Silvaco Group, Inc. (SVCO) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several concerns: a slight increase in net loss, lower Q4 revenue guidance, and management's acknowledgment of faster-growing expenses than revenue. Although there is optimism about product potential and recent acquisitions, the lack of specific guidance on growth timelines and the impact of cost reductions on core business raises uncertainties. The market may react negatively to these factors, especially with no clear timeline for achieving profitability or double-digit growth. Thus, the stock price is likely to experience a negative movement in the short term.
Key Financial Performance
Bookings $22.8 million, increased 131% year-over-year. Strength in the quarter was driven by closing a significant EDA contract with one of our core customers in the United States.
Revenue $18.7 million, up 70% year-over-year. 74% of revenue in the quarter came from license revenue and the remaining 26% from maintenance and service. EDA saw the most growth sequentially in Q3, while TCAD and IP trended down slightly.
GAAP Gross Margin 77.9%, up 326 basis points year-over-year. Improvement was driven by growth in revenue exceeding growth in cost of sales.
Non-GAAP Gross Margin 81.5%, up 179 basis points year-over-year. Improvement was driven by growth in revenue exceeding growth in cost of sales.
GAAP Operating Loss $9.3 million, expanded year-over-year but improved slightly quarter-over-quarter.
Non-GAAP Operating Loss $2.3 million, down slightly year-over-year.
GAAP Net Loss $5.3 million, improved from the $6.6 million loss posted in the same period last year.
Non-GAAP Net Loss $2.1 million, slightly worse than the $1.8 million loss posted in the same period last year.
GAAP EPS $0.18 loss.
Non-GAAP EPS $0.07 loss.
Cash and Marketable Securities $27.8 million, including $12.4 million of restricted cash due to the Nangate settlement.
Cash Used in Operating Activities $7.8 million.
Remaining Performance Obligations (RPO) $48 million, with 54% expected to be recognized as revenue within the next 12 months.
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Operating Highlights
FTCO AI Machine Learning Product: A unique AI product for process development that addresses real manufacturing challenges. It has established a partnership with Micron and is considered a foundational growth driver.
Jivaro: Adopted by companies like NVIDIA, Samsung, and SK Hynix to accelerate post-layout SPICE simulations by over 10 times with sign-off accuracy.
Mixel Acquisition: Expected to drive rapid growth in the IP business. Synergies with Silvaco's sales force and adoption of Mixel's world-class development processes are anticipated to exceed initial expectations.
Tech-X Acquisition: Growth depends on market adoption of plasma and optical solutions. Expected to contribute meaningful growth in 2026.
Cost Reduction Program: Initiated to reduce annualized non-GAAP operating expenses by at least $15 million. Includes early retirement programs, office footprint reductions, and minimizing discretionary spending.
Operational Discipline: Focus on execution with new leadership in key roles, aiming to create a culture of speed and high-quality execution.
Focus on Core Growth Drivers: Strategic shift to prioritize AI, power analysis, and interconnect IP while reducing emphasis on subscale areas.
Financial Discipline: Commitment to achieving profitability at current revenue levels and improving gross margins through cost reductions.
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Risk or Challenges
Focus on Key Products: The company needs to reduce attention on mature products and concentrate on a limited number of growth opportunities, which could lead to challenges in reallocating resources and potentially alienating existing customers reliant on mature products.
Financial Discipline: Silvaco's spending has grown much faster than revenue since the IPO, leading to financial strain. A significant cost reduction program has been initiated, but achieving profitability at current revenue levels remains a challenge.
Product Market Position: None of Silvaco's products are #1 in their markets, except in specialized categories, which poses a competitive risk and limits market share growth.
Operational Discipline: Delays in integrating and extracting value from recent M&A transactions (Mixel and Tech-X) have hindered expected growth and operational efficiency.
Customer Adoption: Underestimation of the time and effort required to bring on new FTCO customers has led to disappointing results, impacting growth potential.
Cost Reduction Program: The company is implementing cost-cutting measures, including early retirement programs and reducing office footprints, which may face resistance from employees and disrupt operations.
Geographic Revenue Dependence: Revenue growth is heavily dependent on the Americas, with APAC and EMEA showing less growth, which could pose risks if the Americas market slows down.
Legacy Products: Many legacy products generate maintenance revenue but require cost discipline to remain profitable. Transitioning resources from these products to growth areas may disrupt existing revenue streams.
M&A Integration: Delays in realizing synergies from Mixel and Tech-X acquisitions have slowed growth and created operational inefficiencies.
Economic and Market Conditions: Growth for Tech-X remains dependent on overall market adoption of its plasma and optical solutions, which introduces uncertainty.
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Guidance & Outlook
Revenue Expectations: For Q4 2025, revenue is expected to range between $14 million and $18 million.
Bookings: Bookings for Q4 2025 are projected to be between $15 million and $19 million.
Gross Margin: Non-GAAP gross margin is expected to range from 78% to 82% in Q4 2025.
Operating Expenses: Non-GAAP operating expenses are anticipated to be between $16 million and $18 million in Q4 2025.
Cost Reduction Program: The company has initiated a cost reduction program expected to reduce annualized non-GAAP operating expenses by at least $15 million annually.
Growth Projections for Acquisitions: Mixel and Tech-X are expected to contribute meaningful growth starting in 2026.
Profitability Goals: The company aims to achieve profitability at current revenue levels, creating a foundation for future profitable growth.
