Silicom (SILC) 29 Jul 242024 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Second 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. to the like to now would hand call over Mr. I Relations. of EK Green Global Kenny Investor Mr. Green, to you would like begin, please?

Call. Quarter Thank to you, Results Second welcome like Conference XXXX all of operator. you to I would Silicom's

Silicom's statements to and Before we start, statements based political, contains and safe economic and actual results which differ would pandemic regulatory, their selectivity and The are greater but -- anticipated subject interest factors demand and like may plan. resulting statements are might materially call new and any exhaustive. may results are prospects. include, to uncertainties limited economic or statements. well include expressed rising conference rate any number short-term investment speed in for which to Silicom from Silicom's relevant and disruptions customer statements. not its operating forward-looking protecting and business, the and limited from to and be support are of are future current of substantial your property; war other This with exercising known customers, a as to, Silicom management's other protection to the harbor through forward-looking factors, beliefs, which intellectual of following environmental, a not which of in which implied draw uncertainty, global manufacturing, commercializing to, competition; of assumptions, effects control, I Those and rising other affected attention development IT outlook the customer unknown market; to revenue Such inflation, but dependence subsequent growth adopted and which by and extent and on by of in exchange are and risks activities; Israel and or financial above and volatile the cause noted expectations may in impact and services; many marketing, Ukraine, maintaining not expectations conditions caution outside increasing their on the solutions difficulty sales marketing limited the COVID-XX products the the Silicom's impact rates, brand continuing as and are recognition;

results businesses, subsequently and about information the Exchange on update to and time Silicom future that factors filed of in Commission, or can Silicom's Therefore, the time no assurance to about forward-looking be developments, documents company's from cautioned and not company as any will the may I'll in report materially are filed information including result financial there required that by statements company forward-looking SEC. the or other of these information on significantly to new Further Securities and actual a anticipated results from does by or could not except be statements. rely Consequently, condition. future XX-F as Form annual not by may events results. the operations differ discuss be you that the undertake law. with affect

financial measures Unless operations useful Management measures current financial of method order results the financial assumed with understanding on earnings these basis. A operating used These website. and company. non-GAAP call. a full on are financial and measures non-GAAP or call will in GAAP. with are included company's be conference find not believes processing additional core should during that an you to them release, can Such to to for stated, Silicom's company's certain condition the disclosure to this to presentation measures disclosed the information substitute in GAAP non-GAAP the which non-GAAP management Non-GAAP financial that ongoing as for be otherwise measures release, accordance be strategic in alternative performance. assessment discussed the will a In in today's prospects management company's are addition, earnings financial such the financials of are and future. future in today's it forecast make discussed by measures non-GAAP decisions, non-GAAP measures provided evaluate following this are investors by investors' of provide and the reconciliation results of

with today us provide results, will Eran of Liron With who will CFO. by financials. on CEO; line Gilad, the the the Eizenman, of are President the Liron followed and Mr. and Eran, Mr. overview begin analysis an

And call over that, the the hand would session. call I ahead. We like the for will to Liron. please now go with then open to question-and-answer Liron,

to the quarter the Welcome, conference XXXX. Kenny. to our discuss Thank second results of of everyone, call you,

was our of our The generate a for to plan long-term execution second quarter strategic shareholders. period significant of value focused

is are under R&D the building operating customers part renewed of the with pipeline, sales and acquiring brought an increasing exceptionally of plan sales prospects have the long-term deeper a of optimistic new This ultimately deep efforts us a already as focus new making Those activities for increasingly Our us revenue potential upside. opportunities. long-term broad and and goal Silicom. and high about and pipeline

lines all the than parallel, progress in of cycle negatively plan. our however, pace sales the any have the than impacting longer In past, they become product for were our in strategic

operating lines, plan strategic further interest Beyond growth we enabling ad A that systems, current garner long-term to to plan's despite which continue to sized, of strongly long-term element customer potential the aligned including the to slowdown. strong in of objectives. us appropriately completed the in believe server believe adapters that, early our We stabilization of was is expenses with the which business product continue support main expenses, our now we our XXXX. and

control tightly needs. to plans' continue XXXX our will on in based expenses and expected beyond increase minimal with only We

up quarter, our a revenues terms net stress we million reported of built million. many $XX.X financial sheet balance our over with years expense plan. the predicted performance I of ability enables that in compromise and and the In of levels for its to can second the without the loss adequate we revenue investment strong strategic and our $X.X us ensure engines maintain with continue by business growth and that

our very receivable million inventory very of current our $X sheet highly capital share. equal securities represents million, of million, QX at to working $XX the strength, -- quality and of and marketable high end Regarding marketable accounts with per were $XXX balance highly cash, million All as as about net rated $XX of $XX in this well payable securities. cash accounts equivalents a

