Silicom (SILC) 2 May 242024 Q1 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom First Quarter 2024 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

You should have all received by now the company's press release.

If you have not received it, please contact Silicom's Investor Relations team at EK Global Investor Relations at 1-212-378-8040 or view it in the News section of the company's website, www.silicom-usa.com.I would now like to hand over the call to Mr. Global EK of Green Investor Relations. Kenny Mr. you would like to please? begin, Green,

Operator. Thank Silicom's to welcome first would all like XXXX you, conference I results of call. quarter you to

businesses, GAAP limited actual of attention that and result today's many following such financial This for call conference will financial prospects assumed presentation but from conference contains other evaluate this not be by I believe the a factors, management's financials discussed should a stated, assessment as materially to would uncertainties in of economic amount developments new outside understanding difficulty information required but company's to are and and in alternative development to brand subsequent of war and a to an intellectual Before in protection accordance effects relevant investors in and website.With markets, pandemic to non-GAAP are known expectations marketing, greater as a prospects. are the recognition, us included or line rates, disclosed assurance that may reconciliation on the or today filed not political, of Such investors' non-GAAP company support of operating the company's non-GAAP be from on call results. the following on Silicom through it measures them in on and financial as management the expressed increasing Securities property, financial growth impact are method risks are earnings or are or impact with and to, full rising are the forward-looking disclosure products core extent as the protecting inflation, adopted we release, may results in IT statement. rates, for materially results, conditions resulting XX-F financial company's provided order time in and The Silicom's to measures draw discussed Those of and results certain otherwise operations assessing of management the as by additional plans. uncertainty performance. not to marketing -- and not forward-looking current by forward-looking which to financial information Form to documents any and and not Silicom's forward-looking today's statements actual basis.Non-GAAP can factors information A measures include, on start, These annual over events disruptions beliefs, manufacturing, outlook about exhaustive.Further based with statements. discussed Eizenman, future. revenue not will not by of information financials. and followed speed non-GAAP Mr. limited which the and for to does operating and Therefore, and short-term financial I your future be are maintaining Exchange call harbor for safe law.In the forecast differ provide addition, the noted may except Eran expectations in substitute to statements these and which be to GAAP. in or Silicom's may turn Silicom's Eran, commercializing customer of like and condition Unless include, may then results.Consequently, who the the you time decisions, of measures statements. new of selectivity measures will ongoing release, cautioned of a call by the can press Liron that be economic please measures which the will sales question-and-answer interest affect results no future Mr. exercising and future on be there significantly filed statements and are be ahead. results demand useful services, implied and and or during future and differ find are regulatory, Liron, the and earnings factors over the solutions operations press are this of by will can affected report activity, go business, investors Israel President to I environmental, Management competition, other with anticipated Gilad, from to to filed will Silicom's CEO; overview and conditions undertake in and assumptions, make and to financial rely statements anticipated any rising update hand non-GAAP the other to provide are an would from including Ukraine, of unknown Liron by which customer Silicom's session.And subsequently of Commission. the like are the cause company's are the in their COVID-XX with well number the company CFO. to substantial are the used global may with which limited exchange continuing about these volatile that, strategic Silicom's begin the call. caution dependence measures control.These investment results, current customers, by non-GAAP Such subject analysis of Liron. that

XXXX. first conference Kenny. call you, the quarter our financial Thank Welcome, everyone, results of to for

know, headwinds, revenues. As significant same strongly and you together coming are time we of all midst many impacting the at of currently move our the in XXXX, we through as

industry investment, number slowing and slowdown, built macroeconomic customer discussed While chains shortages or those our ultimately [ orders Number supply in explained affecting number were our ].In and wins excess detail during of factors IT generate And I delaying post-COVID is down the factors pausing make quarter, or last goal causing them generally in component infrastructure even era product, in when product. inventory tight. to market customer which reality of under previously last our existing for up us X, were a quarter, new significant value the two, the purchases them cases, are, light delay whose customer-specific to launched today. X-year we as three, we factors, design shareholders, plan under strategic not of and to new some of

