Earnings call transcript: Silicom Q2 2025 beats EPS forecast, stock surges

Silicom Ltd. (SILC) reported its second-quarter earnings for 2025, revealing a smaller-than-expected loss per share and surpassing revenue forecasts. The company posted an earnings per share (EPS) of -$0.35 against a forecast of -$0.40, marking a 12.5% surprise. Revenue reached $15 million, slightly above the anticipated $14.94 million. Following these results, Silicom’s stock surged nearly 15% in pre-market trading to $17.63, reflecting positive investor sentiment. According to InvestingPro data, the company’s last twelve months revenue stands at $58.65 million, though it faces profitability challenges with negative earnings.

Key Takeaways

• Silicom’s EPS and revenue exceeded expectations, indicating resilience.
• The company secured major design wins in AI and networking technologies.
• Silicom’s stock rose 14.97% in pre-market trading post-earnings.
• A strong balance sheet with no debt supports future growth initiatives.
• The company anticipates double-digit revenue growth from 2026.

Company Performance

Silicom’s performance this quarter reflects its strategic focus on innovation and market expansion. The company reported a 4% increase in revenue year-over-year, driven by significant design wins and product advancements. Despite a net loss of $2 million, Silicom’s efforts in AI and networking technologies position it well against competitors in these rapidly growing sectors.

Financial Highlights

• Revenue: $15 million, up 4% year-over-year
• Earnings per share: -$0.35, better than the forecasted -$0.40
• Gross profit: $4.8 million, with a gross margin of 31.9%
• Cash and equivalents: $80 million
• Working capital and marketable securities: $116 million

Earnings vs. Forecast

Silicom delivered a notable earnings beat, with an EPS of -$0.35 against a forecast of -$0.40, representing a 12.5% positive surprise. Revenue also slightly exceeded expectations, coming in at $15 million compared to the forecasted $14.94 million. This performance contrasts with previous quarters where the company faced challenges in meeting forecasts.

Market Reaction

Following the earnings release, Silicom’s stock experienced a significant pre-market surge, increasing by 14.97% to $17.63. This movement reflects investor confidence buoyed by the company’s strong financial performance and strategic wins. Trading at a price-to-book ratio of 0.71, InvestingPro analysis suggests the stock is currently undervalued relative to its Fair Value. The stock remains below its 52-week high of $18.61, suggesting potential for further growth. Discover more undervalued opportunities at Investing.com’s Most Undervalued Stocks.

Outlook & Guidance

Looking forward, Silicom projects revenue between $15 and $16 million for the remainder of 2025. The company aims for double-digit revenue growth starting in 2026, supported by ongoing investments in AI and security hardware solutions. These initiatives are expected to drive long-term growth and market leadership. InvestingPro data shows the company’s revenue has seen a CAGR of -11% over the past five years, making this projected turnaround particularly significant. Get access to the full Pro Research Report for deeper insights into Silicom’s growth potential and competitive positioning.

Executive Commentary

CEO Liran Eisenmann expressed optimism, stating, "We are increasingly optimistic about our ability to achieve double-digit revenue growth in 2026 and beyond." He highlighted the potential of FPGA technology, noting, "FPGA could be dramatic here in order to provide solutions that simply do not exist today."

Risks and Challenges

• Continued net losses highlight profitability challenges.
• Market volatility in the tech sector could affect future earnings.
• Heavy reliance on the North American market poses geographical risk.
• The shift from software to hardware solutions requires careful execution.
• Macroeconomic pressures may impact customer spending and investment.

Q&A

During the earnings call, analysts inquired about the stability of the cybersecurity market and the shift from software to hardware solutions. Discussions also focused on opportunities in AI infrastructure and the potential for FPGA technology in AI acceleration.

Full transcript - Silicom Ltd (SILC) Q2 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Second Quarter twenty twenty five Results Conference Call. 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 7040 or view it in the News section of the company’s website, www.silicomusa.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?