Market Focus: The company plans to focus on key growth segments, including AI, power, and interconnect IP, to drive future growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the significance of Walden Rhines' transition from the Board to the CEO role, and what are his plans for the company?
A:Walden Rhines acknowledged that being on the Board did not provide the same level of visibility into individual products and people as his current CEO role. He sees substantial opportunities for growth in specific areas but noted that the company has let expenses grow faster than revenue, limiting resources for key growth areas. He plans to address this trend to free up resources and restore confidence in Silvaco's original mission.
Q:What is the timeline for the $15 million cost reduction, and how does the management feel about the company's forecasting mechanisms?
A:Chris Zegarelli stated that most of the cost reductions will be completed by the end of the year, with a noticeable reduction in operating expenses by Q1 2026. He expressed confidence in the current forecasting tools and data but acknowledged room for improvement in systems, processes, and people to enhance forecasting accuracy.
Q:What are Walden Rhines' thoughts on Silvaco's product portfolio and its potential to achieve industry leadership?
A:Walden Rhines highlighted the potential of Silvaco's products, such as tools for IC design applied to displays and machine learning models for process development. He emphasized focusing on niche markets where Silvaco can lead, such as silicon carbide and gallium nitride modeling, and leveraging acquisitions like Mixel to build industry-leading franchises.
Q:What makes the Mixel acquisition significant, and how does it align with Silvaco's goals?
A:Walden Rhines praised Mixel for its high-quality products and team, citing customer feedback and a strong track record of no bugs in 27 years. He highlighted Mixel's cost-effective engineering base in Cairo, Egypt, and its potential to drive substantial growth and improve Silvaco's overall performance.
Q:What is the status of Silvaco's pipeline and the FTCO opportunity?
A:Walden Rhines described the pipeline as having a stable base of mature products generating maintenance revenue, with growth opportunities requiring more effort. He acknowledged slow progress in the FTCO opportunity due to extensive customer customization needs but remains optimistic about its potential to leverage AI in EDA.
Q:What is the impact of cost reductions on Silvaco's acquisitions and core business?
A:Chris Zegarelli explained that cost reductions will primarily affect the core Silvaco business, with some savings from consolidating office spaces, such as Mixel's California office. The goal is to rightsize the cost structure to focus on growth.
Q:Why is Q4 revenue guidance lower than expected, and what are the growth prospects for Silvaco's acquisitions?
A:Chris Zegarelli noted that Q4 revenue guidance reflects a sequential decline in EDA revenue, offset by growth in TCAD and IP businesses. Acquisitions like Mixel and Tech-X are expected to contribute more significantly to growth in 2026.
Q:Does Silvaco plan to pursue more acquisitions, and what is the company's long-term growth strategy?
A:Walden Rhines stated that Silvaco will focus on growing with its existing resources and recent acquisitions, aiming for profitability at current revenue levels. Long-term, the company targets double-digit growth, with plans to achieve low double digits in the near term and mid-double digits over time.
Q:What is the target for operating expense reductions, and how will it be achieved?
A:Chris Zegarelli clarified that the $15 million reduction will be realized over 2026, with most actions completed by the end of the current fiscal year. Savings will come from broad cost areas, including office consolidations and streamlining the core business.
Q:What are the long-term growth prospects for Silvaco without further acquisitions?
A:Walden Rhines stated that the company aims for double-digit growth in the long term, with plans to achieve low double digits in the near term and mid-double digits over time, leveraging its current product set and recent acquisitions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timeline for achieving double-digit growth, the exact revenue contribution from recent acquisitions like Mixel in the near term, and the precise steps to improve forecasting mechanisms beyond general statements about ongoing efforts.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI IP
AI power
AI product
CEO Director
CEO afternoon
CEO employee
CEO expectation
CEO role
CFO head
Calibre Tessent
Conference Instructions
Development energy
Director Zegarelli
EDA business
EDA dozen
EDA segment
Head
IPO
Mentor
Mixel
Silvaco CEO
Silvaco IP
Tech
afternoon Silvaco
discipline
effort
engineer product
focus driver
focus number
force
history
investor
key
leader
legacy
praise
problem
product maintenance
profitability
reduction
resource product
success
SVCO Transcript
Silvaco Group, Inc. (SVCO) Q3 2025 Earnings Call Transcript
Unknown11-12
The earnings call reveals several concerns: a slight increase in net loss, lower Q4 revenue guidance, and management's acknowledgment of faster-growing expenses than revenue. Although there is optimism about product potential and recent acquisitions, the lack of specific guidance on growth timelines and the impact of cost reductions on core business raises uncertainties. The market may react negatively to these factors, especially with no clear timeline for achieving profitability or double-digit growth. Thus, the stock price is likely to experience a negative movement in the short term.
Earnings call transcript: Silvaco Q4 2024 EPS beats forecast, stock dips
Positive3-5
The earnings report reveals significant improvements in financial performance, including a 43% revenue increase and a swing to profitability. Gross margins have improved, indicating operational efficiency. Despite some uncertainties regarding acquisitions, the overall sentiment is positive due to strong earnings and optimistic guidance. The lack of shareholder return plan is a minor drawback, but the focus on growth and operational efficiency is promising. The market reaction is likely to be positive, with a potential stock price increase of 2% to 8% over the next two weeks.
SVCO Slides
Frequently Asked Questions
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