I shares count shares. in the million, $X.X planned half the element to of first year, of further over cash, of enhance used the is repurchase we buyback, our XXX,XXX plan we reduce that, generated half strong around in while value million by share in $XX our aims million total. our leveraging X.X noted A for strategic cash through which by a position to share shareholder

current share million Our count shares. X stands at

remain I the In terms takes into account customers the digestion similar excess continued that the guidance revenues of markets. economic cycles for our several and between in to our prolonged a quarter those global first quarter are the of sales $XX million million. slowdown at expected and longer-than-expected of to mentioned second inventory large XXXX, and This third of $XX earlier, period

slight reported first be we likely All the standpoint. from are more of at XXXX will those through half our those of revenues and level will persist that impact show With is revenue XXXX over increase XXXX. on the half second quarters and having XXXX revenues that in XXXX similar a the to expect that, to only a X a for negative that

share based on in XX% XXXX million of Long of which materialize design significantly goal frames XX% $X we sales of annual our of ultimate and expect return term, year. win to the strong $XXX by with X and XXXX strategic sales due have earnings we million. have cycles, processes slowed to per to to lengthened ramp-ups, market extended time to rates exceed the now $XXX as growth plan baseline, the at revenues our We to

provide I us pipeline to discuss Silicom's want we're minutes more long-term and of would I have growth with plan example wins of design prospects million to in in see back the of sales years. revenue level will strong of and to be our our above. take you high to why deep examples To potential color, I thicker and we potentially optimistic the pipeline number recent annual a potential months, of opportunities more with given longer a each a why $X future some bring we and more converted you will about And believe and strategic representing of upside like broad give and few to built revenues.

systems. our some These of previous few our existing with potentially exactly is expansions our customers, to customers broadening -- by networking solutions after powerful of our and grown us successful engagement pattern memory where First, enhanced and products, with with this system networking include mid-range of much increased began relationship, have more flow flow and mirrors discussion To are server It years in or higher-end we we over expanded X towards X additional a their adapter growth, we support with experience extend which business mid portfolio the to cores, same the interfaces. years. we networking the products. business CPUs, additional are in

customer such scale. contribute $X business of engagements of stages various of to at potential additional year have each full several per $XX at could million We discussion, between which million

major and been considering while our with products variety we systems. we dialogue a FPGAs, Smart in Second, for customers have with whom NICs time engaging a including new long are of a

recently to advanced requested wins to by to customers new to Silicom features products our Those have products potential Some cutting-edge their are Those specifically technologies, needs. launch customizable tailor we implement soon. due returned that allows which either product specific about involve capabilities products features, and us those of our will and or advanced those have customers. to launched design

with as requested potential potential a other the those and have new products customers significant with Beyond customers, the well. features

dollars the existing to including us the a broadening potentially higher-end growing the expanding NICs, extending full systems. type millions few their This Smart If We of provide dollars NIC currently various comprehensive evaluating a each to end-to-end engagement. confidence include of ability needs. demanding in run could their our potential to meets solution business see customers' we Third, per several we possibility with reflects from and Smart this customers FPGAs, see close to contribute of of year rate. tens of opportunities, those million full successfully stages at that

confidence current critical business they gain supplier their we gradually are a to ramp as Fourth, SASE needs. who looking their Silicom for customers in us with have increased up as

their current lower-end to range mid add are discussion to [ ] higher-end those purchases. We in and with potentially customers system both

million those with with total ramp-up. with business reach approximately them $XX existing potential And products, new customers the the to to full has grow those continue addition Our of at our annually business steadily.

vehicle demand we withstand demanding as industries chains Fifth, systems, and systems reliable environments energy, conditions, restaurant our from for coming in retail, to are Those and discussions with connected requiring ruggedized harsh companies engaging ideal new and making line are solutions. for durable of operators. verticals promising such designed them

the of very each conditions potential environmental specific the potential the meet customers, has to to systems and various significant. be our customizing already are We engagement

