Silicom Ltd. Stock

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Second Quarter 2026 Results Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Silicom's Investor Relations team at EK Global Investor Relations at 1 (212) 378-8040 or view it in the News section of the company's website, www.silicom-usa.com.

I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. I would like to welcome all of you to Silicom's Second Quarter 2026 Results Conference Call.

Before we start, I would like to draw your attention to the following safe harbor statement. During this call, we may make forward-looking statements within the meaning of applicable securities laws.

These statements may include, among other things, statements regarding the company's strategy, market opportunities, customer demand, product development initiatives, industry trends, expected deployments of the company's solutions, financial outlook, revenue expectations, margins, operating expenses, profitability and future growth opportunities.

These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements.

These risks include, among others, those described in the company's press release issued today and in its filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.

The company undertakes no obligation to update any forward-looking statements. With us on the line today are Mr. Liron Eizenman, President and CEO; and Mr. Eran Gilad, CFO.

Liron will begin with an overview of the results, followed by Eran, who will provide the analysis of the financials. We will then turn the call over to the question-and-answer session. And with that, I'd now like to hand the call over to Liron. Liron, please go ahead.

Thank you, Kenny, and good day, everyone. I'm very happy to share a truly outstanding set of results for the second quarter of 2026, results that came in significantly ahead of our expectations and that demonstrate the clear success of our strategic plan.

Looking ahead and from our perspective in mid-2026, I have rarely been more excited about Silicom's strong momentum, upcoming potential, and the trajectory ahead.

The second quarter was an exceptionally good one for Silicom, and it marks a clear acceleration of the growth inflection we talked about earlier this year.

Revenues for the second quarter came in at $23.8 million, up a very strong 59% year-over-year and well ahead of the $20 million to $21 million guidance range we shared with you last quarter.

Our strategic plan for the core business is tracking well ahead of our original expectations from when we first launched the plan.

Our highly predictable platform of recurring revenue built on years of design win momentum, combined with the upside from our growth engine, is now driving a key inflection point in our business.

You can see it clearly in the increasing trajectory of our revenue growth. 2 quarters ago, in Q4 2025, we reported 17% year-over-year growth. Then we accelerated to 33% growth last quarter and now a further step up to 59% in the current quarter.

Beyond that, we are maintaining and even further building on this momentum with the guidance for the next quarter, implying a further acceleration to 66% year-over-year growth at the upper end.

This is a powerful accelerating trend, and it reflects the compounding contribution of our multiple recent design wins as they ramp. Importantly, our visibility into the remainder of this year has improved markedly over the past few months.

As a result, we are raising our revenue guidance for the full year 2026 significantly to a range of $93 million to $95 million, up from our previous guidance of $82 million to $83 million.

This higher guidance reflects the better-than-expected improvement in our core business and is further supported by the additional multimillion-dollar revenues that we now expect from AI inference production orders in 2026.

We have discussed many times that the long-term growth and strength of our core business are best tracked via our design win momentum. As you may remember, for 2026 as a whole, we targeted between 7 and 9 new design wins.

I'm very pleased to report that we are just over halfway through the year, and we've already secured 7 new design wins. This means we are well on track to meet and to even exceed the upper end of the range.

Those design wins achieved in recent months are the foundation for continued strong growth into next year and beyond. I want to spend a few moments discussing the design wins that we secured during the second quarter and more recently.

During the quarter, in April, we announced an FPGA Smart NIC design win with a European leader in advanced encryption and secure communication solutions.

The customer selected our solution following a successful evaluation, testing the performance and reliability required for its advanced encryption solutions, including post-quantum cryptography.

This was our third PQC design win as we continue to build post-quantum cryptography as an emerging future growth engine for silicon. We expect to scale towards an anticipated annual deployment of around $3 million.

On top of that, we are in discussions regarding this customer's next-generation higher-speed FPGA Smart NIC, which is planned to launch in 2028, as well as potential full system solution combining a server with an FPGA Smart NIC, opportunities that could each add meaningfully to our future revenues for discount.

A few weeks later in May, we announced our first-ever white label switching design win. This was a win with a $5 million per year potential with a Tier 1 global security leader.

Seeking to move away from vendor lock-in, the customer decided to replace its existing proprietary switches from an incumbent industry leader with Silicon's open white label switch solutions.

The customer selected a full range of silicon-designed white label switches as the networking infrastructure for its security platforms. First production orders are expected before the end of the year.

More recently, in July, an existing blue-chip customer awarded us a new design win for a custom high-speed server adapter engineered to exact customer specifications for a specific use case.

This win triples our expected business with this customer to nearly $10 million in 2027, a significant contribution to our growth in 2027 on top of the very strong growth we are already delivering in 2026.