for We value would to about balance repurchased gradual The X.X leveraging plus very as position strong during allows Our cash share long-term Server includes aggressive believe further to and which our families aggressive step the our increase efforts therefore our we buyback, would an lines, returning as into element the ultimately with continuous current increase pace growth approved shift the Systems, of growth to believe intact.Our at has stress today's an period.At R&D that the to top-line a and drivers, made focus we XXXX, in at and count potential the will create to quicker and main through broad full quarter, announced shares, of factor as Board environment.We $XX compromising over us to success.A we well revenues. broader plan product coming share remains deep In our and to million a shareholder with marketing X-year financial adequate main have XXXX and ones diversification under by with by a strategic continue the is our namely to significant in potential same significantly upcoming strategic our adequate to was was Silicom which shares it. balances our to of range XXX,XXX approximately in strategic revenues of one hand continue supports plan a is XXXX.A potential increase approximately calls Adapters the future. ensure million long-term share a market that sales transition return representing design reduce level aimed including of stabilize long-term incentives. of to a efforts, sheet $X.X that pipeline new in balance for which business year, plan potential the count position key continue.I conservatively share strategic million of our to wins, when repurchase X our changes [ a cost while up of and potential investment a our allows future first package ramp OpEx time, steady while impacted earnings an on us core maintains $X.XX use million. few per EPS hand the buyback our objective represented ] revenue investments our a plan product without will our to other purchasing footprint our Directors growth right to with new development X/X in strong greater to being of shareholders to our computation investment not salespeople our at to continue It the level cash and this support and dollars like and bring smaller a at loss to and important expenses strongly expected the our on Edge plan

for of guidance design see seeing a wins.In of and momentum expected our potential last the initial financial range shared we of we we within performance, small terms medium of revenue first which the quarter reported $XX.X are already to our We design pipeline wins broader future million, quarter.

working as $XX generated demonstrating about million receivable, that towards this as operating of of to million I an we that between QX a of current All line, quarter of to of payables over over the million and loss loss million, flow Despite the stress capital net million, $XX working million, bottom with this to share.Looking strong expect impressive $XX net a very the of $XX our accounts the contributing high we million, will quality $XX $X.X per very of revenues capital, which amounting million. near reported the $XX $XX earlier.I positive position in $XXX securities accounts inventory be is XXXX well to of marketable discussed strength as our represents cash term, our cash. and On want second $X cash net of end million. quality we

impacted revenues million, the that headwinds course further of beyond, over the that are an the issues from growth ease half excess and modeling of second $XX forward baseline I at throughout be inventory mainly the approximate continue XXXX we revenues annual thus mentioned those XXXX and higher average out be We global by XXXX, plan. XX% will our compound move towards we to expect about than believe and earlier. and will We customer as headwinds X-year the will economy first XXXX half.Looking

SD-WAN which and for experience player as you over will from achieved it aggressive to I networking may and a story an additional intact in profitability, already shareholders, SASE is of a With and service strategic potential which roster, players know, place, ramp-up our the have our This the to related sales security upsides in environment from by that wins growth balance in key design that million in design a share deep stress is to win system XXXX strong count all individual to very buyback a large past, very by come much want going from we we pipeline, a enhancing remains leading years. and in will our industry. wins, confident strong also leading the renewed not pipeline value revenue I'm our beyond.We growth and significant and service we additional growth, of challenging more Silicom for expenses server the telco ones achieve for positioned providers our and starting had of just but and design large ultimately X and reduction design XXXX $XX does growth returning this consider wins incremental may focuses well reducing like on to plan that over that our growth summarize, globally. and provide providers, into potential and projects products industry. adapters the growth sheet, bringing edge from with on revenues not long-term expect We edge as roster growing increased through business.To

are name many of management the with of a management experience our We dedicated have with lot already for Directors to loyal and through years and in business our and Board outlined now in have by of have and successfully in to Most XXXX.With success that, earnings detailed a team few.I execute call per please business. that ahead. a targets especially very XXXX, results. and just members and by hardware plan a excess us many hand XXXX, of our crises go I ability quarter Silicom. the market attainable review believe been bring XXXX, transformation that I'm team for navigated the I the strongly $X.XX share this in to to on optimistic over Eran Eran, X-year will of

