SILC - Earnings call 3 2023

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Third Quarter 2023 Results Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

You should have all received by now the company's press release.

News received Global contact (XXX) like Investor view in not team Investor XXX-XXXX to have company's it EK the call at Relations the hand you over it, would to Silicom's please Relations or website, the If www.silicom-usa.com. I of Mr. now section at X of GK Kenny Investor Green Relations. Global Mr. would like you to Green, begin, please?

Kenny Green

welcome Conference Thank you, XXXX to Results Call. Silicom's you operator. I all would Third of like to Quarter

company may are cloud-based limited markets; which company. on including customers likelihood safe in harbor as will revenue substantial passes. your regarding materially projected, a only Israel, rates Silicom Before continuing and the rising customers, prices on following Ukraine to well we and from support and rising marketing, future predictions time effects inflation, the brand customers; to exchange any attention rates, investment like sales on smaller plan projections global in competition, through the Commission. and factors that dependence assume increasingly growth evolving protection company impact other solutions to contains with as draw an I and interest NFV of result demand IT for at annual provide property, of not in change results Silicom's by discussed future and and the of exercising report any statements obligation economic the adopted This start, as number to Exchange statement. in may Actual on or subsequently and customer are well new the XX-F of from differ would extent which our time to or pandemic statements Form as does to information. of disruptions selectivity number the be update these performance resulting time larger dependence rely those as Securities and products these may COVID-XX filed services, resulting These commodities forward-looking that speed which these by in and a greater with caution maintaining increasing the and and a commercializing volatile as recognition, Silicom activities, increasing short-term the filed SD-WAN, or and a the war and protecting call Silicom's the difficulty in uncertainty, of by conference the of may the marketing or other documents events the manufacturing, impact from war evolving solutions development other events markets, Edge intellectual markets, in customer

on are assumed that additional as and Unless provide for be management discussed information this with to will disclosed measures stated, investors' company's financials and to be assessment by on and are core We'll investors today's the Eizenman, the to the Mr. measures financial included company's are then provide release, non-GAAP results. These of current call decisions, hand by measures make in would this conditions financial are measures that or certain strategic Liron, earnings measures in are alternative call. Eran release, of and used now today with during Such addition, the disclosure In performance. over question-and-answer non-GAAP Eran, will order are useful will in followed call the with results prospects it basis. of and for to financial I to to call Management reconciliation the the you Non-GAAP a overview today's website can the to who management of non-GAAP measures to an CEO line with the ongoing turn such of these by our future financials. over accordance measures GAAP. like forecast non-GAAP iron. substitute Mr. that, for in company's results in will assessing and find an discussed begin go provided the Liron the earnings conference session. And future. be please analysis non-GAAP otherwise Gilad, the presentation President non-GAAP operations CFO. Liron GAAP operating financial following with financial not method and which financial on evaluate of believes should ahead. a A understanding Silicom's us them

Liron Eizenman

discussing our third to XXXX call quarter Thank results financial you, results. our Kenny. Welcome conference

$XX.X This line is in quarter. we the this third Our were quarter revenues announced million. with expectations that

quarter net expectations visibility of we profitability, third for of play, currently third terms short impacting as $X.XX in spend the to are profit the market. a we as few midterm. per well I would discussing limited and $X.X experiencing of factors currently like at The our million In the earnings very are us which quarter reported moments share. and diluted

maintain products drove ordering for inventory can a both our of ago years turn. our and prudently to around sure business portion Similarly, clients the top high of supply components. with quality leverage service happy products in our limited strong over good us remember, customers manufacture I'm a backlog And for that the chains most especially their the As tight timely sheet could in products need ordered increase its position. our build and COVID became demand world years, balance strong this components. and high that This X like in in shut availability, for product past of global keep high from continue levels maintain with electronic companies a customers above-average we continuity was you inventory the XXXX. Silicom, down and to to they our so very XXXX ensure customers way importantly, other XXXX, continued X level many since

