Earnings call transcript: Silvaco Q4 2024 EPS beats forecast, stock dips

Silvaco Group Inc. (SVCO), a semiconductor design software company with a market capitalization of $167 million, reported stronger-than-expected earnings for the fourth quarter of 2024, with earnings per share (EPS) of $0.15, surpassing the forecast of $0.08. Despite this positive surprise, the company’s stock fell 3.6% in aftermarket trading, closing at $5.89. The revenue for the quarter reached $17.9 million, a 43% increase from the previous year. According to InvestingPro analysis, the stock appears undervalued at current levels, with multiple positive indicators including strong liquidity and analyst optimism.

Key Takeaways

• Silvaco’s Q4 2024 EPS of $0.15 exceeded the forecast by 87.5%.
• Revenue grew 43% year-over-year, reaching $17.9 million.
• Aftermarket trading saw a 3.6% decline in stock price.
• The company ended 2024 with significant cash reserves of $87.5 million.
• Strategic acquisitions and product expansions were highlighted in the earnings call.

Company Performance

Silvaco demonstrated robust growth in the fourth quarter of 2024, with gross bookings increasing by 30% year-over-year to $20.3 million. The company’s revenue for the full year climbed to $59.7 million, marking a 10% increase compared to 2023. This performance was driven by strategic expansions in AI-based digital twin modeling and acquisitions like Cadence’s Optical Proximity Correction product line, which bolstered Silvaco’s capabilities in power semiconductors, memory, and photonics. The company maintains impressive gross profit margins of 77.4%, and InvestingPro data shows four analysts have recently revised their earnings expectations upward for the upcoming period.

Financial Highlights

• Revenue: $17.9 million, up 43% year-over-year
• Earnings per share: $0.15, beating the forecast of $0.08
• Full Year 2024 Revenue: $59.7 million, up 10% from 2023
• Cash and equivalents: $87.5 million at year-end

Earnings vs. Forecast

Silvaco’s actual EPS of $0.15 significantly outperformed the forecast of $0.08, representing an 87.5% positive surprise. This strong performance continues the company’s trend of exceeding earnings expectations, reflecting successful strategic initiatives and growth in key markets.

Market Reaction

Despite the earnings beat, Silvaco’s stock price fell by 3.6% in aftermarket trading, closing at $5.89. This decline continues a challenging period for the stock, which has fallen nearly 70% over the past year and is currently trading near its 52-week low of $5.75. This decline may be attributed to broader market trends or investor concerns over future growth prospects, despite the company’s strong financial performance and strategic initiatives. For deeper insights into Silvaco’s valuation and growth prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports, which are available for over 1,400 US stocks.

Outlook & Guidance

For 2025, Silvaco projects gross bookings between $72 million and $79 million, with revenue expected to range from $66 million to $72 million. The company aims for a non-GAAP gross margin of 84-89% and an operating income between $2 million and $7 million. Long-term targets include 15-25% revenue growth and maintaining a 90%+ gross margin.

Executive Commentary

CEO Babak Taheri emphasized Silvaco’s strategic focus on AI-enabled semiconductor design, stating, "We believe our strategic focus on driving innovation through AI-enabled semiconductor design positions us well for long-term market expansion." CFO Ryan Benton highlighted the company’s growth targets, noting, "We continue to target 15% to 25% revenue growth."

Risks and Challenges

• Potential revenue decline from China, projected to be flat to slightly down.
• Integration challenges with newly acquired technologies.
• Market competition in the semiconductor design and manufacturing software sector.
• Macroeconomic pressures that could impact overall market demand.
• Dependence on continued innovation and R&D investment to maintain competitive edge.

Q&A

During the earnings call, analysts inquired about the revenue contributions from the OPC acquisition and the company’s R&D focus. Management indicated a modest revenue contribution from OPC in 2025 and emphasized ongoing investments in power, memory, and photonics to drive future growth.

Full transcript - Silvaco Group Inc (SVCO) Q4 2024:

Ryan Benton, CFO, Silvaco: Thank you

Conference Operator: for standing by and welcome to the Silvaco Fourth Quarter twenty twenty four Financial Results Conference Call. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be a question and answer session. As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Greg McNeeffe, Investor Relations.

Please go ahead, sir.

Greg McNeeffe, Investor Relations, Silvaco: Thank you. Joining me on the call today are Babak Taheri, Savaco’s CEO and Ryan Benton, Savaco’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 conference 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 Securities 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 SIVACO’s most recent Form 10 Q filing with the Securities and Exchange Commission provides a description of these risks.

With that, I’d like to turn the call over to SIVACO’s CEO, Abak Tahheri. Abak?

