SVCO earnings call analysis

NASDAQ:SVCO Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: Good afternoon and welcome to Silvaco's first quarter fiscal year 2026 conference call. All participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please note, this event is being recorded. I would now like to turn the conference over to Chris Zigarelli, Silvaco's CFO.

Chris Zigarelli | Chief Financial Officer

Please proceed.

Thank you. Silvaco Investor Relations | Investor Relations

Joining me on the call today is Wally Rines, Silvaco's CEO and Director. As a reminder, a press release highlighting the company's results along with supplemental financial results are available on the company's IR site at investors.silvaco.com. An archived replay of the call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private 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 and on this conference call. The risk factors section in Silvaco's annual report on Form 10-K for the year ended 12-31-2025 provides descriptions of these risks. With that, I'd like to turn the call over to our CEO, Wally Rind. Wally?

Wally Rhines | Chief Executive Officer

Good afternoon. I appreciate you joining us today. I am very pleased with our results in Q1. Momentum continues to build on multiple fronts. Financially, we delivered solid Q1 results and issued compelling guidance for Q2. In Q1, we saw bookings, revenue, and gross margin all above the midpoint of the guided range, which cut our non-GAAP operating loss in half sequentially. We delivered 26% year-over-year revenue growth. Our Q2 guidance confirms that we expect to reach an important milestone in the quarter, that is delivering non-GAAP operating profitability for the first time since Q4 of 2024. From a cash perspective, Q1 was the first sequential growth in unrestricted cash on the balance sheet since the IPO in May of 2024. Our focus on financial discipline and predictability is delivering tangible results. Our team has rallied around this cause and is delivering solid results and important milestones. I want to start with more good news on the AI front. For the second quarter in a row, we secured a new FTCO AI-driven manufacturing customer engagement in Q1. We're in discussions with several more companies and expect one of them to close in Q2. We also received an order from an existing FTCO customer for new functionality. Momentum continues to build for our AI-driven manufacturing strategy, both in terms of new as well as existing customers. While market adoption of FTCO is still in the early stages, these are signs that Momentum is building and the market is responding very positively to what AI manufacturing development can unlock for our customers. Before providing more details on results, I want to give you an update on the company's strategic pivot on which Chris and I have been focused since joining the company. Our guiding principles have centered on playing to Silvaco's strengths, leveraging AI, targeting markets where we can build a top franchise, customer obsession, and financial discipline. Leveraging Silvaco's strengths means extending our lead in target markets and deepening the moat around core technologies. That means delivering differentiated AI-driven solutions for power, memory, foundry, and display segments. In power, We have unique advantages, particularly for wide bandgap semiconductor process and product development. For memory, our partnership with Micron is an example of how we can deliver real value to the biggest and best companies in the industry. In technology, we will widen our lead in core areas, including multi-physics simulation, which was critical to the introduction of FTCO. AI is a crucial element of our strategic shift. We've deployed AI internally and are already seeing phenomenal results. We've seen up to 6x acceleration in graphical user interface development, up to 10x acceleration in new feature design and accelerated verification testing of IP. We've also built AI directly into more of our solutions. The best example is clearly AI-driven manufacturing, or FTCO. Virtualized process development is turning into a must-have feature across the semiconductor industry. Other examples include building better mathematical optimizers and simulators and rolling out AI assistance, which increase ease of use. Deploying AI in our EDA tools means customers get to SPICE models quicker, design optimized layouts faster, and optimize power, performance, and area in everything they design. Our AI-first approach to roadmap acceleration means that we are all in on developing optimized solutions that meet the needs of customers. We also remain relentless about financial discipline. With our $20 million cost reduction initiative largely behind us, we're now building discipline into the culture of the company. We think in terms of efficient process, streamlined structure, and cost optimization. Taken together, we believe that these strategic priorities position us well to grow the top line faster than peers and to grow profitability faster than revenue. I look forward to reporting updates on these strategic initiatives in the quarters ahead. But now let's turn back to quarterly results. We continue to see significant strength in TCAD. In Q1, TCAD bookings grew 13% sequentially and 49% year over year to $10.5 million. Revenue grew 10% sequentially and 22% year over year to $9.6 million. Growth in the quarter was driven by significant milestones for FTCO including securing a new customer and broadening the product line to include additional functionality. Looking forward, we see solid momentum for FTCO. We see strong potential from engagements with governments, power applications, and semiconductor equipment companies. On the government side, we inherited engagements in photonics from our TechX acquisition. We have real opportunities to leverage the broader Silvaco portfolio for meaningful future engagements. With equipment companies and power applications, we see growing interest in FTCO and digital twin modeling that we expect to generate compelling growth opportunities going forward. We see these trends, AI-driven FTCO, government engagements, and power and equipment companies as drivers that will drive growth for quarters and years to come. After a strong Q4, we saw our semiconductor IP product line pause in Q1. Semiconductor IP delivered bookings of $3 million in the quarter, down 41% sequentially, but up more than 200% year over year. IP revenue was $4 million, down 21% sequentially, but up 270% year over year. Sequential softness in IP was driven by timing of new customer wins. We had a few key designs push out by roughly one quarter. Year-over-year trends in IP reinforce the fact that this business has reached a new baseline with the integration of Mixel's industry-leading MIPI-PHI IP. Our IP sales pipeline continues to grow, particularly for our automotive soft IP and for Mixel Pro, a production-ready set of products that were introduced in the first quarter. Our IP pipeline has roughly doubled over the past year. These leading indicators support our view that we expect to deliver steady growth in IP through the rest of the year. We expect IP to grow sequentially into Q2 and to be our strongest grower this year. Turning to EDA, we saw decline in Q1 bookings and revenue. Q1 bookings came in at $3.8 million with revenue of $4.1 million. Here, we continue to focus on shifting priority to a handful of core products that we believe can deliver significant growth. We talked last time about potential for Javaro as one of those core offerings. Another focus area is Utmost, which is a database-driven platform for device characterization and SPICE model extraction. We just released an AI-driven version of Utmost, which now delivers up to 10x performance improvements, a machine learning optimizer, and other runtime enhancements. This is another example of how the team is building next-generation AI-driven solutions. Javaro and Utmost are just two of the core EDA products that are positioned for growth as we focus development, sales, and field application resources on these drivers. We expect stability in this area of the business in the short term, and then a return to growth as these new priorities deliver results. While I'm proud of the progress we've made in a short amount of time, I also recognize the task before us. We've made great strides in stabilizing the business, enhancing liquidity, and streamlining operations, and focusing strategically on the core product that we expect will deliver accelerated growth and profitability. We all look forward to driving our semiconductor IT business to new highs, getting EDA back to growth, and feeding the momentum we see in FTCO. We all continue to believe that the best is yet to come. I look forward to seeing how far we go in the coming quarters. I'd now like to turn the call over to Chris, who will discuss our financial results and our outlook in more detail. Chris?

Chris Zigarelli | Chief Financial Officer

Thanks, Wally. Good afternoon, everyone.

