Silvaco Group, Inc.

Good afternoon and welcome to Sovaco's third quarter fiscal year 2025 conference call. All participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Greg Bignif, investor relations for Sovaco. Please proceed.

Thank you. Joining me on the call today are Wally Rines, Sovaco's CEO and director, and Chris Zegarelli, Sovaco's CFO. As a reminder, a press release highlighting the company's results along with supplemental financial results and an earnings presentation are available on the company's IR site at investors.savaco.com. An archived replay of the call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Security Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. It is important to also note that the company undertakes no obligation to update such statements except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, earnings presentation, and on this conference call. The risk factors section in Sivago's annual report on Form 10-K for the year filed 12-31-2024 And the most recent form, 10Q, filing with the Securities and Exchange Commission, provide descriptions of these risks. With that, I'd like to turn the call over to the Silvaco CEO, Wally Rines. Wally? Good afternoon.

I'm pleased to be part of Silvaco, and I look forward to regular communication with you, our investors. Since I became CEO, I've engaged with customers, employees, and investors who provided invaluable feedback on our strengths challenges, and most importantly, the road ahead. The conclusion is clear. Silvaco is a company with great potential, supported by a rich history, dedicated core customers, and strong foundational elements. Two broader themes came out of these discussions. First, our success requires us to focus on key products that are sufficiently differentiated to become leaders in their respective categories of use. Achieving this requires reduced attention on mature products and concentrated focus on a limited number of growth opportunities. I can see multiple areas where this shift in focus will pay off, namely in AI, interconnect IP, and power. Second, it's clear that Silvaco allows spending since the IPO to grow much faster than revenue. This was also clear to me from day one. We've already taken steps to reverse this trend to strengthen our financials, and to free up resources needed to accelerate growth. I'm confident that these two areas, strategic focus on core growth drivers and financial discipline, are the keys to strengthening the business and delivering profitable growth. I'll provide more color on the first, and Chris will walk you through the second. Stepping into the CEO role at Tabaco is like deja vu all over again for me. When I joined Mentor Graphics as CEO in 1993, the company had failed to meet expectations for many quarters. None of Mentor's products were number one in their category, the company was not profitable, and cash conservation was an issue. During my time at Mentor, I learned a great deal about the EDA business. Closed dozens of acquisitions, grew market value more than 10x before acquisition by Siemens, substantially increased profitability and developed and grew a number of products, including Caliber and Tessent, which by themselves generated most of the company's profits. I find Selvaco in a similar position to where I find Mentor. The company has failed to meet expectations after the IPO, it's not yet profitable, and the products are not number one in their markets except in some very specialized categories. I believe that my Mentor playbook can be applied to Selvaco. The first step is focusing on two key areas, financial and operational discipline, and focusing on select core growth drivers. We believe the key to reinvigorating the business lies in focusing on the right markets with differentiated solutions to solve critical customer challenges. We have a very clear example of this in Silvaco's AI machine learning product for process development called FTCO. Silvaco created this unique AI product that gives customers a valuable tool to solve real manufacturing challenges. This single product enabled Silvaco to establish a partnership with Micron. It will also be one of our foundational growth drivers looking forward. We can learn from FTCO as an example of building disruptive technology that can create meaningful value for our customers and for us. Another example is Mixel. the acquisition that closed in the third quarter. With Mixel, we expect the IP business to grow rapidly. Customers have nothing but praise for Mixel's perfect quality and responsiveness. And Andy Wright, our new head of the IP business, has breathed life and growth into the rest of Selvaco's once small IP business. I see synergies emerging that exceed our initial expectations. The Selvaco sales force will become a force multiplier for Mixcel, while the rest of the Silvaco IP business is learning from the world-class development processes that have earned Mixcel such praise in the industry. My expectation is that the legacy Silvaco businesses can and will learn from Mixcel best practices. In the EDA business, as in TCAD, we have years of legacy products, many of which continue to generate significant maintenance revenues. These can generate steady revenue with little cost if we increase the cost discipline in our business. Skilled engineers who support the mature products continue to add features and enhancements long after the products have stopped achieving new design wins. In general, the customers neither want nor do they adopt the new versions of the software. Only a small amount of resources required to keep the products useful and skilled engineers can be moved to products with growth opportunities providing them with increased motivation and excitement. One example of a growth product that solves key customer problems is Javaro. It's been adopted by companies like NVIDIA, Samsung, SK Hynix, and many others to accelerate post-layout SPICE simulations by more than a factor of 10 with sign-off accuracy. Looking across Silvaco, solutions that include AI, power analysis, and interconnect IP are consistently winning new customer engagements. As we de-emphasize areas that are subscale or generating immaterial new revenue, we can free up resources to accelerate our stronger products, including FTCO and TCAD. Our success also depends on establishing fiscal and operational discipline. The data speaks for itself. Since our company's IPO, financial performance has been disappointing. Revenue growth has lagged peers and operating expenses have grown much faster than revenue. Underestimation of the time and effort required to bring on the new FTCO customers produced disappointing results for what should be the key growth franchise. The fact that expenses have grown much faster than revenue is another problem. Expense reduction has therefore become our top priority. We've initiated a significant cost reduction program at the beginning of the quarter. Chris and I have set a clear expectation with the team that we'll drive the business to profitability at current revenue levels so that growth can produce incremental profit. Chris will discuss these actions and early progress on this goal in more detail. Operational discipline also requires a strong focus on execution. We've added several key new leaders to the team in the last few months, including our CFO, heads of the IP and EDA businesses, and our head of business development. The energy I see in this team is exactly what we need to create a culture of speed and high-quality execution. I see a team that's not satisfied with the status quo and one that wants to win. With our renewed focus on core growth drivers, we'll be able to invest at the right levels in the right areas to ensure that we close gaps with competitors and establish Silvaco as the leading name in EDA for our targeted growth segments including AI, Power, and Interconnect IP. Another contributor to the company's underperformance has been delays in integrating and extracting value from our two most recent M&A transactions. For Mixel, we underestimated the time required to activate the sales resources in Salvaco and to establish new modes of distribution, including off-the-shelf sales of non-customized IP. For TechX, growth remains dependent on overall market adoption of its plasma and optical solutions. Focus on this effort should accelerate realization of the value that TechX brings. Looking forward, we expect both Nixell and TechX to contribute meaningful growth in 2026. We remain optimistic on the longer-term contributions of both of these acquisitions. Now, taking a step back, there's a lot of value and strength from Silvaco's rich history. The company continues to benefit from the fact that users of EDA software are reluctant to change, and older products continue to generate maintenance revenue long after growth from new customers has slowed. This gives us a stable foundation upon which to build. It also gives us many compelling assets with which to focus and grow. We have a lot of work in front of us. In the coming quarters, we expect to right-size the business, streamline the portfolio, and focus on key growth segments to enable us to deliver steady, profitable growth. We recognize it will take some time for you to see this redoubled focus in the numbers. I encourage you to watch for OPEX to trend flat to down, gross margins to improve, and evidence of growth starting to materialize in 2026. Chris and I are firmly committed to an aggressive acceleration of Silvaco's business. I'm looking forward to increased personal interaction with Silvaco customers. We appreciate your support as we execute on these growth plans. I'm confident that we will deliver strong results as this new strategy is implemented. I'd now like to turn the call over to Chris, who will discuss our financial results and the outlook in more detail.