Silicom Ltd

Ladies and gentlemen, thank you for standing by. Welcome to the Silicon Fourth Quarter 2022 Results Conference Call. All participants are at 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 company's press release. If you have not received it, please contact Silicon's Investor Relations Team at ekglobalinvestorrelations 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. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?

Thank you, Operator. I would like to welcome all of you to Silicon's fourth quarter and full year 2002 results conference call. Before we start, I would like to draw your attention to the following Safe Harbor statement. This conference call contains projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and may change as time passes. Silicon does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of our increasing dependence of substantial revenue growth on a limited number of customers, in the evolving cloud-based SD-WAN NFV and edge markets, the speed and extent to which solutions are adopted by these markets, the likelihood that we will rely increasingly on customers which provide solutions in these evolving markets, resulting in an increase in dependence on a smaller number of larger customers, difficulty in commercializing or marketing Silicon's products and services, maintaining, protecting brand recognition, protection of intellectual property, competition, disruptions to our manufacturing and development, along with general disruptions to the entire world economy related to the spread of the novel coronavirus COVID-19 and the other factors identified in the documents filed by the company with the SEC. In addition, following the company's disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this call. Such non-GAAP measures are used by management to make strategic decisions forecast future results, and evaluate the company's current performance. Management believes that the presentation of these non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless otherwise stated, it should be assumed that financials discussed today 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 in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release, which you can all find on Silicon's website. With us on the line today are Mr. Liron Eisenman, President and CEO, and Mr. Eran Gilad, CFO. Liron will begin with an overview of the results, followed by Eran, who will provide the analysis of the financials. We will then turn over the call to the question and answer session. And with that, I would now like to hand the call over to Liron. Liron, please go ahead.

Thank you, Kenny. I would like to welcome all of you to our financial results conference call discussing our fourth quarter and full year 2022 results. We are very pleased to report another solid quarter capping a strong year of revenues, margins, and EPS growth for silicon. In particular, this is all the more impressive against the background of what has been a continued challenging and complex environment with significant component shortages and a lot of supply chain issues. We are very happy with our performance, growing our fourth quarter revenue to $45.2 million, which is up 24% over last year. For the full year of 2022, our growth was 17% year over year, to $151 million in revenue, a record year for Silicon. Furthermore, the strong operating leverage within our business model allowed the revenue growth to translate into accelerated profit growth. This is demonstrated by our operating margin expanding to 15.6% for 2022 versus 12.4% last year, and our net margin growing to 14.1% for 2022 versus 10.9% last year. The continued success led to our 72nd quarter of uninterrupted profitability, and we reported 2022 earnings per share up 55% year over year to $3.12 per diluted share, double that from only two years ago. It all highlights the strong and broad demand for our end markets, especially the edge products, and the market's understanding of our unique value proposition that we have built over the years. including high-performance products, reliable delivery, quick customization, and unmatched support capabilities. Our success demonstrates the market's clear need for our groundbreaking products while underscoring the benefit of the leverage inherent in our business model. 2022 has taken up a step towards meeting our long-term target financial model that we shared with you a few years ago. Back in 2020, our target was 18%, operating margin, and 15% net margin when we reach full-year revenue of approximately $250 million. At that time, our respective operating and net margin were about 10%, and this was an aggressive target. The results in 2022 demonstrate that in only two years, we are well on the way thanks to the impressive leverage we demonstrated in our business model throughout the year. Our cash position currently stands at $50 million up by approximately $7 million since last quarter. As I explained last quarter, our working assumption is that the component shortages will continue to improve during 2023, and thus we have decided to actively and gradually reduce our inventory levels. Peak inventory levels are therefore now behind us, and as inventory has decreased during the past two quarters and is expected to continue to gradually decrease in the quarters ahead, It is and will directly translate to an increase in the cash level. Our continued strong cash position remains a key strategic asset and significant competitive advantage, especially in today's market. It allows us to serve our existing customers better, maintain a high level of critical inventory allowing us to deliver products which are not readily available. This in turn enables us to attract new customers and new businesses which have difficulty finding products elsewhere. Furthermore, it enables us to capitalize quickly as opportunities present themselves. I would like to discuss our recent edge networking design win from a Fortune 500 SD1 vendor. This networking leader serves customers across the Americas, APAC and EMEA, and is a new important edge customer. The win was for a customized version of one of our 5G integrated high runner edge networking products, and the win was due to our unique feature set flexible connectivity options, and offering differentiation in the market. We expect orders to ramp up through 2023 with deployment levels reaching a steady state beginning in 2024. This win is another clear demonstration of the depth and quality of the potential opportunities in our pipeline, as well as the compelling value proposition that we offer for next generation edge networking use cases. We can now point to a record pipeline of opportunities for our edge product in multiple varied markets as well as significant interest from potential new customers for our products. Wins such as those have established us as an industry edge platform provider of choice with a product's rapid customization capability, delivery capabilities, and ongoing support that many customers need. We expect to continue benefiting strongly as the market transitions to the edge platform paradigm, driving multi-year growth for our company. telcos, service providers, enterprises, network vendors, cyber vendors, as well as cloud players, all are seeing the need for edge products for various applications, such as SD-WAN, virtual CPE, telco-dedicated routing, and SASE, and more. As our edge products, which are initially targeted to the SD-WAN market, became a clear growth driver for us, we realized that those same products are highly attractive for significant broader applications and varied markets. thus making our total addressable market potential even bigger than what we had initially thought. Finally, in terms of our guidance ahead, while we move into 2023 with an all-time record year-start backlog, our visibility is limited due to a challenging mixed signal environment that is impacted both by the global economic slowdown and the expected loosening of the supply chain after a long period of component shortages. We therefore project that our revenue for the first quarter of 2023 will range between $37 and $38 million. The midpoint of this range represents 17% year-over-year revenue growth over the first quarter of 2022. In summary, we remain very pleased with our performance throughout 2022 with strong year-over-year growth in revenue and a significant acceleration in our profit growth, proving the operation leverage inherent in our business. We have strong tailwinds in the form of our highest ever-level of year-start backlog and a strong roster of leading customers and design wins, many of which are in the early ramp-up stage. Furthermore, we maintain a healthy and quality pipeline of future design wins. Finally, we see that the component shortage is easing up, and over the coming year, we expect to put this issue behind us. On the other end, there are headwinds emerging in the form of global economic slowdown, which is starting to impact our visibility. we are being cautious as there is increased potential for longer decision-making processes and delayed ramp-up by customers, as well as the potential for cancellations or push-outs of the high level of orders that were issued during the very long component shortage period. All in all, looking at the coming years, we remain optimistic that our double-digit compound annual revenue growth will continue as we enter into 2023 with a total addressable market larger than ever, our highest-ever year start backlog, and a healthy quality pipeline, we have never been better positioned. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.