Kenny Green, Investor Relations, EK Global Investor Relations: Thank you, operator. I would like to welcome all of you to Silicom’s quarterly results conference call. Before we start, I would like to draw your attention to the following safe harbor statement. This conference call contains forward looking statements. Such statements may include, but are not limited to, anticipated future financial and operating results and Silicom’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 conditions and are subject to known and unknown risks and uncertainties and other factors, many of which are outside Silicom’s control, which might cause actual results to differ materially from expectations expressed or implied in the forward looking statements. These include, but are not limited to, Silicom’s increasing dependence for substantial revenue growth on the number of limited customers, the speed and extent to which Silicom solutions are adopted by relevant markets, difficulties in the commercializing and marketing of Silicom’s products and services maintaining and protecting brand recognition protection of intellectual property competition disruptions to manufacturing and sales and marketing developments in customer support activities, the impact of war in Israel and in Ukraine, rising inflation, changing interest rates, volatile exchange rates as well as any other continuing or new effects resulting from the COVID-nineteen 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 could materially affect Silicom’s results of operations and financial conditions are discussed in Silicom’s annual report on Form 20 F and other documents filed by the company and that they 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. Silicom does not undertake to update any forward looking statement 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 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 the financials discussed in this conference call will be on a non GAAP basis. Non GAAP financial measures disclosed by management and 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 GAAP financial measures are included in today’s earnings release, which you can find on Silicom’s website.

And with me on the line today are Mr. Liran Eisenmann, President and CEO and Mr. Ehran Gilad, CFO. Liran will begin with an overview of the results, followed by Iran, who will provide the analysis of the financials. We will then turn the call over to the question and answer session.

And with that, I would now like to hand the call over to Liran. Liran, please go ahead.

Liran Eisenmann, President and CEO, Silicom: Thank you, Kenny. I would like to welcome everyone to our conference call to discuss the results of the 2025. We are pleased with the progress made in the 2025 and happy to report another quarter of execution ahead of our strategic plan, including strong design win momentum, success across all our product lines and excellent cash flow. Furthermore, we are pleased with our design win momentum, which is tracking ahead of our expectations. Since the beginning of the year, we have achieved five major new design wins with important new customers as well as existing ones, building an impressive mid to long term pipeline that puts us with close reach of our goal of seven to nine design wins for 2025 as a whole.

We see design wins as the most tangible indicator of our progress as well as our breadth and depth of our design win opportunity funnel. The renewed focus on our core product lines coupled with deep relationship with our customers and potential new customers has created a solid pipeline positioning us for future growth. We expect to continue to convert this pipeline to further design wins throughout 2025 and beyond. We are successfully advancing and meeting our milestones with our various customers and projects and are increasingly optimistic about our ability to achieve double digit revenue growth in 2026 and beyond, thereby delivering significant value for our shareholders. In terms of the financial results for the quarter, we delivered revenue of $15,000,000 at the midpoint of our guidance range.

Our balance sheet has remained very strong. And during the quarter, we increased our cash and equivalents by $3,000,000 At June, our working capital and marketable securities totaled $116,000,000 including $80,000,000 in cash, deposits and highly rated bonds with no debt representing approximately $20 per share. This ensures we can maintain adequate investment in our business and growth engines without compromise going forward. In the second quarter, we secured three significant design wins, one with a Fortune 500 cloud based service provider for our FPGA SmartNIC, one with a global network test equipment leader for our 100 gigabit NICs and one with The U. S.-based edge networking provider for our advanced edge system.

The three demonstrate the breadth of our product portfolio as well as the depth of our customer relationships and our ability to foster new ones. Importantly, those wins span across all our major product lines, edge systems, FPGA SmartNICs and high performance NICs, reflecting the relevance of our solution across diverse market needs. This diversity of new design wins across product categories and customer types is a key factor in building a strong and balanced growth foundation. A recent design win with a U. S.-based edge networking provider, demonstrating the strength of our reputation as a trusted technology partner.

The customer selected our customized edge device to enhance scalability, security and efficiency. Initial deployments are expected by year end 2025 with full ramp up in 2026. This customer is also exploring multiple additional projects, each with $1,000,000 plus potential in annual revenues and another customized edge product for a separate use case with a potential of $7,000,000 at full run rate. Following a year long technical evaluation, we achieved a major design with our for our FPGA SmartNIC solution with the new Fortune 500 cloud based service provider in North America. This win reflects the superior performance and reliability of our technology.