Babak Taheri, CEO, Silvaco: Thank you, Greg. Hello, and welcome to Silvaco’s fourth quarter twenty twenty four earnings call. I am Babak Taheri, CEO of Silvaco. Thank you for joining us today. In addition to discussing Silvaco’s results, we will provide guidance for the first quarter and full year 2025, along with updates on our recent press releases, business developments and current market trends.

For those joining us for the first time, Silvaco is a provider of TCAT, ADA and semiconductor IP products that enable chip design, chip manufacturing and photonics through digital twin modeling and simulation, utilizing AI and machine learning. We have decades of deep expertise in modeling and simulation software, from concept to design and manufacturing. DELACO’s Digital Twin platform drives advances for the next generation of power semiconductors, photonics, memory devices and advanced CMOS technologies utilizing design and fabrication of next generation of integrated circuits. I will now highlight our non GAAP results for full year twenty twenty four and our targets for full year 2025. Our CFO, Ryan, will discuss our annual and quarterly non GAAP financial results and guidance in more detail later on.

For the fiscal year 2024, we reported gross bookings of $65,800,000,000 reflecting a 13% increase from 2023 revenue of $59,700,000 representing a 10% increase from 2023 non GAAP gross margin of 86% increased from 83% in 2023. Non GAAP operating income of $5,500,000 compared to $4,400,000 in 2023. Non GAAP net income per share of $0.25 compared to $0.17 in 2023. Shares used in the calculation of non GAAP income per share increased to 26,800,000 from $20,000,000 in the same period a year ago. Now for the fiscal year twenty twenty five, we expect gross booking in the range of $72,000,000 to $79,000,000 reflecting a 9% to 20% increase from 2024 revenue in the range of $66,000,000 to $72,000,000 representing an 11% to 21% increase from 2024 non GAAP gross margin in the range of 84% to 89%, which would compare to eighty six percent in 2024 non GAAP operating income in the range of $2,000,000 to $7,000,000 compared to $6,700,000 in 2024 and non GAAP net income per share in the range of $0.07 to $0.19 compared to $0.25 in 2024.

I’m really excited about the progression of the business we have seen and our execution on the strategies we outlined since we went public last year. We believe our strategic focus on driving innovation through AI based semiconductor design for advanced CMOS geometries and power semiconductors, which includes digital twin modeling and quantum computing, positions us well for long term growth and our strong business fundamentals and innovation product lines will continue to drive our customer momentum. Next, I’d like to discuss our achievements in Q4. Please turn to next slide. Highlights of Silvaco milestone achievements.

Silvaco expanded its AI based digital twin modeling platform, FTCL, adoption in May and October. We announced a partnership with Micron Global in December to expand Silvaco’s reach across the AMEI market, leveraging Micron’s expertise to deliver cutting edge TCAT, EDA and SiP solutions to new customers. Silvaco joined the Smart USA Institute under the Chips Manufacturing USA program to advance digital twin technologies in semiconductor manufacturing also in December, reinforcing Silvaco’s leadership in innovation. Additionally, Silvaco expanded its Victory TCAT and digital twin modeling platform to planar CMOS, FinFET and advanced ZigmOS technologies, which is a necessary step to enable FTCO for advanced process in September. In October, the company achieved the ISO 9,001 certification of TCAT, EDA and IP products.

In the next slide, I would like to review how our land and expand strategies have performed in 2024 compared to 2023. Please turn to the next slide. Top vertical market trends and performance in fiscal year twenty twenty four. As previously stated, our focus in 2024 was expanding in the power and memory markets, while maintaining display customers and adding new customers in other markets. I’m very proud of our team that has delivered 46 new customers or new logos in 2024.

This slide represents a breakdown of 43 new customer wins that contributed to our primary end markets along with their year over year growth rates. Although new customer growth was down in three end markets, we view this as an opportunity to expand within the accounts we have already secured. As a reminder, we often land customers in certain markets with small opportunities and expand in them in the future. Notably, we added 13 new power customers with 43% increase in bookings year over year in this segment for TCAD and EDA, one new memory customer with 89% increase in revenue year over year for our TCAD product line five new customers in photonics for TCAD and EDA three new foundry customers for TCAD IP and EDA three new five gs, six gs customers for IP and EDA five government and new ARROW customers for EDA and IP five new customers in IoT for IP and EDA eight new customers in Automotive for TCAD and IP and three others. On the next slide, I would like to review how we are expanding our SAM, including through the recently announced acquisition.

Please turn to the next slide. Electronic design and manufacturing software enables value chain. Silvaco is expanding its market SAM using AI based digital twin modeling and simulation. The first step in developing a semiconductor chip is designing it using EDA software and semiconductor IPs. As I mentioned in our last call, Silvaco provides software platforms for both step one, which is design and step two, which is manufacturing preparation as shown in this slide.