Silvaco Investor Relations | Investor Relations

In Q1, we delivered $17.2 million in bookings and $17.8 million in revenue, both above consensus and above the midpoint of our guided range. Bookings and revenue both grew 26% year over year. Strength in the quarter came from TCAD. We want another new FTCO customer in the quarter and partnered with an existing FTCO customer to add new functionality to their deployment. Looking forward, We see strong interest in FTCO and expect to close one more new FTCO customer in Q2. From a geographic perspective, we saw the most growth in Q1 from the Americas region, which grew 24% sequentially and accounted for 44% of total revenue in the quarter. Looking down the P&L, GAAP gross margin in Q1 was 86.4%, and non-GAAP gross margin was 87.9%. GAAP and non-GAAP gross margins sequentially increased by 305 and 235 basis points, respectively, and came in ahead of guidance and consensus. GAAP and non-GAAP gross margin also increased 779 basis points and 788 basis points year over year, respectively. Both GAAP and non-GAAP gross margins have benefited from our restructuring activities. We believe Gross margins will remain in this range of mid to upper 80s going forward. GAAP operating expenses were down 4.5% sequentially to $21 million. Non-GAAP operating expenses were down 3.6% sequentially to $16.1 million, above the midpoint of the guided range. From a total cost perspective, which combines operating expenses and cost of sales, GAAP total cost declined 6.5% sequentially and non-GAAP total costs declined 5.6% sequentially. Q1 results are the first time since the IPO when total non-GAAP spending declined in two consecutive quarters. Our guidance into Q2 indicates that spending is expected to continue declining sequentially. GAAP operating loss improved quarter over quarter to a $5.7 million loss. Non-GAAP operating loss was $471,000, well ahead of Q4 and ahead of expectations. Gap net loss in the quarter was $5.9 million, and gap EPS was a $0.19 loss. Non-gap net loss in the quarter was $574,000, and non-gap EPS a $0.02 loss. Next, turning to the balance sheet and cash flow. Cash and cash equivalents at quarter end was $10.9 million. As of Q1, we no longer have restricted cash on the balance sheet. Recall, cash, cash equivalents, and marketable securities at the end of 2025 was 18.3 million, which included 8.3 million of restricted cash. Therefore, unrestricted cash at year end was $10 million. Unrestricted cash grew almost 10% sequentially in Q1, the first time unrestricted cash grew sequentially since the IPO. Net cash used in operating activities in Q1 was $11 million. up from $9.5 million in Q4. Please note that this $11 million included the $8.3 million final litigation settlement payments, as well as $1 million in severance payments. Net of litigation and severance, net cash used in operating cash flow would have been $1.7 million in Q1. Adjusting for these same two factors, litigation and severance, Q4 net cash used in operations would have been $7.4 million. The improvement from $7.4 million to $1.7 million speaks to the meaningful improvement in our underlying economic. The improvement also supports our view that we will see positive operating cash flow by Q3. During the quarter, we also signed a non-binding term sheet with our banking partner for a $10 million revolving line of credit. We expect to close on this facility during Q2. Now, turning to guidance, for Q2 2026, we expect Bookings of $19 million, plus or minus 10%. Revenue of $18 million, plus or minus 10%. Non-GAAP gross margin around 88%. Non-GAAP operating expenses of $15.5 million, plus or minus 5%. In closing, the team delivered on several milestones in the quarter. We secured a second AI FTCO customer in as many quarters. We delivered growth in unrestricted cash for the first time since the IPO. We delivered two sequential quarters of spending reduction for the first time since the IPO. We see gross margins at highs and see non-GAAP operating profitability coming in Q2. Wally and I want to thank the team for delivering these strong results. We look forward to continuing to deliver on our commitment to profitable growth. With that, operator, we will now take questions.

Conference Operator | Operator

Thank you, Chris. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Chris Zigarelli | Chief Financial Officer

Our first question comes from Robert Mertens from TD Cohen.

Conference Operator | Operator

Robert, the line is open. Robert, your line is open. Moving on. Our next question comes from Blair Abernathy from Rosenblatt Securities. Blair, your line is open.

Blair Abernathy | Analyst, Rosenblatt Securities

Hi, guys. Can you hear me?

Conference Operator | Operator

Yes. Hi, Blair.

Blair Abernathy | Analyst, Rosenblatt Securities

Yes, hi. Hey, Wally. Hey, Chris. Thanks for taking the question. I apologize. I was not able to listen to the whole first part of your prepared remarks, so if you've already repeated, if this is a repeat, just let me know, but... Let's talk about the FTCO, in particular the pipeline. It's interesting your comments in your press release about governments looking at this, semiconductor equipment companies looking at this. Maybe, Wally, you can give us a sense of what does the market universe look like to you today for the FTCO?

Wally Rhines | Chief Executive Officer

Yeah, I'm glad you brought this up because the diversity of users is is surprising even us. We started out, our big partner, of course, was Micron initially developing the basic capabilities, but we've found that it's applicable in a variety of other areas. It's applicable with equipment companies and that a different application again this quarter. As we mentioned, we've engaged with more in the coming quarter and are quite confident that at least one of those will close. And I think it just reflects on the capability it brings. You bring together a lot of data, you generate a lot of synthetic data, you build models, and then people can use it to guide the pathway for evolving their processes, whether they're developing manufacturing equipment or putting a process in place, moving to a next generation node. It just seems to have a great deal of very broad applicability.

Blair Abernathy | Analyst, Rosenblatt Securities

Is the equipment makers looking at this in terms of design and development of their own equipment or in terms of working with their customers?

Wally Rhines | Chief Executive Officer

So it's both. It does, in fact, give them an ability to tune their equipment, develop recipes, figure out results. But one of the specific cases that was brought to my attention in a meeting with a customer this quarter was they want to accelerate the time it takes for setup of equipment. And by having a reliable model, they can, in fact, tune in what the ultimate result should be from the process step, and therefore drive how the setup should be done. Saves time. Time for capital equipment is depreciation cost, and so their customers appreciate it and also appreciate the fact that they're able to process more in a shorter period of time.

Blair Abernathy | Analyst, Rosenblatt Securities

So is this, if I got this right, Wally, is this a digital twinning process? for the install and setup.

Wally Rhines | Chief Executive Officer

It is indeed. It is a digital twin that is able to simulate the actual behavior based upon what variables are input to the equipment or in the process recipe, the inflow of materials.

Blair Abernathy | Analyst, Rosenblatt Securities

So is there an avenue here? Maybe I'm stretching this, but is there an avenue here whereby the equipment makers could your partner in selling the FTCO to an NFAB?

Wally Rhines | Chief Executive Officer

The existing engagements hadn't really addressed that, but I suppose that is a possibility going forward because whereas they provide it for their particular piece of equipment, it's quite possible that the customers would ultimately want to license it more broadly and we're able to address multiple different types of equipment because we have built a database associated or a set of tools associated with many different types of equipment. So at the very least, it could be an introductory point as far as will we set up an arrangement to OEM the product. Haven't done that yet, but that certainly is a possibility.

Blair Abernathy | Analyst, Rosenblatt Securities

Okay. Okay. Okay. Interesting. Okay. And the other question I had was just around the IP business, which was up quite strong year over year. How much of that was really, was Mixel? And maybe how's the opportunity pipeline or the funnel looking for your IP business?

Wally Rhines | Chief Executive Officer

Well, as we mentioned, the IP business looks very strong for the rest of the year and much of the growth year to year comes from the addition of Mixel. So we had engagements in both. They are both contributing, and I would expect that as we go through the year, we'll start to see some additional contributions from the off-the-shelf or the production ready. Right now, it's all the traditional Mixel business complemented by a near equal amount of the traditional IP business that involves memory compilers, cell libraries, and other standardized foundational IP.

Silvaco Investor Relations | Investor Relations

And as we had indicated earlier, to that point, the pipeline organically has roughly doubled for that business in the last year, and it's even more than that if you layer in the added opportunities that came from the Mixel acquisition. So the pipeline trends are very encouraging in that business. While it did have a pause in Q1, we do see indicators of returning to growth sequentially in Q2.

Blair Abernathy | Analyst, Rosenblatt Securities

Okay. Okay, great. And then, Chris, just to ask you here the – It looks like your OPEX guide for next quarter, $15.5 million plus or minus. Are we down to the level that you want it to be at? Is there any more significant change as we move from Q2 into Q3, or is business where you want it?