our do us. to seen and significant where inventories chain the of supply need built abated which stocks products quantities on in reversal and has a drawing their from However, existing half currently are has has trend. up this order second XXXX tightness of customers, possible The significant now not

is with our of economic and persist related facing impact industry, revenue the last began we that headwinds expect to rest to to our customers affect the our industry macroeconomic quarter. uncertainty in the into Another and longer in XXXX, to and decision-making This ability. well projects in new implementation slowing investment as customers' the investment our of existing delays processes on is leading which projects. holding impact as off Consistent infrastructure

line are wins significantly Some anticipated. slowly projects more ramping recent design by customers. are from Those the cautiously up our original forecasted than diverging initially proceeding time

a some few past volatile which with environment global since as the as happened downturn, also seeing everything possess the manufacturing with in our well just well environment. To visibility economic is to Given component you in examples. years. supply over in Due many what and coffee provide in opportunities industry, issues, very our also new challenges already recent has face difficulties that changes shortages new are low industry companies we as X as years, chain

operation to those now the of decision the their review processes. strategic adapter from processes With moved and specific A our entire process. companies are company integrator. be its may result, a that will selection vendor, be of a the be may that, building their integration of systems for server taking a As result to change decision-making used which

a not the excess present opportunity will has. for that which will customers one use [indiscernible] may challenge we face present us an inventory currently with it do may exhaust this our currently existing companies such server adapters, While with customer

will of has the throughout Such in our changes ownership years, the mergers series present customer's and may focus. opportunity an a a and in changed may may significant as in few ownership identity Again, its exhaust well such of change changes of to During companies such the inventory. decision-maker result customer a also changes industry in business a the access acquisitions. challenge result last one the in as Silicom

those into QX further visibility. revenues and account, we Taking reduces very $XX $XX all However, million. now, between factors see expect already for it million low our to

discussed, Looking factors further visibility given challenging expect to year, the a next be just year. limited very we XXXX and our to I

However, we believe XXXX. we strongly in growth will return to double-digit that

to align current discretionary Given costs impacts take revenue, with those to already spending we've recent actions manage several and the environment. to begun

all growth primary hardware and specific any period that and for [indiscernible] ahead level, that right share on and focus [indiscernible]. long-term reduce have investment impact taking well-proven per adjusting and so are of well to beyond, our to the footprint and out $XX intention challenging FPGA-based -- We've already we our cash strong believe which actions maintain sales Silicom SmartNIC our sectors balance we should on our of we the investment at growth allow the experience in investments ensuring us evaluations knowledge million, the and the We and in our compromising earnings now are adapters, technological acceleration that our in negative our increase We objectives. actions intend parallel, our including preserving bring programs to grow us position, while our which begun stands to those maintain into and of have our strong Those with expense marketing a research expenses we sheet us non-GAAP activities, that currently to without development will future server and expected managing allowed believe focus areas focus customer remain to in level us. In the XXXX increase our stop long-term we through allow will very will to areas. and the revenue of relative us drivers our relationships. already in

by outlook term, XXXX, pipeline convert the generate current are immediate ramp-up we existing We our we to in will new remains challenges ones about positive. meaningful that some of will wins into long-term optimistic believe projects design revenues. Despite and the the mid- XXXX. over our large more

leading won of to others design list telco we with in our strong wins, adapters design service is $X.X XXXX. in to underpinned potential pipeline yet stages continually aim with for ad revenue space. identify sales wins return and by our XXXX like are world's that our revenue at our of share advanced some growth you we between design design recovery. few in leading of XXXX strategic for stage and of about I growing can list, and networking a design the Within with in addition server long in million design are the easily many examples the potential and the dollars potential which million additional having few and XX of by expectations focus products, and have are Those a and Our to of that roster not and analyze potential pipeline, networking wins, and areas. system a wins production security providers our double-digit this of a wins would players last impressive each mass few inherent recovery win already our