Additionally, we have expanded our SAM by $500,000,000 through our FTCO platform. I’d like to draw your attention to the new green arrows on the slide. These arrows highlight the crucial interface between chip design and manufacturing, especially the final step after design and the first step in manufacturing. The last step before manufacturing is the optimization of the design layout data for mass generation, a process known in the industry as optical proximity correction or OPC. Think of OPC as a technology that enables the creation of precise masks needed for semiconductor manufacturing.

At a high level, advanced algorithms analyze and correct distortions that occur due to optical and proximity effects, and showing that masks used to pattern wafers in the lithography process produce highly accurate and manufacturable chips. With our technology, Silvakov now directly addresses the first two key steps in the semiconductor value chain. I’m excited to announce that we’ve added OPC capabilities to our platform through the recent acquisition of Cadence’s OPC product line. This strategic addition enabled Silvaco to participate in a $357,000,000 SAM, a market we previously did not address. Next, I’d like to go over the key highlights of this acquisition.

Please turn to the next slide. The LACO acquisition of Cadence’s OPC product line overview, driving innovation, customer value and market expansion through strategic acquisitions. Silvaco’s strategic expansion into the growing OPC markets strengthened its position in advanced memory manufacturing and foundry operations, aligning with our long term roadmap. This move enables us to foster deeper relationships with key memory manufacturers by addressing critical advanced node requirements, including EUV and AI driven lithography. By integrating AI and machine learning into our OPC tools, Silvaco enhances efficiency and scalability, driving innovation in next generation semiconductor manufacturing.

Additionally, entering high value OPC segment expands our SAM by $357,000,000 broadening our customer base with critical solutions. The acquisition also brings a highly skilled and innovative team, ensuring seamless integration and continuous product development. While the initial revenue impact in 2025 will be modest due to ASC six zero six timing, contributions are expected to reach mid single digit revenue by 2026, reinforcing our financial growth strategy. Please turn to the next slide. Key differentiators of acquired OPC products.

Advanced OPC solutions are setting new industry standards with cutting edge technologies designed to improve semiconductor manufacturing. Hybrid SRAF optimization or sub resolution assist features are tiny non printing patterns added to a photo mask to ensure the accuracy of the chip design. They help correct distortions that naturally occur during the printing process, making complex chip patterns more reliable and manufacturable. The hybrid approach combines both rule based and AI driven techniques to enhance performance, especially for the most advanced semiconductor chips. As chips become smaller down to two nanometer and beyond, the traditional correction methods struggle to keep up.

EUVOPC or Extreme Ultraviolet Optical Proximity Correction is a specialized technique that fine tunes cheap patterns for EUV lithography, which uses an ultra small 13.5 nanometer wavelength light, and showing precision at the smallest scales. Instead of using only straight lines and right angles, curved linear OPC allows chip patterns to have smooth, round shapes, leading to better performance. Our technology ensures these designs comply with manufacturing standards while also improving efficiency and accuracy. Trusted by top memory manufacturers, these solutions have already proven their ability to speed up chip development while maintaining a high quality. By integrating seamlessly with chip design and manufacturing processes, our OPC technology helps reduce errors, increases efficiency and accelerates product timelines.

As the semiconductor industry pushes towards smaller, more powerful chips, two nanometer, 1.4 nanometer and beyond, SILVAco is staying ahead of the curve, delivering faster, smarter and more reliable solutions to power the future of semiconductor manufacturing. Please turn to the next slide. Four levels uses of artificial intelligence in EDA. As I mentioned earlier, Silvaco leverages AI industry trends through our digital twin modeling capabilities, which allows customers to create models, which reduce costs and improve time to market. The EDA industry has historically utilized AI to assist chip designers at three levels: optimizing historical tool performance for chip designers aiding in design steps and lastly, generating chip designs from specification.

Silvaco has introduced a four level of AI, which is not in the design space, but rather in the manufacturing space. This is where Silvaco is expanding its TAM by enabling operators in fabs to save time and reduce wafer production costs. Next slide, please. Here is Silvaco’s AI driven fab technology co optimization, also known as FTCL. An example of Silvaco’s AI driven FTCL, this slide provides a more detailed layout of how digital twin models are generated at the wafer level.

We leverage AI and machine learning to process the large volumes of data provided by the customers, transforming them into high accurate wafer models. By rapidly building and refining these models, AI and machine learning significantly reduce development time from months to just weeks or even days. With AI enhanced FTCO, customers can lower cost, improve margins and accelerate time to market. Lastly, I’d like to review our growth strategies, which are fundamental to supporting our customers and driving future market share expansion. Please turn into the next slide.

Here is Silvaco’s growth strategy summary. In summary, we believe our strategic focus on driving innovation through AI enabled semiconductor design, particularly for new announced advanced CMOS geometries and power semiconductors, including digital twin modeling, positions us well for long term market expansion while addressing customer needs. We further address customer needs through agile R and D as well as both organic and inorganic growth strategies. Finally, we continue to leverage our deep relationships with R and D centers and academia to stay at the forefront of technological advancement. With that, I’ll turn it over to Ryan to review the quarter and discuss our guidance.