Silvaco Investor Relations | Investor Relations

Good question. As Wally and I indicated when we joined, You know, we do want to drive the business to profitability, you know, at flat-ish revenue. And I think the guide into Q2 indicating positive non-GAAP operating income is an indicator of that. And so, you know, there are still some costs to come out, Blair. You know, some of the international reductions do take some time. So there are some downward trends in there. But there are also some tactical things we're investing in, like the AI tools that Wally alluded to earlier. And so my sense of it is it's in a pretty good spot now. It probably trends down to flattish from here. And I think we're going to be focusing on those growth drivers that we talked about. I mean, IP is a good example. Lots of good indicators of strength on the FTCO side. And you can see that even in the TCAD, you know, product line numbers, sequential growth, good year over year growth, really encouraging. And as IP gets to growth, that'll just be an adder to that. And we should see some good leverage from that continued growth from here.

Blair Abernathy | Analyst, Rosenblatt Securities

Okay, great. And last question for you, Chris. I didn't see it, but is there a backlog number that you provided or will there be one in your queue?

Silvaco Investor Relations | Investor Relations

We indicated bookings. We talked about revenue. We didn't put a backlog number there, but you can look for the additional information posted online to see if you find what you need.

Blair Abernathy | Analyst, Rosenblatt Securities

Okay, great. Thanks very much, guys.

Conference Operator | Operator

Thank you. One moment for our next question. Our next question comes from the line of Craig Ellis from B Reilly Securities. Craig, your line is now open.

Rebecca Zamsky | Analyst, B. Riley Securities

Hello, this is Rebecca Zamsky on to Craig Ellis. My question is on TCAD bookings, which I believe you said was $10.5 million, which were up 50% year-on-year. Is this run rate sustainable, and how should we be thinking about TCAD going through this year?

Thank you. Wally Rhines | Chief Executive Officer

Yes, I think TCAD is a solid core business for the company. As you can see, it grew substantially year to year. I don't think the 50% growth continues, but we will see growth. I think it will be a solid business, and I'd note that our FTCO business is part of these TCAD numbers. It's reported in that segment. So we have the benefit of the growth in a new and rapidly emerging business in FTCO. And then we have the basic strength of the key care business itself, which is doing well and that should continue through the year.

Rebecca Zamsky | Analyst, B. Riley Securities

Great. Thank you. And on the FTCO wins, I believe you flagged there was one customer in Q1 and another one expected in Q2. Is this going to stay? start becoming like a recurring quarterly event, or would the new wins continue, like still be lumpy?

Wally Rhines | Chief Executive Officer

Well, we certainly hope so. And based upon the customer visits and interaction that we've had, I think that we're quite hopeful that we'll be regularly adding new FTCO customers. And as I mentioned, They don't have to be the same type of application as ones in the past. We're continuing to find new applications, and that, too, should help the growth and the discovery of new possibilities.

Chris Zigarelli | Chief Financial Officer

Thank you. Thank you. One moment for our next question.

Conference Operator | Operator

Our last question comes from the line of Robert Mertens from TD Cohen. Robert, your line is now open.

Robert Mertens | Analyst, TD Cowen

Thanks for letting me ask a question on behalf of Chris Sankar. I just wanted to maybe triangulate within your guidance for the June quarter. It looks like sales are kind of flat slightly sequentially, and you had mentioned that in your commentary, some strength in the IP business growing through the year. Is it fair to say that next quarter that TCAD is probably growing through the June quarter as well, and then maybe the EDA business contracts?

Wally Rhines | Chief Executive Officer

Chris?

Silvaco Investor Relations | Investor Relations

Yeah, I can take that one, Wally. I mean, yeah, I think it's fair to say that IP does grow sequentially. You know, EDA could be flattened down a little bit. TCAD could be to up a little bit is kind of the way that we're thinking about it. And I did want to provide a little extra color. There was an earlier question on remaining performance obligations or backlog. That number is at about 46.6 million on the quarter. So, you know, down slightly from what we saw in Q4, but remaining in that elevated high 40s range for the business.

Robert Mertens | Analyst, TD Cowen

Got it. Thank you. And then maybe just a quick follow-up just to get clarification. I think this was asked just in terms of the OPEX number, but are you sort of expecting these levels that you got for the June quarter in the back half of the year? Is there any sort of savings on the SG&A line you expect to continue to bring down?

Silvaco Investor Relations | Investor Relations

From an OPEX perspective, yeah, as I indicated, there are continued downward pressures on spend. There are some of the targeted reductions that will be playing out in the coming quarters, most notably on the international side. Some reductions do take a little bit more time than they do in other jurisdictions. You know, there are some targeted places where we're making some incremental investments. The AI tools are one of them. And Wally alluded to, you know, solid indicators that we see a good ROI from those investments in terms of accelerating and broadening the roadmap. So we're encouraging, we're encouraged to see those benefits, you know, roll through the business and deliver upside to revenue. So I do see a continued trend to kind of down a bit to flattish, as I said, on the OpEx side. And the pipeline has been encouraging and it continues to grow. Most notably, IP pipeline has been growing really nicely. And so we do see room for growth from here, particularly on the IP front. But As FTCO continues to roll through the business and the winds continue to build, that's an obvious tailwind on the TCAT side as well.

Robert Mertens | Analyst, TD Cowen

Great. Thank you for the caller.

Conference Operator | Operator

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Chris Zigarelli | Chief Financial Officer

We will stand by for one minute.

Conference Operator | Operator

With that, this concludes the question and answer session. I would now like to turn it back to Walden Rhines for closing remarks.

Wally Rhines | Chief Executive Officer

Well, thank you. We're pleased with the continued momentum in our business, looking forward to profitability next quarter, and the AI-driven FTCO continues to provide a great opportunity for us moving forward. Like so many businesses, AI is helping us both internally and helping us with our customers and creating new business opportunities. We look forward to sharing them with you in the coming quarters.

Thank you. Conference Operator | Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. jsPDF 3.0.3 D:20260606090441-00'00'

NASDAQ:SVCO Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good afternoon, and welcome to the Sovacos, a fourth quarter fiscal year 2025 conference call. All participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Chris Segarelli, Chief Financial Officer for Sovaco.

Please proceed. Chris Segarelli | Chief Financial Officer

Thank you. Joining me on the call today is Wally Rines, Silvaco's CEO and Director. As a reminder, a press release highlighting the company's results along with supplemental financial results are available on our IR site at investors.silvaco.com. An archived replay of the call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private 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 and on this conference call. The risk factors section in SILVACO's annual report on Form 10-K for the year ended 12-31-2024 and the most recent Form 10-Q filing with the Securities and Exchange Commission provide descriptions of these risks. With that, I'd like to turn the call over to our CEO, Wally Rhines. Wally?