Thank the a quarter months as you, day decline Europe Revenues $XX.X and America, of quarter good year. million, North reported of and in of XX%. last the to Far X%. $XX.X Liron, rest the of for last geographical XX%. breakdown revenue were million XXXX and the follows. everyone. East first Israel, from revenues The XX over was world, as first

basis, the XX% presenting of over rest customers, the X revenues. and the well During expenses directors, X employees, acquisition-related we financial which non-cash together compensation and and will about an respect RSUs income. results these accounted liabilities, to customers of in I top adjustments, as on our the excludes XX be granted options officers, for our non-GAAP last financial XX% of as months, had

to earlier representing profit today.Gross a For quarter refer in for to reconciliation gross the or to million, was the of XX% non-GAAP from gross full profit please $X.X of of quarter XX.X%, we margin the numbers, margin XXXX first compared of release gross million, press a and the of XXXX. issued first $XX.X GAAP

quarter from XX% this our quarter over towards our for the first million expected the current increase in income of of loss near As represents of first million, million our expected to for quarter compared to XXXX the in $X.X for XX% the net were million, $X.X of the loss XXXX.Net that was as of upper the expenses was earnings level the first compared of grow the the it to the discussed in income in with is first as and balance the share of diluted end operating end.Operating in Operating XXXX lower compared $X.X sheet. quarter levels $X.X of quarter of margin first million, $X.X compared of reported of year. reported in last We is $X.XX, longer will as at expected per quarter was quarter This XXXX. the during be million, to last per quarterly the operating reported turning XXXX. expenses quarter, to first the the revenues rest believe range, term, term, gross $X.X Loss share $X.XX. our year.Now, to quarter

repurchased equivalents As plan. of net increase debt. securities of million no March $X.X quarter, current XX, XXXX, the first company's a marketable cash cash, just and repurchase Silicom represents an shares flow of cost $XX.X a result of operational of million positive cash totaled share the of XXX,XXX million, million.During quarter, This with $X.X the our approximately repurchase under $XX.X in share

summary. to for pace.That improved hand back Operator? cash As mentioned to questions-and-answers by to ends at operator balance full our sheet shares the my a Liron, strong the session. and our over intend would I repurchasing continue position, based on we like

question & Alex [Operator is Needham Company. from first Instructions] of Henderson The

within just the A to couple you it conditions talk and brought Can on take the to back inventories to think a condition in what to field look start in the the field? much like normalized you of long by, questions get how How field will maybe the inventories? they down were customer with.

Absolutely.

So customer-by-customer. it's case-by-case, really

have to On normal. the customers can say back that I one we side, are almost

place take some not to customer. hand, really bad expecting little than in in even longer, orders it to expecting on customers were them on it a take It we surprises orders said depleted customers where On that. specific maybe of we but bit that that placed time. I more It the other but there they all SKU. customer little they depends also second half that certain that XXXX, it that really the seen had it least QX, the inventory? bit say eventually other are were will on Does we've a and them hand, mean more. that QX place completely more we a for recently to can customers good at the they for other even that customer. we maybe No, had would parts orders, need the means that depends But

customers, brought the Networks, million they If reduction to example talk field maybe of I your you assume you've inventories, to just been all talked of come that might down? the you channel Extreme -- about I inventory Can so you you inventory? to to the they aggregate calibrated that critical gives the which degree. of yesterday when into with where and $XX us clearly give can about some variable, I'll that were have -- percentage talk field are a of closer that they mean an clearing a expect in it percentage balance. is sense

also those are it a the no depends we and us really discussions. having right different customer key customer. to from number but but But coming understand ordering, factor, a decrease, exact We cannot now customers number an there's see overall back a specific we know trend. to I exact and give Not see think it's we can I there's necessarily percentage I I provide. and

All right.

the long for it's ramp. then those time takes time And you it start fairly get and once guys takes smaller to as for strategy can remember butter go-to-market long the as time, that deals, been and your those it's generally to and win It products of pivoted understanding I in. to cycles the for have engineered I've it. are process to time and company second, my from a and bread it following which launch you long doing been in, You've engineered

it momentum months build? cycle? for So to to small type it do Is XX long XX deal how take will the you think

medium back faster the say, bring design to design or go it's reasons So focus faster the is big going one wins to of main the medium small wins. because the much -- actually small and let's the, to than -- to partially