Ryan Benton, CFO, Silvaco: Thanks, Bhavir, and thank you all for joining us today. I will review our financial results for the fourth quarter and full year 2024 and provide guidance for the first quarter and full year 2025. As a reminder, we announced preliminary unaudited results for the quarter and full year on January 14. Please note that I’ll be discussing non GAAP results going forward. As a reminder, our GAAP financial results along with a reconciliation between GAAP and non GAAP results can be found in our earnings press release, in the appendix of the presentation and within the supplemental financials on our website.

Gross bookings for our software and semiconductor IP products in the fourth quarter were $20,300,000 up 30% year over year setting a new quarterly record. Revenue was $17,900,000 up 43% year over year also a quarterly record driven by continued adoption of our FTCO platform and strong EDA sales. I will discuss the drivers behind our performance in more detail shortly. Our non GAAP operating expenses were $12,800,000 up from $11,100,000 last year, primarily due to increased G and A costs related to being a public company, as well as continued investment in R and D and sales. Breaking down our cost structure, R and D was 23% of revenue, sales and marketing was 20% and G and A was 29%.

While G and A expenses have increased with our transition to becoming a public company, we expect these costs to scale more efficiently over time. Non GAAP operating income was $3,100,000 up from a loss of $1,300,000 in Q4 twenty twenty three. Our non GAAP net income for the quarter was $4,300,000 compared to a non GAAP net loss of $1,600,000 in the same period last year. Diluted non GAAP net income per share came in at $0.15 an improvement of $0.23 from a non GAAP net loss of $0.08 in Q4 twenty twenty three. These bottom line results reflect the impact that increased revenue scale can bring.

Two quick comments on ending balances. We ended the December with 87,500,000 in cash, cash equivalents and marketable securities. Our ending diluted share count for the fourth quarter was 28,800,000.0 shares. I would now like to discuss our fourth quarter bookings performance by product. We achieved total gross bookings of $20,300,000 an increase of 30% year over year.

We saw strong bookings growth across multiple product categories. TCAD bookings were $14,300,000 up 68% driven by a large fall in order for our FTCO product. EDA bookings were $5,500,000 up 31 year over year. SIT bookings were $600,000 down 79% reflecting lingering impacts from the Q2 delay in renewing a key strategic resale agreement as well as general order slowdowns in APAC. Despite this, we remain confident in the long term opportunity for SFP.

Our non GAAP gross margin for the quarter came in just shy of our long term target at 89%, up from 79% in Q4 twenty twenty three. The improvement was simply driven by the revenue growth and the largely fixed nature of our cost of revenues, which came in at $1,900,000 in the quarter. I’ll now review our financial results for the full year. For 2024, we achieved annual record for gross bookings of $65,800,000 up 13% year over year an annual record for revenue of $59,700,000 up 10% year over year our non GAAP operating expenses for the full year were $45,900,000 compared to $40,500,000 in 2023 R and D was 25% of sales, sales and marketing was 23% of sales and G and A was 29% of sales. This resulted in an annual record for non GAAP operating income of $5,500,000 up from $4,400,000 in 2023.

Our non GAAP net income for the full year was $6,700,000 compared to $3,400,000 in 2023. And lastly, again, diluted non GAAP income per share was $0.25 up $0.08 from 2023. Turning to our bookings performance by product for the full year 2024. We achieved total gross bookings of $65,800,000 an increase of 13% year over year. Similarly to the quarter, our strong bookings performance was driven by TCAD and our FTCO product specifically.

TCAD bookings were $46,900,000 up 32%, EDA bookings were $15,400,000 and SIP bookings were $3,400,000 Again for SIP, we took a step back in 2024, but we’re expecting good things in 2025 and beyond. I would now like to highlight our bookings performance throughout the year. We finished strong in Q4. We successfully added 13 new customers in the fourth quarter alone, which brings our year to date new customer total wins to 46. Turning to our revenue splits between geographic regions.

For the fourth quarter of twenty twenty four, Asia Pacific revenues were $9,200,000 or 52% of total sales. The Americas was just over $7,000,000 or 40% of sales and EMEA was $1,500,000 or 8% of sales. For the full year, Asia Pacific revenues were $31,600,000 or 53% of sales. The decline in SIP sales impacted our full year performance, but strong Q4 recovery in TCAD and EDA helped stabilize our results for this region. The Americas was $22,500,000 or 38% of sales.

This region showed exceptional growth compared to 2023, driven by the adoption of the new FTCO product at a key memory customer. Europe was $5,600,000 or 9% of sales fueled by EDA sales with additional momentum from further TCAT adoption in the fourth quarter. On the next slide here, we show the trend of remaining performance obligations or RPO, which at year end stood at $34,300,000 with 46% expected to be recognized as revenue within the next twelve months. This reflects strong customer commitments that support top line growth. On this slide, I will now review our first quarter twenty twenty five guidance.