Initial deliveries are planned for late twenty twenty five with full ramp up throughout 2026 and an annual revenue potential of $4,000,000 This design win position us as a strategic technology partner to one of the most influential players in the cloud services industry. We view this as just the beginning of a broader relationship with opportunity to supply additional components and systems on a global scale. We also achieved a new design win with a global leader in advanced networking testing equipment and long standing customer of ours, selecting our 100 gig NIC for their next generation platform. This expands our relationship with this important customer as we now provide both cards and systems, positioning us to participate in the majority of their future hardware tenders. Initial purchases orders have been placed with mass deployment expected in early twenty twenty six with a revenue potential of $2,500,000 at full ramp up.

This win underscores the innovation and reliability of our high performance SNC portfolio and our abilities to meet stringent performance and tight cost requirements. Customer like this form the backbone of our long term growth strategy, long building term relationships that lead to multiple revenue streams down the road. Each of those wins represent combination of many months and even years of work. They reflect the core of our strategy, building new and deepening long term relationships that evolve into multiple high value engagements, creating reliable and diversified revenue streams for a broad range of silicon products. Beyond their own recurring revenue potential, those wins opened the door to additional opportunities with the same customers and provide strong referrals for new customers, further strengthening our position in key markets.

Together with the growing pipeline of potential customers evaluating our product, those achievements strengthen our confidence in meeting our target of seven to nine design wins during 2025. While their financial impact in the current year will be modest, they lay the groundwork for significant double digit growth in years to come, with the potential to exceed our strategic goals sooner if current opportunities ramp up faster than expected. Our pipeline of opportunities at the input of our design win funnel has never been broader with opportunities across all our product lines, including ad systems, SmartNICs and FPGA spanning both new and existing customers across multiple industries. We believe that in the coming years, we expect to see more of those opportunity transformed into design wins, while continuously adding new opportunities at the entry point of the funnel. I urge you to review our investor presentation, which includes examples of opportunities in our pipeline as well as examples of those that have successfully passed through the funnel and become design wins.

We believe that this dynamic process will continue to accelerate. Considering the strong pipeline, growing design win momentum and giving our strong execution on all aspects of the strategy, we are well on track and even performing ahead of our expectations. Our overall goal is to create significant value for our shareholders with EPS of about $3 on revenues between 150,000,000 and $160,000,000 A faster than forecasted deal closure or ramp up of ongoing projects may help us accelerate the timeline and we are fully focused on making that happen. Growth for full year 2025 expected to be in the low single digits with a double digit annual growth rate materializing gradually from 2026. We expect that revenues for the 2025 will range from 15,000,000 to $16,000,000 In summary, we are pleased with our progress.

We are executing ahead of our strategic plan and showing strong design win momentum supported by a robust pipeline across all our product lines and excellent cash flow. With a strong balance sheet, a proven track record of design wins with top tier customers and an experienced highly dedicated team, we are confident in our ability to continue executing on strategic plan. As such, we are even more optimistic about our ability to achieve double digit revenue growth in 2026 and beyond, thereby delivering significant value for our shareholders. We remain focused on creating value for both our customers and our shareholders. We look forward to updating you on our progress as we move through the 2025.

With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.

Ehran Gilad, CFO, Silicom: Thank you, Livan, and good day to everyone. Revenues for the 2025 were $15,000,000 4% ahead of the $14,500,000 reported in the second quarter of last year. The geographical revenue breakdown over the last twelve months was as follows: North America, 74% Europe and Israel, 16% Far East and rest of the world 10%. During the last twelve months, we had 110% plus customer, which accounted for about 15% of our revenues. I will be presenting the rest of the financial results on a non GAAP basis, which excludes the non cash compensation expenses in respect of options and RSUs granted to directors, officers and employees, taxes on amortization of acquired intangible assets, as well as lease liabilities financial expenses.

For the full reconciliation from GAAP to non GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the 2025 was $4,800,000 representing a gross margin of 31.9% compared to a gross profit of $4,300,000 or gross margin of 29.7% in the 2024. While I note that our short to mid term expected gross margin range remains between 27% to 32%. We are very pleased with achieving a gross margin at the higher end of this range ahead of our strategic plan model. Operating expenses in the 2025 were $7,200,000 compared with $6,700,000 reported in the 2024.

Our operating expenses in the quarter were higher than expected due to the relatively weaker U. S. Dollar, the currency in which we report versus the Israeli shekel and the Danish kroner, the main currencies in which a large portion of our expenses are generated. Operating loss for the 2025 was $2,400,000 compared to an operating net loss of $2,400,000 as reported in the second quarter twenty twenty four. Net loss for the quarter was $2,000,000 compared to a net loss of $900,000 in the 2024.

