, coupled with our strong relationship with our customers and potential new customers created a significant pipeline, which we hope to convert to even more design wins in 2025.
Speaker Change: While we continue to overcome short term challenges during the quarter, we achieved milestone after milestone with a variety of customers and projects and we advanced exciting opportunities through our broad pipeline towards future design wins. All this is a clear indication that we are on track for a return to strong double digit growth.
Speaker Change: In 2026 and beyond.
Speaker Change: In terms of our financial performance for the fourth quarter. Our revenue came in at the center of our expected range at $14 5 million. During 2024, we generated $17 $3 million in cash with $10 million well over half of our cash generation used to repurchase our own shares as part of our ongoing.
Speaker Change: Buybacks then this.
Speaker Change: This is aligned with our long term strategy of shareholder value creation, our ability to pursue this strategy is due to our strong balance sheet buildup over our many years of success and cash generation. This ensures we can maintain adequate investment in our business and its growth engines without compromise and at the same time take advantage.
Speaker Change: Of opportunities to increase shareholder value.
Speaker Change: Just to highlight the balance sheet strength at the end of the fourth quarter, our working capital and marketable securities amounted to $121 million, including $79 million in cash deposits and highly rated bonds with no debt all this amounts to $21 per share.
Speaker Change: We remain on track with our long term strategic plan, which is targeting an EPS above $3 at the revenue level of between 150 and $160 million.
I want to highlight two recent design wins and highlight the progress that we've made in recent months, we recently announced a new design win with a major U S based cyber security company, an existing customer of ours. We received initial orders and expect first revenues in the second half of 2025, which revenue starting to ramp up in 2026 to achieve a full annual.
Speaker Change: Run rate of around $2 million.
Speaker Change: This design win is for the next generation of this customer's leading product line, our ability to efficiently customize this product for our customer providing both an edge system and our network interface card were key factors in securing the win our capability to deliver both products is highly synergistic from the customer's point of view and provides us.
Speaker Change: With a significant competitive advantage. We believe this trend will gain traction with additional customers and we have several other accounts in the pipeline looking at a similar approach. This win expands their relationship that we have been building with discussed them for several years. Furthermore, we continue to discuss the potential for including additional product for the customers either product lines.
Speaker Change: We also announced a design win with a global it with a global networking and the security of the service leader and new customers standardizing on silicon for all its edge deployment scenarios. This makes us their sole edge networking hardware provider paving the way for additional multimillion dollar design wins.
Speaker Change: Its first design win with this customer encompasses several products, including several of our newest edge networking solutions pre integrated with Silicones network interface cards initial deliveries should begin in the second half of 2025, which revenues from this design win starting to ramp up to over $3 million annually from 2026.
Speaker Change: This was the result of a process, which began a year ago. When we initiated a discussion covering a specific product overtime. The discussion expanded to more products and additional use cases, leading to this design win as well as the potential for others. The fact that we can address all the edge networking needs of this customer confirms the value of our broad product portfolio.
Speaker Change: And the strength of our offering.
Speaker Change: Those wins underscore the traction of our renewed sales growth strategy building, a robust pipeline and strong base of recurring revenues for long term growth. The relationships are based on deep trust built over a long period of time and show slow, but solid growth supporting the success of our strategic plan.
Speaker Change: I want to provide some more color on our pipeline today, the pipeline of opportunities and the input of our design win funnel is broader than it has been for very long time, encompassing edge systems Smart <unk> and FPGA is.
Speaker Change: Our target is to achieve between seven and nine additional new design wins in 2025 I want to note that the sales cycle for our products is inherently long in our experience. It takes between nine and 12 months to achieve a design win from initial contact and then further three to nine months working closely with our customers to initial revenues with.
Speaker Change: Up to 12 months for a meaningful ramp up therefore takes significant time from the first achieving a design win to win silicone experienced significant recurring revenues. However, when we do reach a study in a steady state of recurring revenues those tend to provide a long tail.