I will note that the first quarter and the full year guidance on the following slide reflects the acquisition of the OPC product line, which will reflect less than one month operating activity for the first quarter. I will also add that there are several complexities that may arise during the transition that could impact revenue recognition for the first year in particular. And as such we are being cautious in our approach to forecasting current year sales from the acquisition. Considering all that, for Q1 twenty twenty five, we expect gross bookings between $16,000,000 and $19,000,000 revenue between $14,500,000 and $17,000,000 non GAAP gross margin between 8487% non GAAP operating income between a loss of $1,000,000 and $1,000,000 income and non GAAP income per share between $0.03 loss and $0.03 income. Turning to the next slide, we’ll review our guidance for the full year 2025.

For 2025, we expect gross bookings to grow to come in between $72,000,000 and $79,000,000 We expect revenue in the range of $66,000,000 to $72,000,000 non GAAP gross margin to come in between 8489% non GAAP operating income between $2,000,000 and $7,000,000 and non GAAP income per share between $0.07 and $0.19 Again, this assumes a modest top line contribution from the recent OPC acquisition As the ink is perhaps not even quite dry on the acquisition and there are some commercial sensitivities, there are limitations to what we’re able to discuss about our plans and expectations for the business today. We should be able to provide a more detailed view on our next quarterly call. What I can definitely say today, which echoes Vodex comments, is we’re excited about this acquisition. It’s a wonderfully brilliant team that we’re inheriting. It’s a great technological and product fit and we’re thrilled to have it done.

Now let’s move to review our long term financial targets. We continue to target 15% to 25% revenue growth. For our long term target model, we expect 90% plus non GAAP gross margin and 25% plus non GAAP operating margin. We believe we can achieve these targets through global sales expansion, deeper customer engagements, broader adoption of our FTCO platform and the continued execution of strategic acquisitions to leverage our core technology strengths and operational efficiencies. And with that, Bobak and I will be happy to take your questions.

Operator?

Conference Operator: Certainly. And our first question for today comes from the line of Charles Shi from Needham and Company. Your question please.

Charles Shi, Analyst, Needham and Company: Hi. Just want to ask a clarification on the contribution of the acquisition of the Cadence OPC product line. I get that you’re saying it’s probably going to be somewhere mid single digit of the 2026. Revenue kind of implies somewhere about, let’s say, dollars 3,000,000, dollars 4 million per year revenue run rate. But you’re saying because of ASC six zero six, you’re not expecting you’re expecting a modest contribution to $25,000,000 but can you quantify that?

What do you mean by modest? Do you think it’s still like somewhere in the $3,000,000.4000000 dollars range? What that means?

Ryan Benton, CFO, Silvaco: Yes, it’s okay, Bhavik. I’ll take first crack at it. So this is Ryan. Thanks for the question, Charles. Again, we’re super excited about this acquisition.

Again, as I said in my prepared remarks, I really will not be providing a separate number in terms of revenue forecast for the acquisition for the current year. There are certain complexities in terms of not only the in terms of how the transaction transaction works, in terms of how the commercial agreements are transitioned over to Savaca, but there are certain dominoes to fall in terms of how the revenue recognition gets applied and what ends up happening. So we’ve again, I use the word cautious. We try to be extremely cautious in terms of how we forecasted that number. So very modest.

Bobak, do you want to add to that?

Babak Taheri, CEO, Silvaco: No, I think Ryan, you said it well. And we will have a lot more details in our next call. We will have a lot more data that we can rely on. And so I would just repeat what I would have repeated what Ryan said, but it’s modest at this time.

Charles Shi, Analyst, Needham and Company: Yes. Do you have a number like what is the last year’s revenue run rate or the trailing twelve months of that business, the revenue run rate of that business before you acquire the comp before you acquire it?

Ryan Benton, CFO, Silvaco: Yes, Charles, we do have that number. We’re under we’re under NDA, which prohibits us from no speaking to that number specifically. I think the best data point to look towards is Bobak’s comment in terms of what our expectations are for 2026 in terms of how we expect the business to settle out. In terms of ’25, again, there’s a lot of upside depending on how things fall and how things get contracted, but we just thought it prudent to be extremely cautious with what we kind of baked into the number. The acquisition literally is only been closed for plus or minus twenty four hours.

Charles Shi, Analyst, Needham and Company: Okay. Thanks. The other question, obviously, the guidance for Cisco twenty five, you’re guiding to a good amount of revenue growth, gross margin expansion, but operating profits, you are expecting a down year kind of implies a pretty meaningful OpEx increase. Is that all because of the acquisition or you’re also ramping up the existing part of the Silvaco business, the OpEx for that part of the business?