Wally Rhines | Chief Executive Officer and Director

Thanks, Chris. Good afternoon, and thank you all for joining the call. I'm pleased with our performance in the fourth quarter of 2025. We're executing our turnaround plan faster than anticipated, which can be seen clearly in the numbers. For Q4, we delivered bookings at the high end of the guided range, revenue and gross margin above the high end, and non-GAAP operating expenses at the low end, all resulting in a much lower operating loss than expected in the quarter. Our Q1 guide is strong as well. I'm proud of the team for delivering such strong results and positioning us for a faster than expected recovery in the business. Chris will walk you through the details later in the call. But now, I'll turn to discussing our progress toward the return of the business to a strong, predictable growth. I'd like to start with big news on the AI front. We reached an important milestone in Q4 ahead of our prior expectations. During the quarter, a second customer adopted our AI-driven solution for manufacturing process development known as FTCO. This win was a customer in Asia and is outside of our memory segment. We believe that this win confirms the clear customer value of our AI solution beyond memory and points to significant opportunities ahead. This AI bundle delivered above average bookings and revenue reflecting the high value placed on our unique set of AI capabilities. It's very encouraging to see adoption of our AI solutions faster than expected. In our total TCAD business in Q4, we saw a 70% sequential increase in bookings to $9.2 million and a 34% sequential increase in revenue to $8.7 million, driven by adoption of FTCO by a new customer. We continue to enhance this AI-driven process development platform with new and upgraded features that put more AI features in front of more design and manufacturing engineers to slash their development signs, save money, and enable first-time-rate silicon. We believe that the transition to more AI-enabled sales will be a long-term tailwind to the business. After a soft 2025, We also expect the pace of TCAD contract renewals to accelerate in 2026. These trends support our expectation that the TCAD business will grow sequentially in Q1 and will grow for the full year 2026 as well. In Q4, we also saw a meaningful inflection in the semiconductor IP business. We deliver record IP revenue and bookings of over $5 million in the quarter, driven by our first full quarter of Mixel revenue post-acquisition. Mixel's industry-leading MIFI IP continues to have a strong following globally, led by its reputation for unparalleled quality. We're building on that reputation by leveraging the entirety of the Siwako sales force to drive more growth in Mixel products. We're also broadening our offerings from custom solutions to production ready or PRO products. Our PRO portfolio is silicon proven in nine different foundries and 12 different manufacturing nodes. Mixcel IP has proven to enable up to 35% reduction in dye area and up to 50% reduction in leakage power. The MIPI PHY market It's over $300 million per year, and we still have a relatively modest share. We're positioned for steady growth in this area as we ramp MIPI Pro products, which serve the largest part of the market. Outside of Mixel, Andy Wright, head of Sovaco's IP business, has done a great job of increasing our internal capacity for foundational IP elements, such as memory compilers and standard cells. As we look to the latter part of 2026 and into 2027, we see considerable opportunity to grow these areas given our increase in efficiency. Our IP business continues to be positioned as our fastest grower in 2026. It is already almost 30% of our business as we exit 2025. We expect to continue to deliver steady growth in IP sales across interface and foundational IP elements as well as our acceleration in MIPI. This is a story to watch in 2026. Now turning to EDA, we saw a significant decline in our Q4 bookings and revenue after all time records in Q3. Bookings for Q4 came in at just under $4 million with revenue of 4.4 million. Here, we continue to focus on shifting priority to a handful of core products that we believe can deliver significant growth. One of these focus areas is Javaro, which continues to see relatively strong customer interest and has a strong pipeline for new business potential. Javaro has been adopted by leading companies as it accelerates post-layout SPICE simulations by up to 10x with sign-off accuracy. Javaro and the other core EDA products are well positioned for growth as we focus development, sales, and field application resources on core growth drivers. We expect stability in EDA in the short term and then a return to growth as these new priorities deliver results later in the year. Underlying this improved business performance are the series of restructuring steps that we put in place almost from day one. We drove targeted reductions in support groups as well as in product areas to enable the teams to focus on core growth drivers. We also challenged product and support teams to limit direct customer support work done by business unit R&D staff so that they could focus more on product development. This change alone has had the benefit of simultaneously improving our gross margins while increasing R&D capacity. We also put in place leading AI tools to accelerate our software development. We're continuing to drive other process improvements to continue improving our ability to plan, drive, and execute the business. These changes have been widely embraced across the company, and I look forward to seeing how they continue to accelerate our execution and to delight our customers. And while I'm proud of the team for the significant progress we made in quarter, I want to reiterate that we still have a lot of work in front of us. In the coming quarters, we expect to build on momentum from the fourth quarter. For example, we'll continue to deliver significant growth in our IT business. We can already see evidence of this improvement in a strengthening pipeline, which we expect to convert into strong revenue in 2026. We also see good growth in TCAD, as renewals grow and interest continues to increase around our AI solutions. For EDA, we'll see benefit from our restructuring activities later in the year as we focus on key growth segments. And overall, we expect our AI-driven machine learning capability to change the way semiconductor manufacturing process development is done and to add broad capabilities for fab engineers to improve yields, throughput, and failure analysis. As I said last quarter, Chris and I are firmly committed to an aggressive acceleration of Sivaka's business. We're off to a good start, but the best is yet to come. I'd now like to turn the call over to Chris, who will discuss our financial results and our outlook in more detail. Chris?

Chris Segarelli | Chief Financial Officer

Thanks, Wally. Good afternoon, everyone. In Q4, we delivered $18.3 million in bookings near the high end of our guided range. Strength in the quarter came from IP products and our TCAD solutions. IP delivered more bookings in Q4 than it did in the entire year of 2024. IP bookings grew almost five times sequentially as Mixel started to meaningfully contribute to the business. TCAD bookings were also particularly strong, up 70% to 9.2 million with the close of another AI-driven process development win with a large OEM in Asia. Strong bookings helped propel revenue to $18.3 million in the quarter, above the high end of the guided range. TCAD and IP revenue grew strongly in the quarter, up 34% and almost 3x, respectively. IP strength was driven by Mixel, while TCAD strength was driven by our latest FTCO win. EDA, on the other hand, saw a significant sequential decline after setting records in Q3. 65% of revenue in the quarter came from license revenue and the remaining 35% from maintenance and service. From a geographic perspective, we saw the most growth in Q4 from the APEC region, which spiked to 57% of total revenue in the quarter. APEC strength was driven by FTCO. Looking down the P&L, gap gross margin in Q4 was 83.3% and non-gap gross margin was 85.6%. Gross margin increased roughly five full points sequentially and came in well ahead of guidance. As part of our restructuring activities, Wally and I set clear expectations for the field application teams to prioritize customer support, while R&D teams focused primarily on product development. We also drove some reductions in these areas as well. Taken together, these changes resulted in much faster than expected improvement in our gross margin. We believe this trend is sustainable. Gap operating expenses were down almost 8% sequentially to $22 million. Non-gap operating expenses were down 5% sequentially to $16.7 million, below the midpoint of the guided range. This result is more meaningful than it may appear. We think about total spending as the combination of cost of sales and operating expenses. In our business, the majority of cost of sales is the cost of our colleagues supporting customers. From this perspective, our total non-GAAP spending, which combines both cost of sales and operating expenses, trended from $21.3 million in Q3 to $19.3 million in Q4, a sequential decrease of just over 9%. Our guidance indicates that this trend continues in Q1 with a similar level of sequential reduction in total spending. We expect further reductions in Q2. These reductions are ahead of our expectations and reinforce our commitment to driving the business to profitability. We indicated on our last call that we were committed to reducing annualized non-GAAP operating expenses by at least $15 million annually. We now believe that we will deliver $20 million in gross annualized non-GAAP spending reductions. Our guiding principle remains the same. We intend to turn the business profitable at flat revenue, Achieving this goal will create a strong foundation for future profitable growth. GAAP operating loss improved quarter over quarter to a $6.8 million loss. Non-GAAP operating loss was just over $1 million, well ahead of Q3 and ahead of expectations. GAAP net loss in the quarter was $7.2 million, and GAAP EPS was a $0.24 loss. Non-GAAP net loss in the quarter was $0.8 million, and non-GAAP EPS was a $0.03 loss. Next, turning to the balance sheet and cash flow. Cash and marketable securities at quarter end was $18.3 million, including $8.3 million of restricted cash due to the Nangate settlement. Given that we have executed cost reductions ahead of prior expectations and given strength in bookings and revenue, our underlying burn rate, net of one-time items, has declined significantly in Q1. We expect that the $10 million of unrestricted cash on the balance sheet as of year end will support operations as we drive to positive operating cash flow later in the year. We expect to approach operating cash flow breakeven in Q2 and to see positive operating cash flow in Q3. Now, turning to guidance. For Q1 2026, we expect bookings of between $15 and $19 million, revenue of between $15 and $19 million, non-GAAP gross margin of around 85%, and non-GAAP operating expenses of $14.5 to $16.5 million. In closing, we believe that with improved financial discipline and a focus on key growth opportunities, we will set the stage for profitable growth going forward. We would also note that the non-GAAP operating profitability is within the high end of the guided range for Q1. which is ahead of our prior expectations. And with that, operator, we will now take questions.