Our so early strong discussions indicated line. have far new for this potential

a design and perspective, broader add with both our provide long-term of pipeline expanding stability revenue be and business business. a growth trajectory multiple new It with streams supported a our wins and avenues diversifying to our by existing diverse in our will to of growth Taking customers. pursue layer existing and by us potential will will additional

names engagement industry pipeline Our of technology the security space, and to our leaders. prominent networking, offering in the telecom strength includes some demonstrate which appeal with of and the most

strategic initial While an upside is be recent success of a deepening to the conservative, broadening plan our much is testament to about. the excited strategic in assumption and The of months our there pipeline in our and plan. remains potential

to are design our wins. seeing of to wins substantial time, pipeline of revenue, could to strategic we target which with in generate potential our continue of additional give our small that million We -- pipeline annually. the $XX strongly to opportunities medium future design expanding are the At range same attention results strategy early some within much potential our

upside have more to. potential indicated The forward realization strategic mentioned to much bring will in our earlier deals look the X lot than plan In ramp-ups a or sooner summary, to fast and of a of we currently goal plan. the

execute successfully to to plan ability hand X win roster staff Given and With exceptionally our I for for return bursting will needs, opportunities, the of of capital Tier a with our the and profitability. with minds, strong that, Eran, now customers, a product, pipeline and of superb growth full a please Silicom sheet the coupled over design level hardware call our industry's with our networking about quarter strong along high working optimistic ahead. strategic to of balance Eran best are results. review our on detailed renewed go we the

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

XX last XX%-plus the customers. During X months, we had

I excludes income. will a officers of non-GAAP options and the the and rest basis, expenses granted compensation presenting financial acquisition-related noncash lease results the RSUs well employees, be on financial adjustments, of as directors, to liabilities, respect in as which

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

the second million for was representing margin a or of the profit XX.X% of gross $XX.X Gross of and gross of margin XXXX. compared $X.X gross a second quarter XX.X% in XXXX million, quarter profit to of

will our as the grow term, end our in expected of the previously, lower current margin discussed near be from the As XX% million to it to upper XXXX levels, XX% and compared to $X.X second gross at range, the in of our reported revenues expected is increase the were quarter XXXX. term, longer expenses the second towards end. $X.X of quarter in Operating million over

loss was Operating the second XXXX as million in of quarter reported to in share of the XXXX. quarter last year. share the reported second the compared of compared $X.XX. in the $X.X Net per quarter Loss of diluted in for million second loss of quarter $X.X as of was per XXXX. $X.XX was operating for income to net of This million income with compared quarter million $X.X quarter second earnings is the $X.X

the to Now turning balance sheet.

million $XX.X debt. We about the at no to to Operator? that represents $XX for this session. of This question-and-answer and I end used XX, XXXX, June increase for half compared million XXX,XXX the operator year. ends XXXX. an of my over $X.X marketable the totaled like of back of of company's over cash repurchase the shares summary. securities with cash, equivalents during As to million of That the would first the half hand

Thank Alex of Henderson from you. Needham. [Operator question is Instructions] The first

a that you may particular about that not specialized or to $XX.X spend that risk is little levels, look conversely, to that have to utilized is inventory write wanted that a In sheet. you ] going I that words, be a down there balance time I tooth If to to inventory achievable confident for customer all that going of is inventory? getting any cause of Or the any that be inventory along any are portion talking might [ bit feeling at forward? the inventory? of million, other

We inventory. don't very see such a risk. It's a high-quality

And similarly, any risk to the receivable side of the equation?

No.

that are so it's I there [ that equation, -- essentially, current XX is or in per confident and change So and total be the ] I $X and of? ] in all -- asset to in look values liabilities the the of not If a going think are side [ aware impaired? a share or those share $X.XX should assets current. be XX.X Is at liability there anything we are assets that you're solid

standard. all special, Nothing

Okay.

sheet earnings that get way is, breakeven in long the to back then hit you to into can front? clean. looks you So think how on think all you it that do question out the takes XXXX? balance Or XXXX? Then is Do the the

Yes. it happen I believe will XXXX. don't in

to not said, I that the going significant, believe XXXX of from which I we're still increase situation we're breakeven. XXXX As a means that will in be not be revenue that to

let's probably -- the say, In half XXXX. in of XXXX. second in happen to that expect We during XXXX,

you was I in of And line, particularly bit below had than EPS in lot it the But if to benefit. in tax do you line right. like talk a of tax tax half All a look expected. the not think what the calendar 'XX? looks the to going we quarter, the a expecting little better a came line. is at tax back Can that the cost, were We

Yes.

result all, Again, we a this [ onetime tax saw a to years. $X a This merism income quarter of is the that previous occasion. is in First is returns tax onetime due from X onetime of ]. almost million

will XXXX-XXXX not about income million in annual very a tax low more assuming of we profitable, or forward, expect Looking amount less. be $X.X

$X.X about quarter? $XXX,XXX per quarter, per million

of expenses. amount A tax year. very Per low

full the for million year. $X.X So

For full the year.

per X near essentially So quarter?