Ryan Benton, CFO, Silvaco: Yes. So the there’s really both parts. So certainly, we have been hiring has always been the plan to have some operating expense growth that kind of coincides with the revenue growth that we expect. And again, we’ve commented specifically, we expect R and D as well as sales and marketing to kind of grow with revenue, just a tad bit of leverage perhaps out of sales and marketing G and A, we expect to get leverage. But to your the second part of your question, you’re absolutely right.

The acquisition is now closed and so the cost that we have projected, the operating expenses absolutely includes the cost of the team that we’ve inherited and that we’ve taken on as well as again another area when you’re as you know, when you do acquisitions, there’s a certain amount of cost that you incur in the first year of an acquisition that don’t necessarily repeat into the second and third year. And so whenever we’ve said we’ve taken a cautious approach, we’ve done that in both top line as well as expenses. And so for expenses that means of course you bake in the expenses that you’ve inherited and you expect.

Charles Shi, Analyst, Needham and Company: All right. Thank you. That’s all from me.

Ryan Benton, CFO, Silvaco: Thanks, Joel.

Conference Operator: Thank you. And our next question comes from the line of Blair Abernathy from Rosenblatt Securities. Your question please.

Blair Abernathy, Analyst, Rosenblatt Securities: Hi, guys. Thanks for taking the question. Just a couple on the acquisition, if I could. Would you be willing to give us sort of a ballpark number of how many customers are coming with this business unit?

Babak Taheri, CEO, Silvaco: Sure. I would say to start with, I would add that some of the customers that we also accord as part of the deal are our existing customer. So we consider OPC part to those customers to be an expansion of a landed customer we already have. And then we also have new customers that we are, if you will, we have not had those logos before. And the top customers, I would say, are single digit numbers, less than 10.

So and that’s a number we already have. And as you know, Blair, we’ve always been able to land and expand in these customers. So that would be the first thing we will be doing. But those are the numbers that I would be and out of that sub 10, about three or four of them are existing.

Maher Popuri, Analyst, B. Riley: Okay, okay.

Blair Abernathy, Analyst, Rosenblatt Securities: Thank you. And then from a product perspective, how does is there a technical integration path that you’re going to take this on vis a vis some of your other products like the FTCO or is this really a standalone products that you’ll sell with your existing products?

Babak Taheri, CEO, Silvaco: That’s a great question. So as you know, we currently it’s being sold as a standalone with minor integration of other products, which we will continue to do so. But as we said on our call, our plan is to and by the way, this acquisition falls under our EDA product line. And just to be exact, since it would be the last step after GDS before manufacturing that OPC takes place. However, as you know, since it’s the first step in manufacturing is making masks and making patterns that go on a wafer more reliable and more accurate and better and AI and AI based modeling aspect of it will also be integrated as part of the FTCO.

So this will be this will complete actually what’s needed to have a full FTCO platform from mask making all the way to final wafers. So it’s a big advance for us and we will continue to expand this capability into FTCO.

Blair Abernathy, Analyst, Rosenblatt Securities: And what’s any sense on the timeline about access to when that would be sort of more tightly integrated with the FTCO?

Babak Taheri, CEO, Silvaco: Yes, absolutely. So as you know, we already have customers that utilize our FTCO. We are working with customers that potentially could use FTCO. And I would say typically, it takes us within six months to nine months to integrate these products into our current platform. And that would be the right time, I would say six to nine months would be the correct timeframe to do that.

But don’t forget that we do advance R and D with our customers. And matter of fact, we will start advance R and D combining this to the FTCO with some potential customers that we will start discussions in Q2. So getting advance for R and D part of it will be including some customers that we work with and those will start much sooner than that.

Blair Abernathy, Analyst, Rosenblatt Securities: Okay, great. And then just shifting over to the FTCO as it’s been marketed, I guess, this past year, what’s how is the pipeline shaping up for that?

Babak Taheri, CEO, Silvaco: It’s exactly as we mentioned, we already have two customers that are evaluating this technology. And as we said, Q2 timeframe would be the timeframe that we are pushing to get adoption. They’ve already adopted at the R and D level. The question is when can we get them adapt this for final manufacturing steps. And as I had mentioned before in our previous call, we have a customer in Advanced CMOS and a customer in Power that we’re working with through R and D and hoping to close those for manufacturing acceptance this year, ideally in Q2, but it may be Q3.

Blair Abernathy, Analyst, Rosenblatt Securities: Okay, great. And then just shifting over to your end markets, clearly a lot of traction in 2024 in the power market, 13 new customers. Can you just give us some color on sort of what exactly those customers have been buying? And has it been fairly similar across the board? Or is it just give me a sense of what that end market is looking like for you?