Operator | Conference Operator

Certainly. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile our Q&A roster. Our first question will be coming from the line of Craig Ellis of B-Riley Securities. Your line is open, Craig.

Craig Ellis | Analyst, B. Riley Securities

Yes, thanks for taking the question, and congratulations on the strong execution team. Wally, I wanted to start one that's a fairly high-level question for you. When you came in, you outlined a number of growth priorities, and it seems like we're off on the right foot as we close out 4Q and 1Q. Can you just go into more detail on where you're happy with the business's execution, and on the two or three things you really want to see the business execute on as we go through the first half of this year.

Wally Rhines | Chief Executive Officer and Director

Sure, Craig. I'd be glad to. And it's true. I've now been here for over five months, and I now have a much better perspective on where the opportunities lie, where the weaknesses are, and where we need to move ahead. I think the first thing of note, of course, was that we needed more financial flexibility and so the cost reduction program has been executed well. It's always difficult, but I think morale has improved greatly, and now after the majority of it is over, people are back to work and thinking about new opportunities. The survey of all of the product lines became more detailed as I, this last quarter, met with customers, traveled the world, Asia, Europe. I spent time with our Mixcel employees in Egypt. I spent time in India with new customers. I've come to the conclusion that we have an incredible long-term opportunity driven by artificial intelligence and the whole change that's underway in how process development is done and how wafer fab engineers and product engineers optimize their processes, optimize their manufacturing, find defects, look for yield problems. And that, I think, builds well on the core manufacturing capability of Silvaco and provides the long-term growth engine. The thing that I was particularly pleased by, though, was in the short term, such strength in IP. driven, as Chris indicated, by the strength of the Mixel business, but also the rest of the IP product line, as Andy Wright has brought in new disciplines, made it more efficient, greatly increased our capacity, and the great marriage that came by joining a well-seasoned, significant sales force with a negligible sales force at Mixel, has produced a very promising outlook for very rapid growth for the IP business in the year ahead. EDA, while it is down, has selected good opportunities. Jabarro is a category killer and is, in fact, a sign-off tool at least one major company and then at a slew of other very leading semiconductor companies, and it's one of a handful of EDA products that can provide not only the strength of contract renewals going forward, but some potential for growth. But it's going to be a stabilization issue in the short term and then growth in the longer term. So summarizing, great long-term opportunity in the evolution of TCAD to the next generation of AI-driven process development, great-looking short-term IP business, driven by Mixcel, but complemented by the efficiencies in the existing business, and a good stable base of key targeted products in EDA, which although they won't grow in the short term, they provide a strong renewal base of revenue, and it makes me very glad that I joined Zolaco.

Craig Ellis | Analyst, B. Riley Securities

That's really helpful, Wally. Thank you. Chris, I'll direct a follow-up to you. in part a clarification and then in part a question that the clarification for the NICE Asia Foundry FTCO deal. Did that fully rep rack in the first quarter or is that a multi-quarter rep rack and can you provide any color there? And then the second part of the question, love the incremental expense the team is able to achieve going from 15 million to 20 million. Can you give us some color on where you're realizing that incremental $5 million in savings?

Thank you. Chris Segarelli | Chief Financial Officer

Yep. Craig, happy to do it. So from a REVREC perspective, the FTCO win, it was not all recognized in Q4. So a significant amount of it was recognized. The rest of it will run over the term of the contract. And as you saw, good momentum in FTCO leads to good numbers. in TCAD, good, strong growth sequentially. And as Wally was indicating, we're seeing, you know, incremental interest there, a good pipeline on FTCO, you know, a lot to be excited about as we look at new FTCO opportunities, you know, through this year and beyond. In terms of cost savings, I think, you know, we laid it out last call that obviously we were, you know, incrementally more focused on support organizations, for example. for reductions, but we also, you know, did look across the organization to streamline, reset some org structures, for example, and extract some value. I think for me, Craig, and I pointed it out in the prepared remarks, but I want to emphasize it here. You know, some of our spending does go through cost of sales. So one of the reasons why you saw gross margin perform so well in the quarter and why we think it's sustainable at these levels is is that we were able to have the product teams really focus on product development and have most of the customer support work being done by the field application engineers. And that just leads to a much more cost-effective view on cost of sales. And it also increases capacity on the R&D side where the team can focus more on engineering those new, exciting AI-driven products that Wally was alluding to. So I think it was broad-based, a little bit more on the support side. We have been streamlining. We do think some more cost does you know, come out into Q2. So, you know, I can already confidently say there will be a sequential decline again in Q2. And that's where profitability will, you know, be within our grasp after delivering some pretty good numbers here in Q4. And I think a pretty good guide for Q1.

Craig Ellis | Analyst, B. Riley Securities

Good numbers indeed. Thanks, guys.

Chris Segarelli | Chief Financial Officer

Thanks, Craig.

Operator | Conference Operator

And our next question will be coming from the line of Kevin Gerrigan of Jefferies. Kevin, your line is open.

Kevin Gerrigan | Analyst, Jefferies

Yeah, hey, Wally and Chris, let me echo my congrats on the results and all the progress. Hey, Wally, previously you mentioned the adoption process of FTCO was always kind of a gating factor. You know, your second FTCO customer was faster than you expected. So are you able to kind of speed up the adoption process? Or what was the driver of the faster than expected adoption? And can that translate to other engagements?

Wally Rhines | Chief Executive Officer and Director

I think our efficiency is, at closing and ramping FTCO customers is going to continuously increase. The initial engagements were very upfront service oriented, a lot of bringing the customer online. This particular one was based both on the vision they could see ahead as well as some initial purchases to get things going. And I think in the future, The message is becoming better honed. Our field sales organization is able to communicate the value. And the pipeline is increasing for the number of customers. So I think I would expect that the time it takes to go from initial engagement to real revenue is going to decrease as we move forward and as people see what the benefits are for applying AI to the next generation of processes.

Kevin Gerrigan | Analyst, Jefferies

Okay, perfect. And then, Chris, can you just kind of give us any color on how we should think about bookings by segment in Q1? Should we expect it to be more kind of TCAD-driven and SIP versus EDA?

Chris Segarelli | Chief Financial Officer

Yeah, that's a good guess, and I would agree with that. We're seeing continued strength in TCAD, sequentially in Q1, so that's a very strong story. You know, IP, after delivering really good numbers in Q4, it's in the same range, maybe down a slight tick. And EDA feels flattish sequentially. So yes, a good TCAD uplift in Q1.

Kevin Gerrigan | Analyst, Jefferies

Okay, perfect. I appreciate the color and congrats again on all the results.

Operator | Conference Operator

Thanks. And our next question would be coming from the line of Robert Mertens of TD Cohen. Your line is open, Robert.

Robert Mertens | Analyst, TD Cowen

Hi, this is Robert on for Chris. Thanks for taking my questions. Maybe just to go back to the FTCO product, just how you're thinking about the new customers ramp through the year and your older customer, if you expect any acceleration of orders in calendar year 26 or more of the upside could be a 27 story.

Wally Rhines | Chief Executive Officer and Director

Yeah. Well, if you want me to take that, I guess you were talking to Chris first, but the way the pipeline is shaping up, we expect it to be a 2026 story. We have enough additional customers in the queue, and I'd point out that there are two elements to this TCAD growth sector. One is the people who are traditional TCAD users, and We have a strong renewal contract, a strong queue of contract renewals that provide growth in the base business. The SDCO is really a different thing. It's how you shift and develop processes in a totally different way. It doesn't really head-on compete with our traditional PCAD business. It's really a different business. And as more and more people are realizing that, then it's not something where we have much direct competition with customers. It's just the case of selling the value of moving to a new paradigm for process development. And we're just being helped along a great deal by all the NVIDIA publicity and the people talking about tools, Anthropic, OpenAI, and so on, where everyone's looking and saying, how is my world going to change? And the people who've done or used TCADs to develop and optimize their processes in the past are asking that question, and so we just need to be there with an answer that they can act upon quickly, and it seems to be going very well.