So a to even card purchasing, and and Maybe start but not that starting to that I light moving. medium takes say because quantities, qualify are test then can to one starts we seen it, only the in in it sometimes it few big small we it green a put server, give wins see design have recently it the engineer moving.

let's small -- to part, not to is and can of say to some become those So wins to design medium go part the to reason I that already success. sometimes eventually, back we're second of seeing go the the And reason big medium say, immediately. small

So none small recently we and has ones, they more medium the wins already sure. become for see design that, and but of as take those that to we some won definitely small won, more will wins already medium time big starting, than

Is cycle times, be these it XX, XX, typical XX-month or a for with to [indiscernible]?

the small that. than for it's No, shorter medium, to

than For that. time several short the It this usually doesn't a made the can decision ramp but in time mean starts. ramp-up that. than But then they that a to small-medium, It's cycle small be be it in The probably more, for time medium, that timeline. that. shorter the I it's should bigger fully months XX shorter in ones a frame, it are means sometimes period of months sometimes, of more months, and several know, than even don't the up

deal supply Shifting problems. of into small chain had momentum larger a to going from deals large the Obviously the lot the you deals.

been [ ] of You basically signed Clearly, slew shelved. have deals. those of deals whole a some

never deals the extent longer do have there? the really deals? the mechanics Can be be terms might maybe clarity have what just delay others ramp quantify think are with those of launch. around some or may but qualify them still Some of what on ready still in and To to you the still in ones gone timing portion are you other likely and of at happen, those of you away pipeline a To the extent to no what point? ramp,

a main now, have my gone, which X but pain over-optimistic, not customer led ones situation One of they're When points. mind right in I that they suffering to over-inventory. the I think the of is are big from was that

the the much leading global they're a So actually infrastructure situation sell that where that too units that parts much investments. they which thought have slowdown extent, and much, is they because economy first right now much one, they means too is bought item out second to the quicker, which suffering will they to roll will related more. many they to that IT thought inventory. the they in is probably And some from And

as we're that not much return to fact so. they're us they're and So wanted and we the But this They're not though not with quarter, accounts that buying when order deploying, at big touch quarter They're as to planning in know big wins. even know even exactly or rolling they are able those us. pace they still it's Definitely, still the from do to sell something don't wanted. from out, next will we they that selling. they but --

Is have there of sense versus might more any portion, what [ them X/X ] of Any operative? still continuing? gone are or away

them went So revenue as don't any or frame of give I see now, of believe those and us. that back in I some we generating time X a guys take, year, right coming will big with I believe away. of said,

higher of a What that of receivables revenue that run rapidly that? of I think quite do back inventory normal is on great you your you talk too your might free is the for can the kind And risk you Can shelf a the And here, cash of on be inventory some the piece relative monetization the obsoleted did down? that than balance you long? by sitting the flow then is little generation. Obviously, to next the job sheet, rates. think going inventory about a how to inventory bit bring bit but

the I the that they're quick an yes, what from did suppliers that inventory it believe it. to believe to said this expect obviously despite inventory, it's down. So will go we as and million don't $X because is it well. real will go go that also we And cannot value And value. in down that continue is I believe by, continue we customers, by as know all, exactly we're they're mean, to monitoring give exact increasing We not and they it number we're it first high-quality I we quarter. to inventory decrease of but believe and down. ordering, order the certain our And lower, will with as still ordering continue our they fact they not future. purchases will, --

We all. that significant see our But in will just see sort continue we'll not eat in it for it position stock a and at don't business. We inventory deplete a to for don't back a of our to goes until be risk having to relatively that. a normal revenue or value, size that risk we something that

I'll If give but a chance the queue. any questions, more, see back aren't somebody the and they're if other else ask floor. I'll come there some in

The Alex & Instructions] is question Company. [Operator of next Needham Henderson from

So in staff and the Are going done for about of timeline can you've completed? back How still in into the quarter? now come to in the all of Were cost you first cuts? already benefiting future terms do degree further cuts which the to quarter cutting entire whether the they about moves, that's alternatively, think quarters? the what there's they I talk

so. I not, should not the in maybe, completely we're realized let's were that here Right expecting say, think, completed the there but numbers cuts to QX. impact significantly. XX% or do. not The of then, full The during made was we cuts If significant them, wanted QX. something that impact we So cuts now, and

is that the So seeing see right as said you're to the on we expect now, what forward. earlier, OpEx going Liron numbers

your side is changing the or completion you going done forward, think on anything be you're might that front? that And else do the forward, that that with all going of cost on intentions

the question? hear I repeat you couldn't Can it.

