Silicom Ltd

Ladies and gentlemen, thank you for standing by. Welcome to the Silicon First Quarter 2025 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 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, please?

Thank you, Operator. I would like to welcome all of you to Silicon's Quarterly Results Conference Call. Before we start, I would like to draw your attention to the following safe harbor statements. This conference call contains forward-looking statements. Such statements may include but are not limited to anticipated future financial and operating results and Silicon's outlook and prospects. 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 factors and conditions and are subject to known and unknown risks and uncertainties and factors, many of which are outside of Silicon's control. which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements. These include, but are not limited to, Silicon's increasing dependence on substantial revenue growth on a limited number of customers, the speed and extent to which Silicon solutions are adopted by the relevant market, difficulties in the commercialization and marketing of Silicon's products and services, maintaining and protecting brand recognition, protection and disruptions to manufacturing and sales and marketing, development and customer support activities, the impact of war in Israel and in Ukraine, rising inflation, changing interest rates, volatile exchange rates, tariffs, as well as any continuing or new effects resulting from the COVID-19 pandemic. and global economic uncertainty which may impact customer demand through customers exercising greater caution and selectivity with their short-term IT investment plans. The factors noted are not exhaustive. Further information about the company's business, including information about factors that can materially affect Silicon's results of operations and financial conditions, are discussed in Silicon's annual report on Form 20F 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 future results will not differ significantly from anticipated results. Consequently, investors are reminded not to rely on these forward-looking statements. as a result of new information or future events or developments, except as may be required by law. 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 and prospects for the future. Unless otherwise stated, it should be assumed that the 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 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. A full reconciliation of non-GAAP to financial GAAP measures are included in today's earnings release, which you can find on Telecom's website. And with us on the line today, we have 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'll then turn the call over to the question and answer session. And with that, we'd now like to hand the call over to Liron. Liron, please go ahead.