for potential to expect we leading our already in of the a furthermore, and Beyond won services $XX provider for stage leading we years. to itself to million of we production And opportunity stage few the of more wins design X which business with by are million that, enterprise an win have XXXX. U.S.-based the are This coming potential to additional a in telecommunication we've with active $XX mass won a XXXX. continuing we already companies expand has sales strategic with designments cell in X with about expecting approximately transition proof-of-concept sales

the As within market, sales those and position SASE grows growth to in future expect given customers. dominant we strong customers' our both SASE

sheet planned been the balance a strategy has years. remains over very executed very many Our and outcome and strong of well

position currently our of $XX debt. third an with said, million million the during at cash increase no net I $X represents quarter. it As stands

us a key overcome to term remains strategic ahead asset position cash continue of enables us. investing periods long and in and strong challenging the Our

personal we we based we by ago. I continue shareholders. to our all have to share been Israel families million to affected the to happy Ghaza. the the to repurchase intend have country, a attack on have led citizens the shares repurchase and announced our continued Silicom were of that are and rewards generation and families, as months daughters directly ones moment terrible X we pray impacted Israeli or cash by sons We the As in army. as friends very to would that in current and kidnapping of under Israel, way. we war indirectly been strong size the shown, horrified situation profitability in in victims all position, in this Many our given share plan Hamas attack. All the well the and cash of the small take of by a us who Israel. friends South that with We loved their of $XX very were have have which against impacted. our address directly for ordinary all like absolutely our employees are no

working our in the not experience our or anywhere and of safety much employees, personal manufacturing have unfortunately, highest Israel that been world impacted to else reaffirm our challenging remains and our overcoming operations people times. the resilient are our We in has and wish greetings. to partners I despite Naturally, priority. shareholders in employees

please navigate focused we intact thank ultimately, to market to as the over will I beyond. and a continually hand our our in products first XXXX given carefully situation, the technology quarter also call detailed drivers We a win will want our the target well best of and long key the our has their for customer I delivering navigating to pipeline optimistic to reached many each of Silicom manage environment many is wishes. To developing we challenging growth us deep am Silicon especially for growing the to and results. years believe ahead. and player on market wins Eran want out on future, Finally, I new industry as position. With same long-term roster, is within stress growing continue to Eran, we support expenses act total our cash leadership, a that priority review our and much and and presently remain our lead now on I satisfaction. addressable more maintaining who highly positioned company and potential that, express design to maps demand current design that fronts. short-term everyone the time, as remain though summarize, ensuring long-term and drivers across over At our from go road that

Eran Gilad

hello, the as third of XXXX XX% million year. and a third of Revenues Thank $XX.X were compared reported with quarter Liron, for you, everyone. of the quarter million, last decrease $XX.X in revenues

world, Israel, and geographical North months and East last rest the and Europe Far Our America, the follows: was revenue breakdown X%. as XX%; XX over XX%; of

together the expenses options our X as months, basis, results directors, customers, for of financial in compensation will respect income. and non-GAAP a accounted employees, on XX XX% the last which presenting as had customers During about we and financial adjustments of and acquisition-related noncash officers well to our I rest lease XX%-plus be the the excludes top RSUs liabilities, X granted revenues. of

XXXX systems for $X.X For the margin from a third to XX% higher of of of customers full $XX.X of gross recent The in press range of the we gross quarter non-GAAP million quarter's the of or to this sold quarter release with the result representing compared and reconciliation numbers, today. Gross XXXX. million, mainly XX%. XX% please macroeconomic our margin the to in margin third pushed combined pressure refer between gross expected from higher GAAP portion slowdown, gross earlier and of profit profit issued of was a XX.X% a price edge quarter, below the

million This operating to in $X.X XXXX next $X.XX. intend earnings in with of in is of in for We year. quarter diluted XXXX. $X.X the reported in last million of quarter margin We compared $X.X quarter the per quarter quarter third third expected are the $X.X of release compared third updated and impact million various diluted per of as $X.X $X.XX gross of was as of share quarter million quarter the compared the to compared the provide our quarter Net in income reported were investigating were Earnings income was XXXX. of currently share of to range with income the reported an the $X.X expenses results. Operating third the the XXXX. margin third gross future million specific the on for to third million as Operating quarter XXXX of factors