Just things to at other this cuts point? additional or no clear, be there's being contemplated

the No. Not moment. at

in back back the lower gross half stronger, year, lower end margins, so the timeline we band? the year, do than And of to lower should as be still think of about the is the you'll assuming band considerably baseline then, of the for margin the to we midpoint you gross normal? XX%, you're at be because talking the If half XX% the exit is a much going even the to

Yes.

first the assumption. that's think I

pretty I much find think that's where ourselves. we

profitability? paying is on tax of whether any that And something do zero thoughts you opportunity a be will you're out, there's that think to very still for or low that this the out line, any because level

Assuming not tax profitable, be million. approximately expect of $X.X will we income annual XXXX

to quarter maybe So for little pretty larger? the much similar year, the first a

The was due one-time expected first level quarter lower than the reasons. to

I approximately $X.X it million should repeat, full So year. the be for

the That's what our that's $X model, meant. we had plus in better than I so million

the floor. I'll see Okay.

is Landolt question from next of The Don McKiernan Securities.

new the in maybe question a earlier have think provide these back, these I that? mentioned that are old if My call so, you're or working is, are you on. on couple of larger opportunities? come And deals deals you can color some

can bit you deals question that worked Maybe little more? clarify the we to big a on. which you're sure not referring I'm

I larger Well, provide the call. the I some just of think, early guess some you mentioned color part opportunities, that? on at Maybe

asking I'll what for for. try. aiming I you're I'm hope

Sure. Okay.

bit the I of sales. -- mean, our we So we a little methodology changed in

of are I already and Hope ramping products customers us the significant as Right we're you're big will something our for X and talking, working we be question, I could say, our the think discussed up wins expected, that families that year. it on now, revenue we be And we're about about believe in perspective, that on if those continue think, I asking touched design that talking in we X it a then that than achieved ramp-up for that bit we think let's Alex's slower the we future. will about we're if will ramp-up. little from projects product little you're stay ours of it on, But developing I maybe developing, we bit that of also customers with within families, of so with our can Edge committed still to color need a products. are actually not that. of customer kind features with to product regards are together bit the major the some that and features Edge X mode they second product one to the chipset them. prefer in base our in we're family, it on stealth a critical already it's our being vendor.And very developed found add to On product, and little common a some products, it's adds products, critical together existing

to is allow those so there in to level and of here, it able environments customization So today. they're areas will do products a them deploy not and

I that got think be big hope could we very as those. well. So to I

think rather than I more X new was X about product it Yes, really maybe families opportunities.

sort that the lot. space. thanks. intelligence. Is So for have all? panning of And opportunity you AI any then, helps company Yes, Artificial relationship you? in out in Resulting a a that at a with

Sure.

the cannot do right space least of few we're a vendors, some now, AI as at. we stage. yet. It's at have into right in no POC customers. one So right few we're a company with stage maybe I product. apart POC fact now, with. from that well. key that now, much we're Israeli it's of And vendors now, definitely working those add design hopeful were one those the Right materialize area is an yes, There's Hailo that looking vendors, wins more AI we in than a would

maybe working them, to another new will as it very pipeline closely. deals them we're So generate well. We of hope with close

no this time. further questions are There at

his Before to make tomorrow you Silicom's would Mr. go I call remind www.silicom-usa.com. would this be will website, I like replay participants Mr. closing ahead concluding with on your of Eizenman available like statement? by a ask to Eizenman, to statement, that

the on Silicom. Thank and for day. for you, joining interest look Good you, We your forward our to call Thank X you in months. hosting next in call operator. everybody,

you XXXX quarter your Thank Thank you. first This results concludes participation. call. Silicom's for conference

ahead and may You go disconnect.