Speaker Change: Over the lifetime of the customer's product, which can be many years I want to highlight our new investor presentation, which you can find on the website, which includes examples of some of the many opportunities in our pipeline, but also shows examples of the opportunities which made it through the funnel and if it become design wins and a source of revenue growth we are seeing the positive impact.
Speaker Change: Of our focus on small to medium design wins, expanding the pool of future opportunities. In addition to the deals with the potential for double digit millions of dollars in annualized revenue.
Speaker Change: We believe that during the coming years, we will see a lot of additional new opportunities and the input of the funnel and we expect the more and more of those opportunities will convert into design wins. Furthermore, the potential growth is supported by an increasingly diverse pipeline of design wins, including both new and existing customers. This pipeline includes leading.
Speaker Change: Names in the networking service providers and cyber security industries, highlighting the strength and appeal of our technology offering as we increase the number of those strategic engagements. We believe they will lead to more sustainable revenue growth by reducing our reliance on a few large strategic accounts, while our recent design wins will have minor positive impact on our final.
Speaker Change: <unk> results in 2025, we believe those and others that we expect to sign in the coming months will serve as the foundation for much more meaningful growth in 2006, I note that if the opportunities in the pipeline ramp up faster than expected, we could achieve the goals of our strategic plan sooner than currently projected.
Speaker Change: In terms of our guidance for the first quarter of 2025 revenues are expected to remain stable at levels similar to those of the past few quarters between 14 and $15 million looking further out growth in 2025, and it is expected to be in the low single digits with strong double digit annual growth rate materializing gradually from 'twenty.
Speaker Change: In 2006.
Speaker Change: In summary, we are pleased with our progress we are very optimistic about our ability to continue and execute on our growth plan and fully focused on meeting our goal of creating value for our customers and for our shareholders. We are advancing towards our mid and long term goals with a robust pipeline that position us well for double digit.
Speaker Change: Growth from 2026 onwards, as I've mentioned, we aim to achieve 7% to nine design wins in 2025, which will serve as a key indicator of our progress.
Speaker Change: Further out we continue to focus on creating strong long term value for our shareholders aiming at an EPS of above $3. When you reach annual revenues in the range of $150 million to $160 million.
Speaker Change: A fast ramp up of a few of the of the potential deals we have within the pipeline may help us achieve this goal faster.
Speaker Change: We have a strong design win roster full of tier one customers, coupled with superior product and a robust pipeline of opportunities. We have a strong financial foundation with a solid balance sheet. We continue to generate positive cash flow and we have an active share repurchase program that underscores our commitment to enhancing shareholder value. This new.
Speaker Change: The new opportunities and design wins momentum that has grown throughout 2024 has increased the already high motivation and dedication of our excellent team who entered 2025 with excitement regarding silicon prospects. We look forward to reporting on our progress as we continue executing on our growth strategy with that I will now hand over to.
Iran: Call to Iran for a detailed review of the quarter results, Iran. Please go ahead.
Iran: Thank you Lorne and good day to everyone.
Iran: Revenues for the fourth quarter of 2024 were.
Iran: $14 5 million a decline from revenues of $18 8 million as reported in the fourth quarter of last year.
Iran: To geographical revenue breakdown over the last 12 months was as follows North America.
Iran: 76%, Europe, and Israel, 16% far east and rest of the world 8%.
Iran: During the last 12 months our top.
Iran: Our 210% plus customers together accounted for about 26% of our revenues.
Iran: Yes.
I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the noncash compensation expenses in respect of options and our Skus granted to directors officers and employees impairment of goodwill, Texas on amortization and impairment of acquired <unk>.
Iran: Jabil assets impairment of intangible assets and related write offs as well as lease liabilities financial expenses.
Iran: For the full reconciliation from GAAP from GAAP to non-GAAP numbers. Please refer to the press release, we issued earlier today.
Iran: Gross profit for the fourth quarter of 2024 was $4 $2 million, representing a gross margin of 29, 1% and compared to a gross profit of $5 $3 million or gross margin of.
28% in the fourth quarter of 2023.