sheet. balance the to turning Now

XXXX, share. $XX.X with cash, XX, As securities company's million per $XX.XX totaled debt cash and September marketable equivalents no of or the outstanding

in million During a share we the third year. total, recent buybacks of approximately in million In cost an repurchase at $XX this quarter, $X.X Silicom purchased purchased silicon $XX million years. shares XXX,XXX the announced plan aggregate under earlier share has

would based by ends mentioned continue improved hand our position, to back and intend we like the Operator? cash we shares Liron, to summary. balance pace. That strong at operator I the over on sheet questions-and-answer As session. for my intend full our to repurchasing

Operator

Instructions]. and gentlemen, this the we will [Operator begin time, at Ladies question-and-answer session.

Henderson The Needham is of ahead. Company. Alex Please . question from & first go

Alex Henderson

of lot start end moving we Can with the parts to discussion of here. respect a ability profitability. upper to So at that sustain

quarter, I I midpoint the guide for think the put you structure. don't I'm the extremely the very the operating Yes, on events. had based over have a when of margin. the guys else of a slight model maintaining even long profitability and per in XX% change prior in an of track record loss toughest time getting in anything fourth share gross the even with

we're time profitability are going So quarterly looking loss to the into into to frame, you whatever it the and record. not your that basis do as a track takes is it fourth quarter to a say sustain guys and 'XX fair produce on

Liron Eizenman

Alex.

we start maybe annual would mind, be, breakeven to do and, -- XXXX does an do be be, basis. right? will our that I is mean the it that be annual plan in cost continue analysis will and basis, order we be everything or took we or basis, everything breakeven continue we important in So That's do an numbers grow our we in to estimated need XXXX to the to That's say, or develop beyond, We to an we steps. I'll have and at say, for and that. of that not do annual the on make took our on on want still order we order there we sacrifice us. would I don't profitable. even with And need manage extremely profitable, on plan steps in plan but need company sure the our lot the and to done to based can able we we've that that we product because that in to a goal to

Alex Henderson

Right.

So there Is to think is it loss a risk statement? that does sound that over fair time quarterly frame. position on could that that go a you like a you a basis

Liron Eizenman

mainly It we said this as of as meeting, is in and $XX million into we we during mean, possible with with first when that. the comfortable -- we we annual the as situation this on go part feel are looking I bank, the level,

we're that in feel So overall, bad position. situation into this reasonably we getting good a

Alex Henderson

Yes.

is quarterly losses of there basis. a on So a risk

Okay.

because context, the fallen bed actually should of OpEx that -- of the the -- And When in to war. down the will out yen's your of rates, has bit, part the shekel obviously, cost yen because interest that bed. out a help of So and start conditions the It's from to should quite side? macro partly the conditions, benefit benefit of partly numbers. fallen that

Liron Eizenman

QX, I QX will mean, you've numbers something beyond. not was last of were again, -- yes, the already, but obviously, and impact we've the Basically from in some obviously, seen numbers. think, seen it we impact QX overall, QX, in But increase the from X there weeks, the

Alex Henderson

at around occurs And those of purchases, a the to the -- -- a that, review, of what portion to on would business made strategic here. of timing of of reset One company one customer is that you can shifting The couple is portion bit call customers, your review Okay. you a the and GM the what comments much integrators. was customers, little do strategic was with base create a what the lag of how in the the if in potentially it? related of think your risk potential that other quantify

Liron Eizenman

the decisions also cases, those companies. already but because during of give And that mean fully are that it's we what necessarily I say a that some we taken have are the in coffee several I cases, sometimes as decisions customers it the [ trend, would and implemented company yet. than kind been ] happened see been shortages those, we've in not number, some And to this been we not phenomena but made, eventually completely in debates with implemented, but as seen but those see made big, base. not be were because not it's of know, it not some may negligible. in that [indiscernible] happening Hard as very certain

that the I question. So answers hope

Alex Henderson

XX% XX%, delay could Well, granularity? it actually, really some an could give a of X% is it's are the XX%, XX%, projects. of large contemplating of transition? of give i.e., a lot customers hoping to it because it time important a kind little That Or your X% more information. was is you If I that doesn't Is line their little percentage point. a of me it ramping your their for in XX%. customers, XX%, cause

externally. So this we analyze can't

sort of need to around detail give You it. some us

Liron Eizenman

would right. annually. would that say I $X at I You're estimate about it million

Alex Henderson

Okay.