Robert Mertens | Analyst, TD Cowen

Great.

Got it. Thank you. Operator | Conference Operator

And our next question will be coming from the line of Christian Schwab of Cray-Halem Capital Group. Your line is open, Christian.

Christian Schwab | Analyst, Craig-Hallum Capital Group

Great, thanks. Solid results. I just have one quick question. Can you give us an idea of what you're anticipating, either percentage-wise or dollar-wise, in growth from the MixLX acquisition in 25 versus 26?

Craig Ellis | Analyst, B. Riley Securities

I can take that one.

Chris Segarelli | Chief Financial Officer

Feel free to add more color if you'd like. I mean, as you saw sequentially from Q3 to Q4, From a booking standpoint, IP grew $4 million sequentially. A good piece of that was from Mixel. And if you just annualize that quarterly performance, you can get a sense of what that business is doing, call it approaching double digits. And then, as Wally said, there's the PRO or PRO products, and there's increased efficiency within the team and leveraging of the sales force. So we think growth comes from there, but that gives you a sense of, you know, the baseline of where they're coming from and how we do see that growing sequentially into this year. And, you know, more momentum probably in the second half is what I'd say as we lay the groundwork for really supporting those pro products that we just recently announced.

Christian Schwab | Analyst, Craig-Hallum Capital Group

Great.

Wally Rhines | Chief Executive Officer and Director

Go ahead, Wally. Sorry. Wally, and thanks for that quote. Between that and strong TCAD year, We really expect to deliver double-digit revenue growth in the current calendar year.

Great. Christian Schwab | Analyst, Craig-Hallum Capital Group

That was going to be my next question. Thanks for answering it.

No other questions. Thank you. Operator | Conference Operator

Okay. As a reminder, to ask a question, please press star 1-1 on your touchtone telephone and wait for your name to be announced. Again, if you'd like to ask a question, please press star 1-1 Our next question will be coming from the line of Dennis Piasci of Needham & Company. Your line is open, Dennis.

Dennis Piasci | Analyst, Needham & Company

Great. Thank you very much. So my first question is basically about your three segments. So performance-wise, what do you think we can expect from all of these in 2026? Do you think you could provide some sort of color that's either quantitative or qualitative in nature in terms of which ones would do better than the other?

Wally Rhines | Chief Executive Officer and Director

Okay. As we indicated in the summary, the really large percentage growth will come in IP. But the core business of TCAD continues, will be strong. It's a profitable growing business. And so it's, while not the fastest grower in the coming year, it will grow just as Chris indicated. The third is, will grow less. had a record growth this past year, and that's EDA. So we expect it to simply be stable, a good part of the business, having strong renewals, but the growth of individual products will be slower. So fastest growth, IP, second fastest, TCAD, and the new FCCO, which is almost a totally different business from TCAD, and then IP, third. I'm sorry, he had EDA, sir.

Dennis Piasci | Analyst, Needham & Company

Yeah, no, that's great. Thank you. And then, so for my second question, I think you mentioned that you're going to be doing like an incremental $5 million in annualized OPEX reduction. Can you tell us what is this additional source of savings that you found? Chris?

Chris Segarelli | Chief Financial Officer

Yeah, no, I can speak to that. I mean, we were always executing this as broad streamlining and cost reduction effort within the company. Last call, we said at least $15 million But as we've been working through the synergies, we found some good opportunities in SG&A, for example, to really streamline and kind of focus the team on activities. And we've also found some opportunities in selected businesses as well. I think for me, this is all part of that broader strategy of getting the business profitable at flat revenue. You can see with the reductions in OpEx in Q4, which was faster than expected, a continuation into Q1, and it will continue into Q2. This is just showing that move towards profitability. And then as we hit the growth drivers that Wally was alluding to, there's a lot of profitable growth that comes from that kind of upside once we kind of get that firm foundation in place. So expect some incremental reductions to go from here. As Wally indicated, most of it has already been executed. There is a little bit more And that's kind of what you see in the coming quarters in terms of sequential reduction.

Dennis Piasci | Analyst, Needham & Company

Understood.

Much appreciated. Thank you. Operator | Conference Operator

And I am showing no further questions. I would now like to turn the call back to Wally for closing remarks.

Wally Rhines | Chief Executive Officer and Director

Well, we thank you all for joining us today. It's been a great quarter for us, and our outlook is strong and getting very exciting here. We look forward to talking to you again in the near future, and thank you again for joining us today.

Operator | Conference Operator

And this concludes today's program. Thank you for participating. You may now disconnect. jsPDF 3.0.3 D:20260606090443-00'00'

NASDAQ:SVCO Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good afternoon and welcome to Sovaco's third quarter fiscal year 2025 conference call. All participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Greg Bignif, investor relations for Sovaco.

Please proceed. Greg Bignif | Investor Relations, Sovaco

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

Good afternoon. Wally Rines | CEO and Director, Sovaco

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

Chris Zegarelli | CFO, Sovaco

Chris? Thanks, Wally. Good afternoon, everyone. Silvaco delivered record quarterly revenue in bookings in Q3. Bookings increased 131% year over year to $22.8 million. Strength in the quarter was driven by closing a significant EDA contract with one of our core customers in the United States. Revenue came in at 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. From a geographic perspective, We saw the most growth in Q3 from the Americas, which spiked to 55% of total revenue in the quarter. APAC represented 40% of total revenue. EMEA stayed flattish and at 5% of revenue in the quarter. Looking down the P&L, gap gross margin in Q3 was 77.9%, up 326 basis points year over year, and non-gap gross margin was 81.5%, up 179 basis points year-over-year. Gross margin improvement was driven by growth in revenue exceeding growth in cost of sales. Going forward, we expect gross margin to benefit from our cost reduction plans. GAAP operating loss expanded year-over-year but improved slightly quarter-over-quarter to a $9.3 million loss. Non-GAAP operating loss was $2.3 million, down slightly year-over-year. Gap net loss in the quarter was $5.3 million, up from the $6.6 million loss posted in the same period last year. Non-gap net loss in the quarter was $2.1 million, down slightly from the $1.8 million loss posted in the same period last year. Gap EPS was an $0.18 loss, and non-gap EPS was a $0.07 loss. Next, turning to the balance sheet and cash flow. Cash and marketable securities was $27.8 million, including $12.4 million of restricted cash due to the Nangate settlement. Cash used in operating activities was $7.8 million. Remaining performance obligations, or RPO, at quarter end stood at $48 million, with 54% expected to be recognized as revenue within the next 12 months. With UPX at more than 50% year-over-year and cash down since the IPO, we have begun implementing a broad cost reduction program. We began with an early retirement incentive program in the U.S. and Asia and an early lever program in Europe. We are taking other steps in addition to these programs, including reducing office footprints, reducing discretionary spend, and minimizing use of consultants and contractors. These steps, when taken together and when fully implemented, are expected to reduce annualized non-GAAP operating expenses by at least $15 million annually. We also anticipate these actions to drive an increase in gross margin, enabling more leverage from future growth. Our guiding principle from Wally is to turn the business profitable at flat revenue. Achieving this goal will create a strong foundation for future profitable growth. Now, turning to guidance. For Q4 2025, we expect bookings of $15 to $19 million, revenue of $14 to $18 million, non-GAAP gross margin in the range of 78% to 82%, and non-GAAP operating expenses of $16 to $18 million. In closing, we believe that with improved financial discipline and a focus on key growth opportunities, we will set the stage for profitable growth going forward. And with that, operator, we will now take questions.

