Silvaco's Q3 2025 Earnings Call: Contradictions Emerge on Inorganic Growth, OpEx, FtcO, and Macroeconomic Impact

Date of Call: None provided

Financials Results

• Revenue: $18.7M, up 70% YOY
• EPS: GAAP EPS: $(0.18) loss (GAAP net loss $5.3M vs $6.6M prior year); Non-GAAP EPS: $(0.07) loss (non‑GAAP net loss $2.1M vs $1.8M prior year)
• Gross Margin: GAAP 77.9%, up 326 bps YOY; Non-GAAP 81.5%, up 179 bps YOY
• Operating Margin: GAAP operating loss $9.3M (expanded YOY, improved sequentially); Non-GAAP operating loss $2.3M, down slightly YOY

Guidance:

• Q4 2025 bookings expected $15M–$19M
• Q4 2025 revenue expected $14M–$18M
• Q4 non-GAAP gross margin expected 78%–82%
• Q4 non-GAAP operating expenses expected $16M–$18M
• Expect most cost-reduction actions to be implemented by year-end, targeting at least $15M annualized non‑GAAP OPEX savings

Business Commentary:

* Revenue Growth and Product Focus: - Silvaco reported record quarterly revenue of $18.7 million in Q3, up 70% year over year. - The growth was driven by a focus on key products such as AI, interconnect IP, and power, and reducing attention on mature products.

• Cost Reduction and Financial Discipline:
• Silvaco initiated a significant cost reduction program, aiming to reduce annualized non-GAAP operating expenses by at least $15 million annually.

• This was due to expenses growing much faster than revenue since the company's IPO, and the need for financial discipline to strengthen the business.

• Mixel Acquisition and Integration Challenges:

• 
• The Mixel acquisition, which closed in Q3, was expected to contribute more significantly to revenue in 2026 than in 2025.

• The initial underperformance was attributed to underestimating the time required to activate Silvaco's sales resources and establish new modes of distribution.

• Operational Discipline and Team Leadership:

• Silvaco added several key new leaders, including a CFO and heads of IP and EDA businesses, to improve operational discipline and execution.
• This was in response to delays in integrating and extracting value from recent M&A transactions and a need for a more agile and focused team.<
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted record Q3 bookings (+131% YOY) and revenue ($18.7M, +70% YOY), announced a cost-reduction program targeting at least $15M annualized OPEX savings, and the CEO expressed confidence in focusing on FTCO, IP (Mixel) and power to drive profitable growth.
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Q&A:

• Question from Craig Ellis (B. Riley Securities): One, is it correct that you plan to mix out some revenue and two, how significant is the revenue mix-out ahead of the company?
  Response: Confirmed — management will right-size the portfolio and reallocate resources from mature/underperforming areas to high-potential products to restore growth and confidence.

• Question from Craig Ellis (B. Riley Securities): Over what time period should we expect the ~$15M of cost reductions to occur, and do you trust current forecasting systems and dashboards?
  Response: Most cost reductions should be in place by year-end with OPEX stepping down in Q1; existing forecasting tools provide high visibility and management is confident but will continue improving them.

• Question from Charles Shea (Needham & Company): Which Silvaco products have potential to become industry-leading like Caliber/Tessent and how do you get there?
  Response: Focus on specialized, differentiated offerings — notably FTCO (AI/ML for process development), select IP and power-related tools — by targeting focused markets and reallocating resources to scale those franchises.

• Question from Charles Shea (Needham & Company): What exactly does Mixel do and why do you view it as high-quality and a benchmark for Silvaco?
  Response: Customers praise Mixel's flawless IP quality and responsiveness (no customer-found bugs in 27 years); its Cairo engineering base and product pedigree make it a high-quality asset that should accelerate growth and raise Silvaco standards.

• Question from Blair Abernathy (Rosenblatt Securities): How do you view the pipeline and FTCO opportunity given its longer sales cycle?
  Response: FTCO is a meaningful, differentiated opportunity with Micron as a reference, but adoption has been slow due to required customization and resource-intensive onboarding; scaling needs more focused resources.

• Question from Blair Abernathy (Rosenblatt Securities): Are the expense savings impacting acquisitions and will they be complete by year-end?
  Response: Majority of savings target pertains to core Silvaco actions (office consolidations, reduced contractors); most savings expected out by year-end with Q1 showing full-quarter benefit; some actions will continue through 2026.

• Question from Chris Shankar (TD Cowen): Why does Q4 guidance look lighter despite strong Q3, and are there idiosyncratic items?
  Response: Q4 is lighter because strong EDA revenue in Q3 is expected to step down sequentially; Mixel and Tech‑X will contribute more in 2026 and anticipated additional FTCO deals did not materialize in Q4.

• Question from Chris Shankar (TD Cowen): Do you need more M&A to complete the product set or can you grow organically?
  Response: Management prefers to focus on organic growth and profitability at current revenue levels; limited near-term M&A is expected until the business is sustainably profitable.