Thank you, Kenny. I would like to welcome everyone to our conference call to discuss the result of the first quarter of 2025. We are pleased with our start to 2025, which reflects solid execution and progress in line with our strategic plan aimed at bringing renewed revenue growth, profitability, and ultimately increased shareholder value. In addition, we saw significant design with momentum and made strong progress growing our mid- and long-term pipeline. The quarter demonstrates that we are advancing and achieving meaningful milestones with various customers and projects, and all this makes us more optimistic that we will drive an acceleration in revenue growth in 2026 and beyond. In terms of the financial results, we delivered revenues of $14.4 million, which were in line with our targets and delivered gross margin and operating expenses in line with our strategic plans. Our balance sheet has therefore continued to remain very strong. Our working capital and marketable securities amounted to $119 million, including $77 million in cash, deposits, and highly rated bonds. We know that. All this represents about $21 per share. This ensures we can maintain adequate investment in our business and its growth engines, even in this very volatile market, without compromise. From a strategic perspective, I'm very happy to report that we are on track with our plan to return to solid double-digit growth rate, materializing gradually from 2026. To remind you, the long-term financial goals of our strategic plan are to deliver an EPS above $3 based on revenues between $150 and $160 million. The most tangible indicator of our progress is the impressive number of design win flows during the quarter and the breadth and depth of our design win opportunity funnel. Our renewed focus on our core product lines, coupled with the deep relationships with our customers and potential new customers, has created a solid pipeline enabling our future growth potential. So far in 2025, we have already seen success in converting this pipeline to design wins, the main indication for the progress of our strategic plan. We expect to continue to convert this pipeline to further design wins throughout 2025. In our previous call, we discussed our target of achieving between seven and nine new design wins in 2025, and we are well on track. Since the beginning of the year, we have been awarded three important new wins. two with cybersecurity leaders, and one with the Global Network Test Equipment Company, which together encompasses our full product range, from SmartNICs and FPGA-based products to our advanced edge systems. All three are repeat customers of ours that already rely on silicon products to give their system performance edge. And all three have decided to expand their business with us as they embark on a new project. I want to highlight those recent design wins in more detail. Number one, a US-based global provider of advanced network testing equipment solutions selected our 100 gigabit network interface cards for the next generation platform. This customer placed an initial purchase order to cover its new product introduction needs, and we expect mass deployment to begin in early 2026. Once the product ramps up, we expect the total business with this customer to be $2.5 million per year. We are very proud that this global giant turned to us for a performance edge, and it speaks volumes about the innovation at the heart of our high-performance NICs and our reliability as a design partner. Customers such as this represent the backbone of our business, with the potential to secure new design wins with a shorter sales cycle process, contributing to a growing base of revenues. Number two, we also won a design win with a US-based cybersecurity leader, choosing our latest Altera-based 400GB FPGA smart card for its new network monitoring offering. The customer placed an initial order with us, and at full ramp-up, we expect revenues will reach $3 million per year. This design represents the successful conclusion of many months of collaborative effort with the customer. As a full-service supplier, we work closely with the customer to meet the feature set and performance requirements to deliver them as a complete solution fully integrated and tested within a server. This demonstrates the added value of Silicon's engineering talent, who customers often view as an extension of their own R&D team. This will demonstrate the importance of the full packages we offer, a uniquely broad product line based on advanced technology, hands-on collaboration with the customer, and a rapid development and delivery capability. Number three, a major U.S. cybersecurity customer of ours awarded us a design win for a customized version of a wireless connectivity-enabled silicon edge system incorporating a silicon network interface card for the next generation of one of its leading product lines. Our ability to carry out the required customization quickly and to provide both the edge system and the network interface card that are incorporated within the system together with our deep wireless know-how were key factors in securing the win. We expect... demand to continue to build for our edge systems smart network interface cards and innovative products that integrate the two, becoming a key driver of our future growth. Initial orders have been received, and we expect to start ramp up during the second half of 2025 with revenues of $2 million per year at the full run rate. This win expands the relationship that Silicon has been building with the client for several years, ramping up the range of products sold from network interface cards to complex edge systems. Those types of REIN are now our focus, building steady, long-term, and trusting relationships that give rise to multiple deals, leveraging a reliable, diversified revenue stream from an expanding base over the long term. 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. The power of each design REIN is not only to generate its own stream of recurring revenues, but also to open the door to multiple additional opportunities. This combination, along with a growing number of potential new customers who are currently evaluating and testing our products, underlines our confidence in achieving our target for seven to nine design wins during 2025. While our recent design wins will have a minor positive impact on our financial results in 2025, we believe those and others that we expect to sign in the coming months will form the foundation for a significant growth in 2026. I note that if the opportunities in the pipeline ramp faster than expected, we could achieve the goals of our strategic plan significantly sooner than currently projected. Our pipeline of opportunities at the input of our design wind funnel is very broad across all our products, including ad systems, smart NICs, and FPGAs, and include both new and existing customers. This pipeline includes leading names in the cybersecurity, service provider, and networking industries, highlighting the strength and appeal of our technology offerings. We believe that during the coming years, we will see more and more opportunities turning into design wins, and we are constantly adding further opportunities at the entry point of the funnel. This is the main engine behind our strategy for growth. I want to highlight our new investor presentation available on our website, which includes examples of many opportunities in our pipeline. It also shows examples of the opportunities that made it through the funnel and became design wins, driving revenue growth. we are seeing the positive impact of our strategic plan, expanding the pool of future opportunities with small to medium design means, as well as potential deals in the range of double-digit millions of dollars in annualized revenue. Considering the impressive pipeline and by executing all aspects of the strategy, we continue to believe that we will achieve the main goal of our strategy to create significant value for our shareholders with TPS of about $3 based on revenues in the range of $150 to $160 million over the long term. A fast ramp-up of a few of the potential deals we have in the pipeline may help us to achieve this goal much faster than currently indicated in our strategic plan, and we are fully focused on making this happen. Looking ahead, in terms of guidance, we continue to project low single-digit growth for 2025, with double-digit growth expected for 2026. For the second quarter, we expect between $14.5 billion and $15.5 million in revenue. In summary, we are pleased with our progress. We are very optimistic about our ability to continue to execute on our growth plan and fully focus 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 positions us well for double-digit growth from 2026 onward. As I have mentioned, we aim to achieve 7 to 9 design rates in 2025, of which 3 have already won, which demonstrates we are well on track. Looking further ahead, our focus remains on delivering long-term shareholder value, targeting an APS above $3 on annual revenues of $150 to $160 million. As I said, a faster ramp-up of a few of the potential deals we have within the pipeline may help us to achieve this goal faster. We have a solid design win roster, full of Tier 1 customers, coupled with a superb product and a robust pipeline of opportunities. We have strong financial foundation with a solid balance sheet. With a very dedicated and loyal team, possessing decades of experience in the hardware business, we are optimistic about our ability to execute our strategic plan and meet our goals. We look forward to reporting on our progress as we continue executing on our growth strategy. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.