Operator | Conference Operator

Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Craig Ellis with B Raleigh Securities.

Your line is open. Craig Ellis | Analyst, B. Riley Securities

Yeah, thanks for taking the question and appreciate all the color team. Wally, I wanted to start with you and it's a higher level question relating to your transition from the board to the CEO role. It sounds like in a fairly short amount of time at that lower level of detail, you've got a real confident grasp of what you've got in the portfolio, both things that are advantaged in the marketplace and and other businesses that have lost their advantage. And you talked about mixing out some revenue. One, is that read correct? And two, how significant is the revenue mix-out that is ahead of the company?

Wally Rines | CEO and Director, Sovaco

Well, thanks, Craig. Yes, indeed. Being on the board, you really don't get the level of visibility down to individual products and people that are making the difference in the company or that holding us up from making further progress. So it's the last few months now have given me the opportunity to see that in a lot of detail. I think your assessment is correct. There is substantial opportunity ahead. There are specific things that I'm quite certain will grow. And then there are others that could grow given the right level of focus. But as I noted and as Chris noted in his comments, we've let the expense base grow faster than the revenue And that's been a limiter in the available resources we can put on these key growth areas. And so going forward, while painful, I think we will be able to right that trend and be able to free up the resources we need to take advantage of some very specific areas of strength. And with that, I think we can restore confidence that CELVACO can do what it was originally intended to do as we went public.

Craig Ellis | Analyst, B. Riley Securities

Excellent. Chris, I'll ask the follow-up question to you. It's a two-parter. One, you did a good job speaking to the geographic areas where you hope to take about $15 million out of the business. So the tactical question is, over what time period should we expect that to occur and the The more strategic question is, as you've been in and have had a chance to assess the systems, the processes that are in place, the forecasting mechanisms, given the difficulty the business had in delivering forecasts, how do you feel about the dashboard that's in place for you and Wally? And do you feel like it's one that today can can deliver reliable results or are there some things you need to do to make either system or people or process changes so that the business can forecast more accurately?

Thank you. Chris Zegarelli | CFO, Sovaco

Very good question, Craig, and thanks so much for that. Both questions are good. From a time period perspective, the way that we're looking at it, you should expect most of the cost to be out by the end of this year. But that means you won't see as much of the impact in Q4, but you should see a reduction in OPEX in Q1. And then the rest of it should be throughout the rest of 2026. So expect to see a step down in Q1 OPEX as most of it is out by the end of the year. And fair question on the forecasting methodologies and tools as well. That's something that Wally and I looked at almost immediately from day one. And I'll tell you, the tools are in place. We do see the data, the pipeline. is robust. We do review what is expected in the coming quarters. So I'm confident that what we've given is something we have high visibility into and something that we're confident in. But that being said, Craig, you know me. I think there are things we can do to further improve and build upon that, and that's something that I'll be working on with the team. But I'm confident that what you heard from us is something we're confident in and we will deliver on.

Operator | Conference Operator

Excellent. Thanks, Chris. Thanks, Wally. One moment for our next question. Our next question comes from Charles Shi with Needham & Company.

Your line is open. Charles Shi | Analyst, Needham & Company

Good afternoon, Wally, Chris. First off, Wally, never thought that we're going to have a conversation like this. But once again, looking forward to working with you and Chris. So maybe the first question, maybe for Wally, I understand the priority probably is to, if I may, just to get the housing order. But Wally, you mentioned about Caliber, you mentioned about the test and those were the two successful products of Mentor, which were based, are basically the golden standard for the industry. I think it would be ideal for some of the Silvaco products to get there. What do you think, what kind of products in the portfolio today has the potential to get to what the caliber is, what the test is today? And by the way, how do you get there? The reason why I ask this is I did read your bibliography. And I knew, you know, it takes probably both effort and maybe you need a little bit of luck to really get there. But time has changed. And what's your thought there in that question? Yeah, thank you.

Wally Rines | CEO and Director, Sovaco

Yeah, well, thank you, Charles. It's good to talk again. We've been talking over many years. And you're right, when I just joined MENTOR, you initiated the work that developed Caliber and we did an acquisition that was the basis for Tessin, and yet it took quite a long time before those became the dominant industry standards in their space. I believe the way you do this is you start out with a focused market and a focused set of customers and see something that you can be the leader in. And so I've been searching within Silvaco where are the seeds that can lead to the same kind of success. A good example is where they've taken tools that were really created for IC design and applied them to displays, for example, and the manufacturing of those displays where they build a franchise with six different display companies using the same flow. Once you build a franchise that's dominant or, excuse me, that is the leader in that area, then you expand to next areas. So you asked me, where do I see that potential? Well, as I mentioned, that in the earlier comments, the Silvaco has been very early into actually building machine learning models around process development. And it's a market that others haven't been chasing. It's relatively specialized, and it takes a lot of work, and you need a TCAD foundation to build upon, so that eliminates the number of companies that could do it. But I think that's the kind of basis that can lead to a franchise, that can lead to an industry-leading product. Similarly, if you're in the IP business, being a supplier of general purpose IP may generate revenue, but it doesn't generate market advantage and profitability at the same level as if you pick specific types of IP and become the leader. So I think the acquisition of Mixel was well thought out clearly in MIPI. There are only two major suppliers. They have a strong reputation. And then you say, okay, well, what comes beyond? There are lots of IO standards that they can expand into. Plus, there's the existing Sovaco business that's really quite successful, actually has more demand than we can currently service in areas like memory compilers and even in the standard cell-based libraries. So, and lastly, of course, I mentioned the area of power where Silvaco models I've found for silicon carbide, gallium nitride, and other things form a foundation for differentiated products. My strategy, do what others aren't doing. Pick things you can do better than anyone else. Build upon those franchises, and that's indeed exactly what I plan to do here at Silvaco.

Charles Shi | Analyst, Needham & Company

Thanks, Wally. You partially answered my second question, but I do want to maybe just double down on that to get a little bit more color. Speaking of Mixel, I know you just closed the deal last quarter, but it sounds like you think highly of the team, of the product. I wonder if you can walk us through again what exactly they do. I think I can see the press release, but what exactly they do that make you think this is a high-quality product, a high-quality team, and what makes you think it's actually the benchmark for the rest of the Sylvaco team, as you mentioned it very much?

Wally Rines | CEO and Director, Sovaco

Thanks. Yes. And I'm basing that. on customer feedback, talking to actual users, asking them what they think. And they're quite specific in saying if all of Silvaco produced the kind of quality and the execution to schedule and other things that Mixcel had, we would be champions of the IP business. So it's not just my impression talking to people. It's my conclusion from dealing with customers. And looking at the track record, 27 years and they've never had a customer find a bug in their IP, really admirable. And another aspect is they have the vast majority of the people that are developing the products and supporting them are based in Cairo, Egypt. I have a long history there at Mentor. I started the group, and it became a very valuable resource to us for having cost-effective engineers who are very well-educated, very experienced, The Cairo University and have programs in EDA. And I found that's a very good basis to build upon. So put it all together, I think it's a great acquisition. I think you will see substantial growth next year because of that. And I think the interaction with Mixcel will greatly improve the performance of the existing Silvaco business. And the two together will cause substantial growth in the coming year.

Operator | Conference Operator

One moment for our next question. Our next question comes from Blair Abernathy with Rosenblatt Securities.

Your line is open. Blair Abernathy | Analyst, Rosenblatt Securities

Hi, thanks for taking my call, guys. I appreciate it. I'm sorry I missed the very beginning of the call, but I wanted to ask a little bit about the pipeline. And Wally, you know, I know you've only... really been getting into the weeds of it for a couple of months now, but how are you thinking about the pipeline of the business as it stands? And is the FTCO, how is that looking to you? I know it's a longer sales cycle, but how does that opportunity look from your standpoint at this point?