Babak Taheri, CEO, Silvaco: No, absolutely. As we’ve said before, we have been focusing on power as well as memory and display markets historically and power market. As we said, we added four top level logos last year to the power market. And the power market includes, I would say, new technologies like silicon carbide GaN and some of the old historical technologies like transistor CMOS based technologies, DMOS and what have you. And as it turns out, as you noticed probably and have seen in the news, silicon carbide has its own challenges for scaling.

And as customers are realizing that these challenges exist and they need more understanding of their physics aspect of these devices and how they scale, we get more traction. And also, as you know, GaN is also picking up. So I would say a combination of GaN and silicon carbide has been companies that adopt our TCAD technology and starting to for EDA as well. So I would just summarize it in mainly TCAD, some EDA coming up in silicon carbide GaN and also older technology power devices. And it’s across the world.

It’s U. S. And Europe and Asia.

Blair Abernathy, Analyst, Rosenblatt Securities: Okay, great. Thank you.

Babak Taheri, CEO, Silvaco: Good bye.

Conference Operator: Thank you. Our next question comes from the line of Robert Mertens from C. B. Cowen. Your question please.

Robert Mertens, Analyst, C.B. Cowen: Hi. This is Robert Mertens on for Chris Sankar. Thanks for taking my questions. Congrats on the quarter and the strong yearly outlook. It looks like it’s maybe 400 basis points or so above what your large cap peers are sort of guiding.

I know Charles sort of touched upon this already in a prior question, but with your operating profit forecast, it seems to imply on the low end, OpEx can grow sort of in line with sales this year and upwards of maybe 25% year over year. Could you just walk us through maybe where the major R and D investments this year are focused and what sort of flexibility you have in the spending there?

Ryan Benton, CFO, Silvaco: Yes. Bhadavi, if it’s okay, I’ll just make one quick comment. Bhadavi can we’ll of course speak to the tax and investment that we’ll be making. Specifically though, again, just reiterating the growth in the R and D line that I think you wouldn’t necessarily have expected coming into the last twenty four hours is as a result of the cost that we’re absorbing as part of the acquisition as well as some, what I believe are some costs that will be in the first year and won’t necessarily be recurring beyond year one. But in terms of the investments, Bob?

Babak Taheri, CEO, Silvaco: Yes, absolutely. So I showed in one of our slides, I believe it was Slide four or five that what our vertical end market trends and performance was last year. Blair earlier alluded to Power, which was 43% up for us. I should mention that memory was up also 89%. And then also we mentioned that photonics market, we actually had five new customers.

So as you will see and we have emphasized on these markets is our focus is in power memory, maintaining display, growing in photonics and others. Where our investment falls is as we delve into more power and memory markets, especially our Dell PC2 latest acquisition gets us some strong stronger foothold in the memory market. And the tools that we have initially are focusing and specializing in memory products and the customers are majority that we required are in memory products. So that strengthens our presence in memory markets. So and of course, the cost associated with acquisition of getting extremely intelligent talent, which is part of the OpEx that we’ve already Maron has already mentioned.

But the other areas that we are investing to grow is power. We are making sure that we have enough agile R and D for our new customers to be able to design and manufacture their next generation of products. And as I mentioned, Photonics in the past actually past several quarters, but the proof is in the pudding. The fact that we have added five new Photonics customer is a proof that we are actually increasing our presence in that market. And photonics market, as you know, consists of anything that has to do with lasers, image sensors, displays, anything that has optics and electronics, up to electronics involved.

And because we have the acquired these new customers and we are doing advanced R and D for them, some of the OpEx comes from that as well. So and we’ve always said, we are actually 95% plus of our revenue comes from advanced R and D projects in our customers and landing in them is the first key steps and expanding in them requires a bit more R and D for the first few years and then it rolls out as a standard product, which we tend to expand in the existing and land new more customers. So our power devices are in that category. We are expanding less of R and D, but with photonics and memory, we are spending more R and D to get us to the next level of customers.

Robert Mertens, Analyst, C.B. Cowen: Great. Thank you. That’s helpful. And then just one follow-up, if I may. In your outlook for March as well as the full year, just how are you viewing your current exposure to China?

Earlier you had mentioned some customer delays that got pushed out into the December and beyond. Just have your views changed at all over the past couple of months? Or is the revenue contribution from the region probably expected similar levels this year as calendar year 2024?

Babak Taheri, CEO, Silvaco: That’s a good question. So roughly 20% calendar twenty four and we have said 15% to 20% for 25% from China region. So we expect it to be flat literally and maybe a bit down, but not significantly.

Robert Mertens, Analyst, C.B. Cowen: Got it. All right. Well, thank you. That’s all for me.

Ryan Benton, CFO, Silvaco: Sure.

Conference Operator: Thank you. And our next question comes from the line of Maher Popuri from B. Riley. Your question please.