Those wins capture the essence of our strategy. First, each successful win opens the door to the next with satisfied customers coming back to us for additional products and additional use cases.

Second, they reflect the compounding value of the long-term trusted supplier relationships we have cultivated over decades of operation with blue-chip customers.

Together, they strengthen the visibility we have into continued growth in 2027 and beyond. Beyond the wins we already secured, our pipeline of potential opportunities remains very broad and deep, spanning all our core product lines, including systems, Smart NICs and FPGA-based solutions across both new and existing customers.

We expect this pipeline to continue converting into design wins, laying the groundwork for sustained strong growth well beyond this year. Turning to our outlook for the third quarter.

We expect revenues in the range of $25 million to $26 million, representing accelerated 66% year-over-year growth at the upper end of the guidance.

For the full year, as I mentioned earlier, we raised our revenue guidance to a range of $93 million to $95 million, representing over 50% year-over-year growth.

I want to emphasize a particularly important milestone: Driven by our strong execution and the significant inherent leverage in our business model, we now expect to return to quarterly non-GAAP profitability during the second half of this year, significantly earlier than we had originally anticipated.

This is a meaningful inflection point for Silicom and a clear demonstration of the earnings power that our rapidly growing revenues are beginning to unlock.

Let me now turn to the exciting progress we are making in the AI inference market. We are very pleased with the tangible strong progress we achieved on the AI front in less than 9 months.

I want to highlight a few of our key AI-related engagements. Recently, we secured a design win with a pioneering AI inference acceleration provider and received the first production order from this customer. This is an important milestone, establishing a foundation for what we believe can become an exceptional revenue stream.

Additionally, we successfully customized an AI NIC solution to meet the customer-specific needs, delivered the first unit to the customer for evaluation, and are preparing for initial deliveries of this customized product per purchase order received from the customer, a leading AI inference ASIC and infrastructure vendor.

In parallel, we are expanding our AI inference product portfolio. And based on orders secured, we are now developing a completely new bespoke inference-specific solution.

We are witnessing AI spending shift decisively from training to inference, and the rise of disaggregated inference architectures is positioning Silicom as a key player, bringing our networking know-how and building blocks to the architectures that power those workloads and creating significant new opportunities for us along the way.

We view our rapid progress and expanding footprint in AI inference as a potential game changer for Silicom, and successfully capitalizing on this generational shift will significantly enhance our long-term growth trajectory.

This brings me to our balance sheet, which remains exceptionally strong and provides us with the flexibility to invest in our growth while maintaining a conservative financial profile.

At the end of June, our working capital and marketable securities totaled $107 million, representing approximately $19 per share, including $55 million in cash, cash equivalents, and highly rated marketable securities with no debt.

In summary, this was an outstanding quarter, and it's an exciting time for Silicom. Our core business is accelerating rapidly with 59% year-over-year growth in the second quarter and third quarter guidance pointing to accelerated 66% growth at the upper end.

At the same time, we are making fast and exciting progress on our AI inference upside. Our design win engine is firing on all cylinders with the lower end of our full year target already reached in only half a year.

On the strength of this momentum and improved visibility, we have raised our full year revenue guidance to $93 million to $95 million, and we now expect to return to quarterly non-GAAP profitability in the second half of this year.

This quarter demonstrates again the exceptional performance of our core business, which is the foundation for everything else we're doing.

It is the success of our strategic plan and the strength of our core that gives us the platform, the customer relationships, and the balance sheet strength to invest in AI inference and other additive growth engines, each of which is an expansion of our core expertise, capabilities, customer base, and the same IP routes.

We could not be more excited about Silicom's strong and accelerating momentum, and we are moving with confidence and determination to fully capture the opportunities ahead.

We look forward to delivering strong and accelerating returns for our shareholders in the quarters ahead and over the long term. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.

Thank you, Liron, and good day to everyone. I will review the financial results and business performance for the second quarter of 2026.

Before beginning the financial overview, I would like to remind you that unless otherwise indicated, all financial results are non-GAAP. A full reconciliation of our results on a GAAP to non-GAAP basis is available in the press release issued earlier today.

We are very happy with our revenues for the second quarter of 2026, which were $23.8 million, 59% above the $15 million reported in the second quarter of last year.

The geographical revenue breakdown over the last 12 months was as follows: North America, 79%; Europe and Israel, 13%; Far East and rest of the world, 8%.

During the last 12 months, we had 2 10%-plus customers, which accounted for about 23% of our revenues, not above, but about 23% of our revenues.