• Question from Christian Schwab (Craig-Hallum Capital Group): Should we assume the $15M OpEx reduction target comes from the midpoint of your OpEx guide and what is the target run rate?
  Response: The $15M is an annualized target realized as actions complete through 2026; most will be implemented by year-end with a visible step in Q1, so full-year run-rate impact will phase in over 2026.

• Question from Christian Schwab (Craig-Hallum Capital Group): You previously expected $3M–$5M from Mixel in 2025; did you attain that and what do you expect now?
  Response: They did not attain that in Q3; expect more Mixel growth in Q4 and stronger contribution in 2026 as Silvaco's salesforce expands distribution.

• Question from Christian Schwab (Craig-Hallum Capital Group): If no further acquisitions occur, what multi-year top-line growth prospects do you see?
  Response: Target is to return to low double-digit growth in the nearer term and progress toward mid-double-digit growth longer term as market share is regained and focused franchises scale.

Contradiction Point 1

Inorganic Growth and Acquisition Impact

It pertains to the role and impact of acquisitions on the company's growth strategy and revenue projections, which are critical for investor expectations.

Do you need additional M&A to complete the product portfolio, or is there a goal to increase term-based or software licenses as a percentage of revenue? - Chris Shankar (TD Cowen)

2025Q3: 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. - Wally Rines(CEO)

What is the expected range for inorganic growth revenue from acquisitions beyond this year? - Craig Ellis (B. Riley Securities)

2025Q2: The guidance assumes linear growth from current acquisition contributions. Next year’s revenue potential is similar to the current year's total. - Babak Taheri(CEO)

Contradiction Point 2

OpEx Inclusion in Annual Guidance

It involves the inclusion of operational expenses related to acquisitions in the annual guidance, which is crucial for financial planning and investor expectations.

Can you elaborate on your transition from the board to the CEO role, Wally? - Craig Ellis (B. Riley Securities)

2025Q3: The way that we're looking at it, you should expect most of the cost to be out by the end of this year. That means you won't see as much of the impact in Q4, but you should see a reduction in OPEX in Q1. - Chris Segarelli(CFO)

Is Mixel's OpEx included in the annual guidance? - Blayne Curtis (Jefferies)

2025Q2: OpEx related to Mixel is not included in the current guidance. Detailed synergies will be discussed by the end of the quarter. - Babak Taheri(CEO)

Contradiction Point 3

FTCO Pipeline and Customer Expansion

This contradiction involves the expectation and timeline regarding the FTCO (Foundry Technology and Circuit Optimization) pipeline and customer expansion, which could impact revenue growth and market positioning.

How do you assess the current state of the business pipeline? How do you view the current state of the FTCO? - Blair Abernathy (Rosenblatt Securities)

2025Q3: FTCO is evolving very slowly. There was a continuing expectation last year that we would announce additional customers. That has not occurred. - Wally Rines(CEO)

Can you update on the FTCO pipeline, including new customers and existing customer expansion? - Blair Abernethy (Rosenblatt Securities)

2025Q1: FTCO is progressing well with major customers in power, advanced CMOS, and displays. We expect production orders from these customers in the second half of the year. - Babak Taheri(CEO)

Contradiction Point 4

Impact of Macroeconomic Conditions on Revenue Guidance

The contradiction revolves around the impact of macroeconomic conditions on revenue guidance, which is crucial for investor expectations and financial planning.

Can you discuss your transition from the board to the CEO role, Wally? - Craig Ellis (B. Riley Securities)

2025Q3: The macroeconomic impact was significant. Given the few months that I've been in the position, I've been focused on trying to get us back on the trend that Chris established earlier in the year. - Wally Rines(CEO)

How much will macroeconomic conditions affect your 2025 guidance? - Craig Ellis (B. Riley Securities)

2025Q1: The main impact is from ordering delays due to macroeconomic uncertainty, but we've accounted for these in our guidance. The delays are estimated to affect about 10% of revenue. - Babak Taheri(CEO)

Contradiction Point 5

FTCO Market Traction and Customer Adoption

It involves differing expectations and timelines for market traction and customer adoption of the FTCO product, which could impact revenue forecasts and strategic focus.

What is the current status of the business pipeline? What is the status of the FTCO? - Blair Abernathy(Rosenblatt Securities)

2025Q3: The disappointing part is it has evolved very slowly. There was a continuing expectation last year that we would announce additional customers. That has not occurred. - Wally Rines(CEO)

How is FTCO's pipeline progressing? - Blair Abernethy(Rosenblatt Securities)

2024Q4: We have 2 customers evaluating FTCO, with adoption expected in Q2. The focus is on advanced CMOS and power with R&D advancing, aiming for manufacturing adoption in Q2 or Q3. - Babak Taheri(CMO)