Maher Popuri, Analyst, B. Riley: Hi, yes. This is Mayer on for Craig Ellis. And thanks for taking my question. I kind of wanted to ask about the gross margin that you’re guiding for full year of 1.25% and rectifying that with the kind of reiterated long term target at about 90%. So we have at that midpoint gross margin not going up by a significant amount, I think about 50 bps.

How do you kind of leverage these two facts? Do we see maybe gross margin starting to pick up again later into the year? Is it sort of a first half digestion and then we get back on track? If you could characterize this for me, that would be great. Thank you.

Ryan Benton, CFO, Silvaco: Yes. No, absolutely, I’ll take that. Look, obviously, we did 89% really close to the 90% target model in Q4. Again, I said so many times the our cost of revenues are largely fixed cost, right? And so it really it’s really generally a factor of revenue and scales.

And so you look at the kind of the undulations of revenue from quarter to quarter. So we’ll have a stronger quarter in revenue and that’s what’s going to cause the margin to creep up. But really a couple of thousand a couple of hundred thousand dollars of cost can be a couple of points in terms of gross margin. So it’s really just the it’s just that level of range that it’s very sensitive to that to those costs.

Maher Popuri, Analyst, B. Riley: All right, got it. Okay. So then kind of switching gears, can you help us understand where you’re on with funnel conversion with other deals that might be going on? And so when you have disclosed the deal like you just have and congrats on that. Can you have multiple streams of deals going on?

Or is there a period of ingestion where once one closes, there has to be some time for everything to reorganize and resettle before you guys can move on to another opportunity?

Babak Taheri, CEO, Silvaco: I’ll take that, Ryan. I think there is always a period of ingestion and we do have a pipeline and our pipeline and historically we’ve done one and two. So that would actually extend it to a point that we can potentially do two. But the first one, then typically the period in which we absorb technology and talent, the closer to what we do, the easier and the faster it is. And in case of our OPC platform, that we just acquired, I think this is faster than other acquisitions we’ve done.

So I would say three to six months. As a matter of fact, and that’s why Ryan and I said that we will have a lot more information and data to give you at the end of Q1 Q2, sorry. So that’s when we will be able to or in the next call before the end of Q2, I would say. So with that, ingestion period for the first acquisition would be three to six months. We are trying to get that done in three months.

Matter of fact, as Ryan said, the ink is twenty four hours, but the team is already on board and have all their compute power and data transfers done and that will be completed by this week and the rest. It’s just a matter of supporting the existing customers and expanding in them, which we have already started discussions with them, matter of fact, as of today. So that’s going to be fast. But we honestly can digest and do two of these at a time if needed. And that but depending on what area that is, that could be also three months to nine months depending on what kind of acquisitions we do.

But this one is it’s pretty much we are well versed in it. We know the technology. And we used to have a lithography process ourselves, but this gets us to the next level that we wanted to get to.

Maher Popuri, Analyst, B. Riley: Okay. Thank you. And then just one last question. So I believe you said you acquired 13 new customers this quarter. I think it was a very similar amount last quarter.

Is this kind of a pace that we can see continuing into 2025? Or will there be any sort of upside or downside, I guess, push?

Babak Taheri, CEO, Silvaco: That’s a good question. And it’s hard to answer. I’ll tell you why, but I’ll give you an answer anyways at the end. But the quality of the customers that we tend to start acquiring over time has changed. We are dealing with and part of the reasons we went public was to have financial visibility for much larger customers that we are dealing with.

So the quality and the size of the deals that we would make with our new customers will be larger. Then the numbers are important so that we can show where we are at. And as we said already, we added 13 power customers, but we said there were only four power customers that are in the top 10 power market, right, that we have acquired. So our intention is to go after and to us, we lead the market if we have six or more of the top 10. So our goal is to go after this, the six or more on the markets we don’t have.

So we need to add more definitely at least two more to the power. But the numbers are very important. We always try to land, but the quality and the position of where those customers are even more important. But going back to give you a shorter answer, we expect the numbers to be the same, but the quality will change.

Maher Popuri, Analyst, B. Riley: Got it. Okay. Thank you.

Conference Operator: Thank you. And this does conclude the question and answer session of today’s program. I’d like to hand the program back to Doctor. Taheri, CEO of Savaco.

Babak Taheri, CEO, Silvaco: Thank you very much. I wanted to again mention that we appreciate all of you attending this great questions and we’re always there to answer more later on. I wanted to say that we are very proud to close out the year with strong momentum and growing customer traction, including the 46 new customer wins that we talked about in 2024 and multiple bookings on our FTCO platforms. Our FTCO platform, our first acquisition as a public company marks a significant milestone for us in executing our M and A strategy for talent technology and expanding through inorganic growth. We will continue doing that.

And our focus area will be in business units that we have EDA, TCAD product lines and IP as well. With that, I wanted to thank everyone again and have a great rest of the day.

Conference Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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