Gross profit for the second quarter of 2026 grew 51% to $7.2 million compared to a gross profit of $4.8 million in the second quarter of 2025. I note that our gross margin of 30.4% in the quarter is at the upper part of our short- to midterm expected gross margin range of 27% to 32%.

Operating expenses in the second quarter of 2026 were $8.3 million compared with $7.2 million reported in the second quarter of 2025. I highlight that this is an increase of only 16% year-over-year compared with 59% revenue growth, a clear demonstration of the operating leverage inherent within our business model.

Operating loss for the second quarter of 2026 was reduced to $1.1 million, a solid improvement from the operating loss of $2.4 million reported in the second quarter of 2025.

This narrowing of the operating loss reflects the operating leverage inherent in our model as our revenue returned to strong growth and points clearly to the improving profitability profile we expect to deliver as our growth accelerates.

Net loss for the quarter was reduced to $0.9 million, a 54% improvement compared with the net loss of $2 million in the second quarter of 2025.

We are very pleased with the pace at which we are closing the gap to profitability, and we expect to return to quarterly non-GAAP profitability during the second half of this year, significantly earlier than we had originally anticipated.

Loss per share in the quarter was $0.16, a significant improvement compared with a loss per share of $0.35 as reported in the second quarter of last year.

Now turning to the balance sheet. As of June 30, 2026, our working capital and marketable securities amounted to $107 million, including $71 million in high-quality inventory and $55 million in cash, cash equivalents, and highly rated marketable securities with no debt.

I would like to add a few words on the increase in inventory. We are intentionally building our inventory, both to support our strong revenue trajectory and to safeguard our ability to ensure uninterrupted product delivery to our customers.

This is a deliberate proactive step, and we are leveraging our balance sheet strength to take it, effectively mitigating the impact of the currently extended lead times for memory chips and positioning us well to continue capitalizing on the growth opportunities ahead. That ends my summary.

I would like to hand back to the operator for a question-and-answer session. Operator?

[Operator Instructions]

The first question is from Ryan Koontz of Needham & Company.

And just terrific results, guys. Really nice to see the business inflecting. Reflecting here on your accelerating revenue here in the first half of the year, are there any particular market verticals you'd point out use cases that are particularly strong within your core business that are resulting in the outperformance here in the first half or in the second quarter?

So first of all, Ryan, thank you very much. And I would say, I mean, what we're seeing basically is the core business.

So core business is booming, and the core business is, I mean, across the board, across all the product lines, if it's FPGA, if it's our standard adapters, if it's acceleration adapters, if it's our edge systems, all of that is really, really growing in revenue. And all the new stuff is actually not even reflected in the revenues yet.

Even the switches we announced, they will start only later in the year and will actually ramp up significantly more next year. Same for the AI story and the PQC.

So I wouldn't say there's a specific market or domain, but it's really, really our core business that is driving all the growth. Understood.

And with regards to -- you've been able to hold gross margins in here pretty well given the creep up in COGS, I'm sure. I assume with your open BOM strategy here with your customers that you've been able to raise price, and has pricing contributed to some of the revenue outperformance, pricing per unit?

First of all, it's a lot of hard work. So it's not easy to do that.

We have a dedicated team that's working very, very hard on sourcing the components at the best prices possible, and it's relationships of years and years and years that we have with manufacturers and suppliers and silicon vendors that allow us to get access to those guys, speak with them, and try to get the best prices possible and also availability, which is not easy nowadays.

And on top of that, yes, it's the work with the customers, keeping them updated all the time with the situation, making sure they get from us a view of how we see the industry, what the challenges are, where we need them to help us, and sometimes we're working together to find good solutions.

Eventually, all of that is leading us to the result that you mentioned, which is exactly that. We are able to maintain the gross margin. And one more thing I would like to add on top of that is that because of our very strong balance sheet, we are able, and Eran mentioned that before, to build significant inventory intentionally, not by mistake; that allows us, in some cases, to keep the prices down for a very long time by buying ahead.

All of that hard work, together with our strong balance sheet and very dedicated customers that we're working with for years, allows us to actually create this result that you mentioned.

With regards to memory costs, they've obviously been just skyrocketing. I've heard from other vendors that they are in the midst of, in some cases, redesigning products with lower memory.

Is that something you're looking at in some cases? Or are your customers pretty pleased with your products and where they're at today?

We definitely do those kinds of things. It depends on the customers. So as I said, everything is a discussion with the customer for us.

So in some cases, it's not even a design change. Sometimes the design itself can have more memory or less memory or more storage or less storage. And we did have cases where we discussed with the customers, and when memory and storage were, let's call it, cheap a year ago or 18 months ago, then someone would say, okay, give me a little bit more memory.

It doesn't cost me too much. I don't know if I really need it, but put it in the product. And we definitely worked with some customers, with all customers.