more not factor. modest it's So factor. a large a It's

Liron Eizenman

risk. And Yes. that say not those $X is would I still, we're million... mean losing this I it's at

Alex Henderson

when a the totally million, $XX having quarter. million I million moving you're fourth isn't But swing understand needle it. $X the the in million, $XX $XX

should And what GM manufacturing of of and calculus. is an I So a but What XX.X% which need for we some number Is be that gross on much okay you Yes. XX%? was? specific that how function And Or that little you margins And want in thinking in side change sitting on of the us of there? at risk pricing? is function don't a detail that model, 'XX, give guide XX% kind the reason rails caused is know a at guidance, that XX.X% us to of it, you give XX%, still in think variances, parameterize. our more can you still is bit to give

Liron Eizenman

compared sold impact the lower see we and that X GP, in is -- we spoke is have usually mix those and revenue products and more. we to that see to the company, products that the products are more of Eran more number as the that edge then overall So being have

now to available, easy. price customers due are have changed that and the components feel very that and from also We economic pressure situation it's readily situation the

pressure from company. feel price the I we So mean, do

manufacture. something are pressure mean I those that change the of say So factors X not product way overall but pretty causing X mix I It's that. would we dramatically in the it's of factors that. the in is and for much main the same, the price

Alex Henderson

in that -- think on from margin consistent guideline look complete guidance us you now when should give prior between the what interim and what like I was XX% to So gross guide, the XX%. can a to kind reasonable you more thinking think which for of in a the currently that of XX.X% it some think of is number XX% viable we're should adjustments. a be to modeling thing, that XX% make or we to of carrying range case we Is need

Liron Eizenman

part as what looking mean we're know I analyze is and that can, we that. -- his we provide to can talk feel best We're that's we're that we what as we into So get. is we range that an once update we in trying that what Iran we're to will the to about looking investigating.

Alex Henderson

need here. Laurent, guidance we really some

give preliminary come doing a You're plate and need short to at a you at these on the to us to numbers. has major up on the that least step I thought down think reset term? demand over here And whether least

Liron Eizenman

then now. It we on And provide and come exactly lower. what probably side, be. can we doing But think once our will the it will I to be give right it something number will it. full that, analysis we do be think say That's understanding we a without will responsible

Alex Henderson

Right.

commentary the being 'XX returning a growth. So let's about then difficult talk growth year the rate. to and about

from substantially levels. quite down recent business Your is

is rate the really need first back inventory start should do kind then year in Or we we what in it's running thing guidance fourth scope 'XX? the looks Is be some full to $XX reset for to quarter you've And recover be 'XX? say 'XX it, of what of in call run Again, $XX that the to at your the here. one the revenue. million of but will we thinking You're it given of like half? levels, here half your difficult, customers' evaluated million about

investors I that. think the deserve

Liron Eizenman

very fact around what a this yes, The I'm the apart visibility seeing And very and from you impacted, economic we is the XXXX, us cannot that quarter think definitive due it's for from not problem before. something not saying low that, allowing see very a world, we're tell I challenging all the 'XX. to yes, to is XXXX, headwinds it picture year exactly reasons all limiting and see there. clear the it's visibility, coming the I we in us that very of the for that the first even have to and will expecting provided all be of

Operator

The next Investment Ross Please go question Taylor from ARS Partners. ahead. is of

Unknown Analyst

the the end get the And quarter, inventory At sooner I will better the for was things second investors, be idea you shareholders. that, what the to can clarity obviously, the level. of