Exactly.

higher commentary All weighted? numbers And off the look million 'XX. sounds do to you level income low half? half $XX front the in in get of and at like when that in first be the and -- do of to top you're year 'XX the start the Or $XX level that to fairly half right. $XX statement about say, to around the the $XX.X million expect on range? back at it Or talking about $XX Is you million still back in to of expect current based million fairly line, flat around I statement the levels the back then income million a the or like recover or half the something of it that in to be half

the to take. as let's say, will of second there, bit it the expect, seeing or increase And I from give we be what a to the then now, X we're right similar first into year quarters half. go little

will second weighted half, it in very more not the dramatically. but be So

Okay. thinking of in of the But in what of year? terms you're something the is million $XX kind about vicinity

yes. Roughly,

that, on we are Right. around that that the still assuming? kind change gross here you're mechanical of And the level? XX% Or any margins mix in

what think I we're it be to will seeing right very similar now.

All right.

in about $X continued. back suggests another That you're of million And operating million the a or So loss $XX half. kind in looking 'XX. at so

million burn the a be roughly should Is thinking burn? rate? that we $XX So for in cash that then assumption reasonable

range were $XX in maybe $XX that, than the something talking million. we million, think more I of

at will the inventories looking that, getting think products. mean, need it more start for -- about on we supporting new when projects also but future -- we're and to ready we're I really thinking I when depends

that, answer give I... very a to but conclusive So how to

you at if OpEx operating a hold levels, the around loss. under million that's $XX -- XX% $XX or fairly on have margin $XX a just million Well, current XX% flat million,

would half going assume of I would 'XX least happens build $XX that 'XX, So that inventories, loss? late to first if plus any back in what, to I the half it's in in So $X the of which million, got you think you're plus to going that operating it's deal another, million more inventory be build than with, 'XX. is or at

get of the for and of expecting If -- the I also are second would we improve well again, will that fact reasonable if income you're add as But But to or number the year talking some happen number. also including financial on you're than XXXX full that the yes. half give XXXX, what situation, side. I could it's the on a depending think take, that XX,

All I get it. right.

as now to to understand couple a the back year the pretty that not longer expected. materialize -- did chasing that when design take that of and of after potential Going design-ins a going guys they lot those large revenues model and I dollars attractive of deals are shifted would But of look more know you probable drive metastasize what million and were projects win. And I business, generally the into into those business, singles call Obviously, a business. a the to that I traditional looked you've mechanics design-ins the for had been deals each materialize. like

to takes simply launch causing You've And that got part is than can't therefore, macro got just recovery slower it that is you to the then count uncertainty thought? And in, we why these line it on in put revenues? this got longer. Is just time to to deep is design they've of and their the to it Or companies product. product.

a So points. few

do by rid in, it takes need right need designing time. it's launch product. current our customers all, new bigger get it market the of are design process. longer to they to when their first way, then us usually so. So of when design the to and inventories, we're is, you a win They it takes And The in, that usually the

causing wins, faster see what right processes those inventories happen customers macro wins. So in to overall longer of are used we may big and the and very The medium with situation design it the to with than then be smaller even now design with market. high

the why that that is the in to which a So take see this means we longer. delay is expected, we line even process time causing that

Yes.

why in to business, but what strategy slower the the you're recovery? I -- So a the want I'm anticipating singles to -- change determine part is more do trying of reason

No. It...

recovery visibility business. design-in an persistent Obviously, increased are as maybe wins to those very that

to No. in the is This a on recovery. What's causing It's fact products still on slower is shift strategy the take are they they've more customers it that than of the and inventories. fact used customers the longer products new optimistic of or causing are decisions what's the their because making recovery that sitting to new the not slower that for macro sometimes be, technology sell the and struggling situation than again, because reality. been

that of shift putting a smaller wins. to of the takes because all longer. So is that in us it's place But together design it not medium and

the would back looking small the we win. medium, very get with medium become small a or over with showed time, whether on design sometimes that for us big I customer. because didn't specific also design that it's same they we the new win add it's from this that And when whether the large look much experience are we and It's win and stop our we design also just focusing that

on big So medium. the on we're not and We're ones. small solely focusing focusing

but have list only While not I year, our design even of bit, $XX little we focusing be about talked we're the wins, on million which a very those. a still could big that

Instructions] this further time. questions There [Operator are no at

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

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

participation. Second for Silicom's concludes This you. XXXX you Thank Results your Thank Quarter Conference Call.

ahead go disconnect. and may You