Some of them wanted to make the changes. Some of them didn't want to make the changes. And definitely, we had some changes in some products in order to support our customers better and get them to a price point that still allows them to sell the product.

But yes, we do see generational shifts. It depends if a customer was maybe on a product that was using DDR4 and wanted to move forward to DDR5. Not necessarily; they immediately see the impact of that because DDR5 prices are also increasing, but maybe over time, they will see it.

So we are working with the customers very closely to see if they want to move to a new product or a different product that may give them a better price, or maybe they just want to change the spec for the existing one.

It's a lot of work together with the customers. And one of the things, as I think about it, one of the things we are very proud of is that we are able to customize and do modifications very, very quickly with customers.

So that's one of the key things that we managed to move customers very quickly to new platforms when they wanted to do so. So it was almost for them kind of transparent.

I mean, it's completely smooth.

Really helpful. That's great. And with regards to your increased guidance on the balance of the year, you did mention, I think, that your inference customer and maybe your switch product is beginning to contribute.

Can you give us a rough magnitude of how much these brand-new design wins secured in '26 are contributing to your end-of-year revenue?

Just to make sure, are you asking about AI inference in 2026?

Yes. Yes, AI inference and any other major design wins that you've recently secured?

So that's a little bit different. So for the AI inference, I would say the total number that you can put in your head or in your models for 2026 is in the range of $3 million to $4 million. That is roughly the number that we expect for this year.

Obviously, 2027 numbers would be much, much higher. And for the other design wins, yes, some of them are ramping up quicker. Some of them take a little bit more time. It depends on the product.

Some of them do contribute more revenue for this year, some of them less. But overall, I would say, design wins we announced in 2026 will probably not be fully mature and fully at run rate in 2026, but 2027 or 2028 are more likely years to be full run rate.

And then maybe just lastly on this inference design win. I know there's a lot of excitement from investors about that.

Can you maybe summarize some of the intellectual property and some of the advantages you have that contribute to that sort of design win in the AI inference domain?

Yes. So I mean, for competitive reasons, I would limit myself at some point. But still, I mean, we are still focusing on the know-how that Silicom has and that we built over many, many years. And we now see a lot of, I would say, 2 areas.

One is networking challenges. And the other is compute challenges. So on the networking challenges, everything that we built over the many, many years, if it's around FPGA or if it's around other ASICs that we have, if it's around PCIe switches or anything else and understanding also what are the challenges in the architecture and having the right people to have the right discussions where the customers understand those pains, all of that together is allowing us to understand the pain and come up with a solution and do it quickly because we have the building blocks to really provide customers very quickly a solution they can try out.

And then even if we need to do some customization on top of that, we can do it very quickly. So that's one area.

And the other area, as I mentioned on the compute, which is mainly on the FPGA side is actually doing inference on the FPGA, and we mentioned that in the past is what we call the hardware lottery, where actually, if you're doing an ASIC, you are locked down for many years, and if you're doing it on FPGA, you actually can update all the time.

And as models progress over time, you can actually take all the new goodies that you have and all the industry that is doing smart things every day and put it into your FPGA and actually run models quicker and better than what you did yesterday.

So again, it's all based on the same fundamentals that we have for our core business, but it's targeted in a different way and built specifically for AI inference.

[Operator Instructions]

The next question is from Greg Weaver of Invicta Capital.

Great quarter. Since the core business seems to be driving these results, can you maybe flesh out a little bit what's been a surprise, I guess, in terms of how things have gotten pulled in?

And what's caused the acceleration that you didn't anticipate, say, 6 or 9 months ago?

As I'm trying to think about the answer to how to provide it, I would say no single customer or a single industry that is creating it.

I think it's more of all of the design wins that we had and we won in the last 18 months, all of them ramping up. And as always, some customers are more successful than they anticipated; some are less successful than the one they anticipated.

But we see a very strong demand for all of those design wins that we accumulated over the last 18 months. Obviously, those that were accumulated this year take a little bit more time, but those that we won maybe a year ago are really ramping up very, very nicely.

And another point that I can mention is that we are usually conservative in the numbers that we provide. But it's not that we are completely blown out.

We've seen some of the, let's say, hints to this growth coming in, but now we definitely see it coming, and also with our projection going forward, you can see it.

From a gross margin outlook perspective, obviously, there are some moving parts here with some of this new business coming on and, say, some of this inference ramping. Do you foresee much of a change as a result?

I think we expect the same. We don't think it will change dramatically.

And just lastly, maybe if you could just address here for everybody on the call about the shelf. There seems to be a lot of consternation around that. And maybe just talk to that and what the thought process was there.