Iran: As discussed previously in the near term our gross margin is expected to be in.
Iran: To be towards the lower end of our expected, 27% to 32% range and as our revenues grow from current levels over the long longer term. It is expected to increase towards the upper end.
Iran: Operating expenses in the fourth quarter of 2024 were $6 <unk>.
Iran: $9 million compared with $6 $8 million reported in the fourth quarter of 2023.
Iran: Operating loss for the fourth quarter of 2024 was $2 72.
Iran: $2 7 million compared to operating loss of $1 5 million as reported in the fourth quarter of 2023.
Iran: Net loss for the quarter was $3 $4 million compared to a net loss of <unk>.
Iran: Zero point $5 million in the fourth quarter of 2023.
Iran: Loss per share in the quarter was 58 since this is compared with net loss per share of seven cents as reported in the fourth quarter of last year.
Iran: Now turning to the balance sheet as of December 31st 2024, our working capital and marketable securities amounted to $121 million, including $41 million in high quality inventory and accounts receivable net.
Iran: Of accounts payable of $3 million and $79 million in cash cash equivalents and highly rated marketable securities with no debt.
Iran: During 2024, we used $10 million for the repurchase of about 650.
Iran: 650000 shares.
Speaker Change: That ends my summary, I would like to hand back over to the operator for <unk>.
Speaker Change: Questions and answers session operator, thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment kind of lift the handset before pressing the numbers quest.
Speaker Change: <unk> will be pulled in the order. They are received please standby while we poll for your questions.
Speaker Change: The first question is from Ryan Koontz of Needham and company. Please go ahead.
Speaker Change: Hi, This is Jeff hopson on for Brian.
Speaker Change: At Needham.
Speaker Change: Thank you for the questions and thank you for that.
Speaker Change: Very comprehensive.
Speaker Change: Our presentation today is very helpful to visualize all the opportunities and design wins at Silicon maybe.
Speaker Change: Maybe if we could just go into some of those design wins.
Speaker Change: You laid out the timelines.
Speaker Change: It does take a long time from design to revenue.
Speaker Change: What is then the typical contract lengths or your yearly engagements.
Speaker Change: For each of these design wins on average.
Speaker Change: We estimate usually spans around four to five years. So it's quite a lot of forced to get started and when but once we are there are usually a customer would go for us for four or five years, and then discussions would start on the next generation.
Speaker Change: But that's very difficult for us.
Speaker Change: And then.
Speaker Change: For these new products, our new designs are there any architectural design changes.
Speaker Change: Or what's kind of the underlying competitive.
Speaker Change: Damage that's telecom has for these new opportunities.
Speaker Change: I mean first of all we are really at the I would say I would say at the edge of the newest technology working with.
Speaker Change: The best Silicon vendors out there and working very very closely with them.
Speaker Change: To make sure we are usually the first to be out with a product as long as the silicon launches. We are also launching our product.
Speaker Change: I mean, that's not the only thing we're also providing a full solution for our customers in the sense that we also understand software very well and we can give them all the supply chain capabilities they need around the product to be successful, but always being being first and we invest quite heavily in R&D that puts us in a very strong <unk>.
Speaker Change: <unk> to be.
Speaker Change: And.
Speaker Change: Great, Let's say also consultant to our customers about what to do many times they come to us and ask US well, we have that kind of problem. How can you help us solve that and we're able to give them and one thing that really distinguish us from others is our very rich product line that we can actually also integrates our network interface cards.
Speaker Change: Smart <unk>, FPGA cards or acceleration cards into our own systems and basically become a one stop shop for our customers to get everything that you need on hardware from one company.
Speaker Change: Okay.
Anne: Thank you Anne.
Speaker Change: Or then the investment in R&D.
Speaker Change: Are there any initial thoughts I know for sales for 2025, Youre thinking low single digit.
Speaker Change: Any initial estimates.
Speaker Change: And R&D spend or hiring salespeople for the new year.
Speaker Change: In general we are not.
Speaker Change: Expect it to expand dramatically if at all it will be.