Loss per share in the quarter was $0.35 This is compared with loss per share of $0.14 as reported in the second quarter of last year. Now turning to the balance sheet. As of 06/30/2025, our working capital and marketable securities amounted to $160,000,000 including $41,000,000 in high quality inventory and $80,000,000 in cash, cash equivalents and highly rated marketable securities with no debt. That ends my summary. I would like to hand back over to the operator for a questions and answers session.

Operator?

Conference Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. The first question is from Brian Kuntz of Needham and Co. Please go ahead.

Brian Kuntz, Analyst, Needham and Co: Great. Thanks. And nice updates on design wins. I want to ask about some of your end markets here. I mean, we have the biggest one that appears to be the security market and that’s a key driver for several of your design wins across several of your sectors here.

Are you seeing changes in that market in terms of share shifts among your customers or this recent big acquisition that went down for Palo Alto for cyber. Do you see consolidation? Are those dips affecting your opportunities, either improving or declining opportunities there?

Liran Eisenmann, President and CEO, Silicom: So yes, I mean, you’re right. The security market is a very important market for us. And we don’t see any impact for that. If anything, we just see the cybersecurity market keeps growing and growing by pretty much every research, I think. And we see evaluation of companies and we see revenues of companies.

So we are very happy that we are part of this market and we don’t see anything of that sort due to any consolidation right now.

Brian Kuntz, Analyst, Needham and Co: Great. And had a follow-up for that too about I saw that the ADC market also is another important area and I don’t know if you saw F5’s results last night, but they’re seeing a real shift away from software based solutions over back to hardware actually. And I wonder if that affects many of your opportunities in the ADC market as they move to hardware based solutions or more predominantly?

Liran Eisenmann, President and CEO, Silicom: I mean, yes, mean, the F5 results last night is I think is a very good maybe reference to see that many, many companies are looking at hardware more and more. Look, I mean and we have many new products coming up for this market, if it’s post quantum ciphers, which is a very important thing that will become basically mandatory in the near future. And we have a solution for that to accelerate that over hardware solutions. In the SASE market, we have many customers as well. And we see this networking plus security market exploding pretty much.

Everyone needs hardware, different type of hardware, more acceleration on the hardware side as traffic becomes more challenging, encrypted and quantum encrypted in some cases. We see needs for special switches and we’re definitely working in that area to have interesting products later this year. So we see there’s a lot of excitement for us in this market and the opportunities that will come up. And definitely, not only software, as we said, definitely on hardware side for this market.

Brian Kuntz, Analyst, Needham and Co: Great. And then lastly, just touching on AI, we’re seeing a lot of shifts in the kind of big public cloud builders away from traditional cloud infrastructure over to AI clusters, just really large CapEx shifts. I wonder if that affects many of your market opportunities. I saw you have a very large AI data infrastructure opportunity there and how you think about how AI affects your TAM going forward?

Liran Eisenmann, President and CEO, Silicom: I think it can affect it significantly. And we are looking at that market. We already have several products that fit into this market. And we are thinking more and more and seeing that this the new AI architectures in training and inference, both on the edge and both on the data center requires certain acceleration in certain systems that we are able to build specifically on FPGA. FPGA could be dramatic here in order to provide solutions that simply do not exist today.

And we think we have the right team and the right know how to build those products. We’re already discussing with potential customers. So this could become significant as well for Silicom.

Brian Kuntz, Analyst, Needham and Co: Great. Maybe one last one, if I can squeeze it in. The competitive environment, you’ve seen any shifts there? Or any impacts on your gross margin expectations for the business?

Liran Eisenmann, President and CEO, Silicom: Not so much. Nothing I think we should report at the moment.

Brian Kuntz, Analyst, Needham and Co: Okay. Thanks so much. That’s all I’ve got. Thank you.

Conference Operator: There are no further questions at this time. Before I ask Mr. Eisenmann to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom’s website, www.silicomusa.com. Mr. Eisenmann, would you like to go ahead with your closing statement?

Liran Eisenmann, President and CEO, Silicom: Thank you, operator. Thank you, everybody, for joining the call and your interest in Silicom. We look forward to hosting you on our next call in three months. Good day.

Conference Operator: Thank you. This concludes Silicom’s second quarter twenty twenty five results conference call. Thank you for your participation. You may go ahead and disconnect.

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