The filing is strictly standard corporate housekeeping. We like to maintain an active shelf to ensure we have maximum financial flexibility.

Our focus right now is executing on the momentum as we're seeing it. If we experience higher-than-expected growth in our core business or see an opportunity to aggressively scale alongside the accelerating demand for our AI inference solution, this simply gives us the agility to support that working capital efficiently.

So I mean, you think you could buy that much inventory, or you need that much receivables working capital ramp that you'd absorb $50 million in cash you got on the balance sheet now in the next 6 months?

Yes, we believe so.

You could ramp working capital that hard.

Sorry, I don't think I understood your question. Can you repeat?

Right. You have $50 million plus of cash and equivalents on the balance sheet currently, correct?

Correct.

Right. Would you need to use that much cash for working capital needs in the next 6 months, do you foresee?

I think that if we need it, it will maybe be for AI if it really ramps up to the very, very high volumes.

There are no further questions at this time. Before I turn the call over to Mr. Eizenman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Silicom's website, www.silicom-usa.com. Mr. Eizenman, would you like to make a concluding statement?

Thank you, operator. Thank you, everybody, for joining the call and for your interest in Silicom.

We look forward to hosting you on our next call in 3 months. Good day.

Thank you. This concludes Silicom's Second Quarter 2026 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Silicom's Investor Relations team at EK Global Investor Relations at 1 (212) 378-8040 or view it on the News section of the company's website, www.silicom-usa.com. I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. I would like to welcome all of you to Silicom's quarterly results conference call. Before we start, I would like to draw your attention to the following safe harbor statement, during this call, we may make forward-looking statements within the meaning of applicable securities laws. These statements may include, among other things, statements regarding the company's strategy, market opportunities, customer demand, product development initiatives, industry trends, expected deployments of the company's solutions, financial outlook, revenue expectations, margins, operating expenses, profitability and future growth opportunities.

These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. These risks include, among others, those described in the company's press release issued today in its filings with the U.S. Securities and Exchange Commission, including its annual report, Form 20-F. The company undertakes no obligation to update any forward-looking statements. With us on the call today are Mr. Liron Eizenman, President and CEO; and Mr. Eran Gilad, CFO. Liron will begin with an overview of the results, followed by Eran will provide the analysis of the financials. We will then turn the call over to the question-and-answer session. And with that, I would now like hand the call over to Liron. Liron, please go ahead.

Thank you, Kenny, and good day, everyone. I'm exceptionally pleased to share a truly excellent set of quarterly results well ahead of our expectations. Over the next few minutes, I look forward to discussing why we are more excited than ever about Silicom's momentum and trajectory ahead. .

The first quarter of 2026 has been an excellent one for Silicom. Our core business has now reached a clear inflection point with extraordinary momentum in financial performance well ahead of the expectations we shared with you only a few months ago.

The highly successful implementation of our strategic plan is clear and our business is decisively outperforming on all fronts. Revenues this quarter came in at $19.1 million, representing a year-over-year growth of 33%, significantly ahead of our guidance range, which had originally expected an 18% year-over-year growth at the midpoint.

This is the second quarter in a row of very strong improvement with both quarters well ahead of our original expectations. This quarter, even more so, we have seen a powerful upward inflection with the year-over-year growth accelerating significantly and essentially doubling from 17% last quarter to 33% now.

Not only did we surpass our revenue expectations this quarter, but our momentum continues to accelerate, and looking ahead, we anticipate even greater achievement for the second quarter. We expect second quarter revenues to range from $20 million to $21 million representing accelerated 40% growth on a year-over-year basis at the upper end of the guidance.

Given the strong improvement in visibility, we now have into the remainder of the year, we expect full year 2026 revenues to be in the range of $82 million to $83 million, representing an approximate 33% year-over-year growth.

This exceptional performance is the direct result of the design wins achieved in previous years and the ongoing disciplined execution of our strategic plan. As those design wins ramp, we are seeing strongly expanding revenue contribution and materially improved visibility for the remainder of the year.

We are seeing equally impressive traction on the design win front. As you recall, we set ourselves a target of between 7 and 9 design wins for 2026. We are only a third way through the year, and we have already achieved 4, halfway towards our target, which puts us on track to meet and partially exceed the upper end of this target.

Design wins we achieved today will be the foundation for continued strong growth into 2027 and beyond. I want to spend a few minutes focusing on some of the recent design wins we have achieved since the start of the year.

At the start of the year, the global networking and security-as-a-service leader expanded its deployment of Silicom Edge devices into multiple additional use cases, more than doubling our expected annual revenue from this customer, from around $4 million to between $8 million and $10 million, we found the incremental revenues already flowing through this quarter.