Speaker Change: You know something very specific that we need here or there, but nothing dramatic.
Speaker Change: Thank you.
Speaker Change: Ill re queue.
Speaker Change: More questions.
Speaker Change: Okay.
Speaker Change: If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two.
Speaker Change: Please standby, while we poll for more questions.
Speaker Change: Okay.
Speaker Change: There are further questions from Ryan Koontz of Needham and company. Please go ahead.
Speaker Change: Yeah.
Jeff Hopson: Hi, Jeff Hopson again, just maybe two more for me.
Jeff Hopson: I know you guys had a long term target for gross margins of 28% to 32%.
Jeff Hopson: Is there any variability in the gross margin expectations for the three.
Jeff Hopson: There are segments of opportunities that you laid out in the presentation.
Jeff Hopson: I mean, it's changing from product to product from use case to use case.
Jeff Hopson: We think that the.
Jeff Hopson: The averages you'll see eventually after all taking all the different opportunities into play with being in the range that you mentioned, 27% to 32.
Jeff Hopson: Some products, obviously have more some products have some less but.
Jeff Hopson: But that's what we expect overall to stay in that in that range.
Speaker Change: Perfect. Thank you and maybe just one more.
Speaker Change: You did have the AI data.
Speaker Change: Infrastructure as one of the opportunities in smart Nic I guess overall for AI is the technology at the edge, yet or is that something that's two out in the future for being a real driver.
Speaker Change: We've seen this for the edge, it's still I would say plc level at the moment is not full production right now, but definitely it's something that comes up with customers from time to time and we see still we see on the auto side.
Speaker Change: Let's say on the training side on the on the datacenter side.
Speaker Change: Some of our customers or providing products to that to those goals. Those use cases, so we enjoy through them and some other opportunities or actually maybe us doing something more direct with those kind of customers. We are pursuing both.
Speaker Change: Both opportunities.
Speaker Change: Perfect. Thank you very much for the questions.
Speaker Change: Okay.
Jeff Meyers: The next question is from Jeff Meyers of Cobia capital. Please.
Jeff Meyers: Hi, Good morning, maybe you could talk a little about the ft.
Speaker Change: The opportunity.
Speaker Change: Where you've been with those products, what you see going forward and maybe also talk a little bit about gross margins on that front.
Speaker Change: Absolutely so with FPGA, we see.
Several opportunities.
Speaker Change: We've been always pretty active in the.
Speaker Change: High frequency trading we will continue to be there, but we also see the opportunities growing much more than that we see actually opportunities together with many of the partners that we are.
Speaker Change: Partnering with we see opportunities in streaming we see opportunities.
Speaker Change: From security, we see opportunities.
Speaker Change: The network equipment companies. So we see quite a lot of opportunities either we provide the IP through one of our partners and we're actually building quite impressive network of partners working with us or actually the customer is taking upon themselves to do the actual IP development.
Speaker Change: So we have a few very nice opportunities I would say.
Speaker Change: At the top of the pipeline right now, we hope that they will materialize and definitely from a.
Speaker Change: From a gross margin perspective, usually those products are somewhat better.
Speaker Change: And we hope that indeed, we can maintain the high higher GP on those products.
Speaker Change: And but at the end of the day I think we're looking at all the opportunities. We have I don't think that the the range of our overall GP would change, but definitely for those opportunities will probably see higher GP than the average.
Speaker Change: Got it thanks guys.
Jeff: Thanks, Jeff.
Jeff: Operator.
Speaker Change: There are no further questions at this time before I ask Mr. Eisenman to go ahead with his closing statement I would like to remind participants that a replay of this call will be available by tomorrow on silicones website, www dot silicon Dash USA Dot com Mr. Eitan on would you like to make a conclusive statement.
Speaker Change: Thank you operator, thank you everybody for joining the call and for your interest in Silicon. We look forward to hosting you on our next call in three months good day.
Speaker Change: Thank you. This concludes silicones fourth quarter 'twenty 'twenty four results conference call. Thank you for your participation you May go ahead and disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].