Wally Rines | CEO and Director, Sovaco

Yeah, well, first, with regard to the overall pipeline, there is a large base of very mature products that produce pretty stable maintenance revenue and give the opportunity to grow each year. So roughly half our total business can be generated just from those renewals which don't require an enormous amount of effort. The rest of the business requires more direct effort and I think it's been highlighted before that the FTCO is a big opportunity. It's a big opportunity because Silvaco has gotten ahead of the game and because Silvaco has a teacher customer in Micron who's been quite vocal about expressing the value of it. The disappointing part is it's evolved very slowly. There was a continuing expectation last year that we would announce additional customers. That hasn't occurred. And the reason it hasn't occurred is there is an adoption process that requires an extensive amount of interaction with the customer, customizing it to the uniqueness of their processes, and so it requires a funnel of customer opportunities and then a lot of resource to go with it. So disappointment in how quickly it's arisen, optimism at what it can become, and how it can take AI into one more branch of EDA that other people are not focusing on, that Silvaco can and has the base business in TCAD to build upon and create success as we bring on those additional customers.

Blair Abernathy | Analyst, Rosenblatt Securities

Okay, great. Thank you for that. And then, Chris, just on the expense savings, you know, is this out of a core business? Is there any of the acquisitions that you did this year that are impacted by that? And just to clarify, you said that you'll be completely done by the end of this fiscal?

Chris Zegarelli | CFO, Sovaco

So a majority of it will be, we believe a majority of it will be out by the end of this fiscal year. So by the end of the year, you won't see the benefit of that really until Q1, just from a full quarters perspective. And then the rest of it will come out, you know, through the 2026. It is, cost areas are pretty broad. For example, you know, McSell had an office in California. We have a headquarters in California. So we can put those two together and kind of save costs there. We'll reduce office footprints in other places. You know, it's mostly what I would call the core Silvaco side of the business is kind of what we're looking at when we do these actions. So it's, again, to get us to right size the cost structure and then help us be more nimble and focus on growth.

Blair Abernathy | Analyst, Rosenblatt Securities

Okay, great. Thanks very much, guys.

Operator | Conference Operator

One moment for our next question. Our next question comes from Chris Sankar with TD Cowan.

Your line is open. Chris Sankar | Analyst, TD Cowen

Thanks for taking my question. And Wally, welcome back. And nice to have a seasoned operator at the helm. Thank you. I had two questions. Maybe the first one for Chris. When you look at Biden, it looks like the revenues are looking a little lighter. And, you know, I thought the Q4 season is strong for you. And if I look at the full year revenue guide, it's only up like 2% despite all the acquisitions. So I'm kind of wondering, are there any idiosyncratic things in Q4 or what is going on? I'm going to follow up for Wally.

Chris Zegarelli | CFO, Sovaco

Okay. No, that's a very fair question. So when we look at Q4, I think you're right. I mean, in Q3, you know, the Mixel acquisition, for example, was a nominal addition to revenue, as you can see in the numbers. It'll be a stronger contributor in 2026. There is some sequential growth there in Q4, but it'll be stronger next year. TechX is more of a stronger grower in 2026 as well. When we look at next quarter, I mean, you saw the EDA strength in Q3. Based on how we recognize revenue, EDA will step down sequentially in Q4, but TCAD and the IT business are expected to increase sequentially, which is how we landed on these numbers. I would just point to what Wally said earlier. I mean, there was some expectation that a second FTCO engagement would materialize sooner than expected. We're still working on several engagements. We're still confident in that, but we're not seeing that in Q4 of this year.

Chris Sankar | Analyst, TD Cowen

Got it. Super helpful, Chris. And then, Wally, I'm just kind of curious. Do you have all the pieces of the pie to grow from here, or do you need more M&A to complete the product circle, or is there a goal to increase term-based or software licenses as a percentage of revenue?

Wally Rines | CEO and Director, Sovaco

Yeah, we're somewhat limited in the number of acquisitions we can do going forward just based upon the resources we have to do them. So what Chris and I have come down to is look, we need to grow with the existing companies or the existing resources we have. We've done three good acquisitions that will add to growth and the base, the The overall business needs to be stable and growing, but at a lower level. So looking forward, we're planning things around no significant acquisitions for a while now. And that's why, as Chris noted, that we want to be sure that at the current revenue levels, we can be profitable so that the growth we experience, both from these acquisitions and any growth in other parts of the business, will fall through as profitably and create a clear path ahead so we don't have to wait for the time that we accelerate our acquisitions once again.

Chris Sankar | Analyst, TD Cowen

Thank you.

Operator | Conference Operator

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. Our next question comes from Christian Schwab with Craig Howland Capital Group.

Your line is open. Christian Schwab | Analyst, Craig Howland Capital Group

Great. Regarding the $15 million in OPEX reductions on a year-over-year basis, should we assume that kind of comes from the midpoint of your OPEX guidance for this quarter, meaning kind of 68 million minus 15 to get to 53 million. Is 53 million the target or 55 or 51? Is this crystal clear to me?

Chris Zegarelli | CFO, Sovaco

This is Chris. I can take that one. So you can look at the midpoint of the guide in Q4 at the starting point. I would just comment that the 15 million will be realized when all of the actions are implemented over the course of 2026. So you wouldn't expect it to be all Q25 to 26. It'll be mostly out by the end of this year. You'll see a benefit in Q1. The rest will play out through the year. And so the full year-over-year impact would be less just given the timing of the reductions. I hope that gives you a good sense of how we're looking at it.

Christian Schwab | Analyst, Craig Howland Capital Group

Yeah, that helps. And then on Mixel, it kind of sounded like there was some commentary about you know, time to accelerate sales, et cetera. I know you guys have previously highlighted, you know, that you expected, you know, three to five million in revenue quickly after closing the acquisition, the remainder of 25. I assume you didn't attain that goal. Can you give us an idea of what you do anticipate selling then?

Wally Rines | CEO and Director, Sovaco

We didn't attain it in the third quarter. We will see more growth in the fourth quarter. And as you alluded to, I think, here, the great machine of profitability in EDA is when you take a company with great product but limited distribution and combine it with a company that has worldwide distribution and maybe not as much in the way of products. That's the great way that the EDA industry grew. That's how Cadence started by acquiring ECAD and then built upon it And the same thing is true here. I think Mixel is a great example. They have basically one sales person producing the level of revenue that they have today. You combine that with our sales force and the inevitable result is that we can keep them fully loaded with demand and then they can continue to add resource and grow the revenue. So it's almost a perfect model for the kind of acquisition for which there is leverage for a company like Silvaca.

Christian Schwab | Analyst, Craig Howland Capital Group

Great. And then my last question, you know, more longer term, you know, on a multi-year timeframe basis, you know, given the product set that you have in hand and it sounds like no meaningful acquisitions, you know, in the near term, If we never made another acquisition again, what type of top-line growth prospects do you think the company has, like a range of outcomes?

Wally Rines | CEO and Director, Sovaco

The longer term clearly needs to be double-digit. We're in an industry that's growing double-digit, and we expect to gain share out in the future, so clearly the long-term target is there. Getting there, we are below that clearly today, And so we'll have to increase as we head through 2026. But I don't think long term is five years away. I think it's much closer. And we can return certainly to low double digits and then in the longer term, mid double digits as we move forward.

Christian Schwab | Analyst, Craig Howland Capital Group

Perfect.

Thank you. No other questions. Operator | Conference Operator

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1 1 on your telephone. And I'm not showing any further questions this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day. jsPDF 3.0.3 D:20260606090444-00'00'