This achievement highlights both the strength of our blue chip customer relationships and our strategy of growing by expanding existing engagements alongside winning new ones.

In February, a Tier 1 cybersecurity customer a long-standing partner, selected one of our Edge systems as the platform for their next-generation high-end product lines. To date, we have received initial orders of over $1 million for 2026 and we expect this engagement to ramp to double that.

We are in discussions for additional product lines at this customer. This design win is another great example of our long-term customer relationships generate additive revenue contributions across our product portfolio over time.

In March, we announced the design win with one of the world's largest streaming service providers, which selected our high-speed networking adapter for deployment across its proprietary streaming infrastructure. We've already received an initial order for over $1 million with total purchases over 5 years expected at $12 million.

In parallel, we are in active discussions with the customer about the customized special form factor network adapter for the same infrastructure. If this materializes, it would more than double our networking related revenues from this customer in the region of $25 million to $30 million. .

In April, we announced a $3 million per year design win with a European leader in advanced encryption and secure communication solutions. After a successful evaluation, they selected an FPGA SmartNIC for deployment that includes post-quantum cryptography among its use cases, marking our third post-quantum cryptography design win to date and a key expansion of our PQC customer base.

We have initial commitment of $1 million and beyond this, we are in active discussions about the next-generation higher-speed FPGA SmartNIC as well as a potential full system solution, combining a server with an FPGA SmartNIC opportunities that could meaningfully expand the partnership.

Those 4 design wins demonstrate the breadth and the quality of our momentum across all our core product lines. Beyond the design wins already secured, our pipeline of opportunities is broader and deeper than it has ever been. It spans all our core product lines, Edge systems, SmartNIC and FPGA-based solutions and includes leading as well as fast-growing names across cybersecurity service providers, networking and other key verticals.

We expect part of this pipeline to continue to convert into design wins over the coming quarters, providing the foundation for accelerated growth in 2027 and beyond. While the return to strong growth within our core business is the main story, we continue to invest in 3 venture style upside opportunities we spoke about last quarter.

AI inference, post-quantum cyptography and white-label switching. I stress that we are not pursuing those opportunities to replace legacy core business, quite the opposite. Those growth opportunities are additive.

It's precisely because our stable growing core business is performing so well that we have the platform, the relationships and the balance sheet strength to invest in those new growth engines. All of which leverage our IP and the same engineering talent that drive our core today.

As I discussed last quarter, AI infrastructure investments are undergoing a fundamental shift from training models to querying the models at scale known as inference. This shift is being dramatically accelerated by the rise of agentic AI, where autonomous agents generate continuous high volume inference or growth on behalf of users rather than the occasional single query of traditional chatbot interactions.

A single agent completing a test can trigger hundreds or thousands of inference calls and enterprises are deploying those agents across every function. The result is that the inference is rapidly overtaking training as the dominant driver of AI infrastructure spend, creating massive networking and interconnect bottlenecks at unprecedented scale and that's exactly the problem that Silicom excels in solving.

We are making significant progress with 2 of the world's most promising contenders in the high-stakes race to architect the future of AI computing. Furthermore, we recently started in cooperation with the customer the development of a new inference specific product. We will share more data with those engagement progress.

We view our rapid progress in expanding footprint in this high-growth sector as a potential game changer for Silicom. In summary, this is an exceptionally exciting and transformative time at Silicom. Our core business is accelerating at a remarkable pace, delivering 33% growth in the first quarter with the potential for even stronger growth in the second quarter, positioning us surely on track for a very strong full year performance.

Our design win engine is firing on all cylinders with 4 already achieved out of our 7 to 9 targets for 2026, putting us well ahead of our plan and giving us increased confidence in our ability to meet and potentially exceed our targets. Our pipeline of core Edge systems, SmartNIC and FPGA solution is the strongest and most expansive we have ever seen. Combined with our robust balance sheet, this gives us exceptional flexibility to invest aggressively in both our core growth and our high potential venture style opportunities, all while maintaining a disciplined and conservative financial profile. .

We are very excited about Silicom's strong and accelerating momentum in 2026 and are moving aggressively and with confidence to fully capture the opportunities ahead. We are highly optimistic about the significant value we are building and look forward to delivering strong and accelerating returns for our shareholders in the quarters ahead and over the long term. With that, I will now hand over the call to Eran for a detailed review of the quarterly results. Eran, please go ahead.

Thank you, Liron, and good day to everyone. I will review the financial results and business performance for the first quarter of 2026. Before beginning the financial overview, I would like to remind you that unless otherwise indicated, all financial results are non-GAAP. A full reconciliation of our results on a GAAP to non-GAAP basis is available in the press release issued earlier today.