Eran Gilad

-- the million. XX sheet, It's written balance in it's on $XX

Unknown Analyst

you think inventory? million $XX in good right now, inventory So all have money is Do you is inventory. that

Liron Eizenman

We yes. believe so,

Unknown Analyst

Okay.

and up hitting couple a philosophical lot question, that is to million stock on cash, that when there's last saying valuation time kind I which which indicates questions, struggle So what as the you've which even a $XX $XXX a your million, you looking would match cap case we're the and what in a was all million get around the ex inventory the right $XXX one an got of with worth numbers. Obviously, a of enterprise to was basically negative at is where of silicon, in has questions can it it business In per market level on got checked about not cash you have an less. mid-XXs would low trading in of to market value when that you've million a revenues that it's now, a actually $XX in can you you're business in inventory, a our is see return the the think in have cylinders, period while the I literally making make year half share. you you X. making next buck would might believe when profitability. worth you past, you because a [indiscernible] -- future reasonable that tough do itself operating part believe year during were the here. the of market a you you less the seem as business -- were down be entity, were It's How company you XXs says than doing money, that that to about a basically assume investing you to in some --

Liron Eizenman

order We are that We that's our to most running we means our keep to customers. on we costs need term. shareholders need allow developing in We value to need that generate that doing. that to the investments the will products. the will continue the make that. that the planning company we And in we're focus in need And a way to our to we in us believe long what in make keep sure manage of achieve way all to

Unknown Analyst

much invest effort? over in How this next year you needing do see the to

Liron Eizenman

but people, customers, to our and inventories do will everything Not need that. products. managers company to the We we do to sure we I need the have to fully I had customers, that to if make sure in investment project be need We to opportunities invest understand need develop maintaining we need operations board. setting across going the salespeople question, new runs, we need the the and we run and mean, we'll new

the cost not to of that is those make into of mean, decided and sure sure on area cost. get define will took have which make order areas aspects, account So when we that area savings that We again focus growth in in order was that all program that the I to all to reduced back is on the we a of that reduce did beyond. we on focused company to in our areas us are we grow laser-focused areas and in that we XXXX this as in any

Unknown Analyst

a -- lot Okay. you've of you of a have stage, And had wins. at lot this

You seeing revenues. to in convert continue to wins But those difficulty getting you're seeing to up. wins is what put you're

have Looking like at that a period as past industry? a the setup, this seen you in your in

Liron Eizenman

point XXXX has Obviously, Well, are that wrong, a few in I I time. went history think time Silicom was the point a XXXX years. famous things tough yes. in but many in was points when been there in tough for in business crisis mean

million here, $XX is into did But every the enter the without we mean, I right from different. cash. past -- situation position, we And times, in pipeline. yes, every we believe such in So we situations. that And different, is in previous have crisis not the with this

us entering We we're have XXXX. go and allow to grow that with the position will back right to in a team,

Unknown Analyst

get not the good going value see sooner and I And it Well, industry there's to the past. obviously you inning all in is an said, giving money itself It market the as the obviously, things matter seems this how company. information the amount it us make is money or is up able pay, this of to I investors pretty hard It's the it's as strikes can good much in right able now to to insight. business. us But on market Okay. in if me give shareholders' be you information bring made be being future. a gain. to, It's tremendous think, a should this that in of you a just show to

we'll So will forward. move pass that it and

Operator

question-and-answer session. the [Operator Instructions]. This concludes

his remind www.silicom-usa.com. with would like website ahead Eizenman participants Eizenman by Mr. Silicom's you a to make Mr. statement? this statement, on closing tomorrow be will that replay to go I to would ask call your like available I concluding of Before

Liron Eizenman

look to everybody, operator. Silicom. in and interest you, months' you, for your the Thank in forward Good our call next on X time. call Thank hosting We day. you for joining

Operator

This you Third Call. Thank for Conference you. your Quarter Silicom's Results participation. Thank concludes XXXX

disconnect. ahead may and go You

Silicom (SILC) 26 Oct 232023 Q3 Earnings call transcript