Revenues for the first quarter of 2026 were $19.1 million, 33% above the $14.4 million reported in the first quarter of last year. The geographical revenue breakdown over the last 12 months was as follows: North America, 76%; Europe and Israel, 14%; Far East and rest of the world, 10%.

During the last 12 months, we had won 10% plus customers, which accounted for about 10% of our revenues. Gross profit for the first quarter of 2026 was $5.7 million, representing a gross margin of 30% compared to a gross profit of $4.4 million or gross margin of 30.3% in the first quarter of 2025.

Operating expenses in the first quarter of 2026 were $7.6 million compared with $6.7 million reported in the first quarter of 2025. Operating loss for the first quarter of 2026 was $1.9 million, an improvement from the operating loss of $2.4 million reported in the first quarter of 2025. The narrowing of the operating loss reflects the operating leverage we are beginning to see as our revenues return to strong growth and is a clear indication of the improving profitability profile we expect to deliver as our growth accelerates. We are very pleased with this positive trajectory, which has been tracking ahead of our expectations.

Net loss for the quarter was $1.5 million compared to a net loss of $2.1 million in the first quarter of 2025. Loss per share in the quarter was $0.25. This is compared with a loss per share of $0.37 as reported in the first quarter of last year.

Now, turning to the balance sheet. Our balance sheet remains very strong. As of March 31, 2026, our working capital and marketable securities amounted to and $109 million, including $63 million in high-quality inventory and $63 million in cash, cash equivalents and high-rated marketable securities with no debt.

I would like to add a few words on the increase in inventory. We are intentionally building our inventory both to support our strong revenue trajectory and to safeguard our ability to ensure uninterrupted product delivery to our customers. This is a deliberate proactive step that we are taking and leveraging our balance sheet strength to do so, which effectively mitigates the impact of the current extending lead times for memory chips and positions us well to continue to capitalize on the growth opportunities ahead.

That ends my summary. I would like to hand back to the operator for a question-and-answer session. Operator?

[Operator Instructions] The first question is from Ryan Koontz of Needham & Company.

Really nice quarter. Congrats on the results and terrific outlook. I wanted to ask you a little more detail on how we should think about timing. I'm just trying to dumb this down a little bit for me, and folks maybe aren't that familiar with the story.

But can you maybe break down like what's going well with the business here in the near term? And how these new design wins layer in? Is the improved momentum in the quarter, for example, is that due to your core business or are new design wins contributing yet? Can you just kind of give us a time view of what's going on here, would be really helpful.

So I think as we explained in the past, design wins usually take time until they materialize. So what we're seeing right now is not the design wins that we announced this quarter and maybe not even a design win that we announced, I don't know, 2 or 3 quarters, but it takes time until things materialize, until we see full ramp-up, and so some of the additive revenue that we're seeing right now is actually coming from design wins that we've done maybe even in '24 or '25, early '25, and it's building up. It's more and more momentum, more customers actually ramping up fully and some of them even better than what we anticipated. And this is what's leading us to the situation that we're now seeing this very nice increase.

And maybe in terms of the core business in the quarter, it sounds like there was some upside. Can you attribute that to different market verticals, maybe in both the print and the second quarter outlook. What's happening with the kind of current base of business that's driving the acceleration?

So it's maybe the core business. So everything, all the new stuff we're talking about, there's no significant revenue coming from that, so everything we're seeing, this is the core business. So we will see significant improvements or significant advantages, I would say, with the new stuff that the 3 pillars that we talked about, this will be on top of everything that we're seeing right now.

But as for the core itself, it's across everything. It's across our SG&A. We see strong momentum there. We see it also with our Edge devices. We see it with our SmartNIC. It's across regions. It's just we see very strong momentum everywhere.

So it's not -- there's not one particular customer driving that. And maybe shifting to more of a forward-looking view on the -- both the encryption side as well as AI. Can you maybe go into some explanation of what your competitive advantage is here that allow you to get some of these new wins around AI in price and encryption?

Yes. So I'll start with encryption. So we've been building encryption products for years. This is not a new area for us. It's just that the post-quantum encryption is something relatively new to the world, not for us, those algorithms are just coming out in the last 12, 18 months, and since we are already a leader in encryption, we know who are the customers, it's our existing customers. We know the type of additional customers we can onboard. We know how to sell to those guys, we know the technology they need, so it was kind of a straightforward next step for us [indiscernible] something we needed to invest in order to be ready with the right product at the right time in order to be there.

So this is for encryption. For AI, the problem that we are solving is basically a networking -- I would say, 2 problems we're starting. One problem is a networking problem. And this is what we've been doing for many, many years. So basically taking the same IP, the same R&D talent that we have and just building the right products for that or repurposing existing products to solve those problems. .

And the other one is basically being the inference engine itself, what we call the auto monopoly basically instead of building an ASIC now for 3 years, the pace of improvement in running models is so quickly, we see advantages and new stuff coming every week, so if you freeze yourself now to an ASIC, you're basically losing everything new that will come in the next 3 years.

If you're doing it on an FPGA that you can update in the field, you can actually, every week come with new things that will pop up, new strategies and new ways to do stuff, and we'll just accelerate what you did a week ago. Now we can do it 10%, 20%, 50% quicker. So this is why we think the auto monopoly is another key element.

So the faster innovation of FPGAs just gives you a big advantage. Back on the networking comment you made around AI, I assume that's delivered in the form of NICs typically on the AI infrastructure networking.

It's part of it, but I would say it's not necessarily simple NICs, it's our SmartNICs and some of them are -- would be new SmartNICs to develop. Some of them are existing SmartNICs. I would say most of them, yes, in the form of SmartNICs.

And then lastly, you touched on memory and inventory. It's obviously becoming a big concern industry-wide. It's been building, and we've been hearing lately about a lot of inventory builds and long-term purchase commitments from a number of networking peers of yours this quarter.

Can you maybe give us a little more detail on your supply agreements and how you're thinking about the risks of memory supply and memory costs and how you pass those costs on to customers?

Yes. I mean it's -- as you noted, inventory is going up, there's no other way to work around it. If you want to be ready to supply products, especially when we are a company that is growing dramatically, there's no other way, you have to secure the inventory, you have to work very, very closely with the DRAM vendors and with the storage vendors, and that's what we're doing.

We're qualifying additional sources all the time, trying to balance between the different vendors because not all of them are able to deliver everything that we need. I mean they are saying it publicly that they cannot deliver all the demand that their customers have, so we have to balance between different vendors.

So a lot of work, a lot of work here, and yes, it's a challenge with the supplies, a challenge for the customers but we're navigating it very, very closely with the customers, explaining the situation to them for months now. This is not something new.

Everyone understands the situation. We're trying to solve a situation, sometimes even in creative ways like changing specs of the product or exploring with the customer exactly what would make them happy and allow them to keep selling the product in the best way for them, and it's definitely something that takes effort from us, but we think it's going to be something that will allow us to build a relationship for many, many more years with those customers.

And you're able to pass those increased costs of memory on your customers as part of your contracts with your customers?

Most of it, yes.

Most of it, okay. But you're not anticipating major gross margin hit in the -- or at least like in the coming quarters?

No, absolutely not.

[Operator Instructions] Next question is from Greg Weaver of the Invicta Capital.

Just a couple of quick ones on the inference side of things. What's your best guess in terms of revenue timing there? You mentioned the ramp that you're seeing in fiscal '26 isn't these new products?

Yes. I think probably more 2027, rather than 2026 in terms of significant revenue for inference. But we may see some this year definitely making some good progress, as I've said before. We -- hopefully, we can share more in future, but as we meet more milestones, but I'd say significant probably in 2027.

And you stated you were creating a new inference specific product with a key customer. Now is that 1 of the 2 guys you've referenced? Or is this a new player?

Yes. It's 1 of those 2 guys.

There are no further questions at this time. Before I ask Mr. Eizenman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website, www.silicom-usa.com. Mr. Eizenman, would you like to make a concluding statement?

Thank you, operator. Thank you, everybody, for joining the call and your interest in Silicom. We look forward to hosting you on our next call in 3 months. Good day.

Thank you. This concludes Silicom's First Quarter 2026 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Fourth Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Silicom's Investor Relations team at EK Global Investor Relations at 1 (212) 378-8040 or view it on the News section of the company's website, www.silicom-usa.com. I would now like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. I would like to welcome all of you to Silicom's quarterly results conference call. Before we start, I would like to draw your attention to the following safe harbor statement. This conference call contains forward-looking statements. Such statements may include, but are not limited to, anticipated future financial operating results and Silicom's outlook and prospects.

Those statements are based on management's current beliefs, expectations and assumptions, which may be affected by subsequent business, political, environmental, regulatory, economic and other conditions and are subject to known and unknown risks and uncertainties and other factors, many of which are outside Silicom's control, which might cause actual results to differ materially from expectations expressed or implied in the forward-looking statements.

These include, but are not limited to, Silicom's increasing dependence of substantial revenue growth on a limited number of customers, the speed and extent to which Silicom solutions are adopted by relevant markets, difficulties in the commercializing and marketing of Silicom's products and services, maintaining and protecting brand recognition, protection of intellectual property competition, disruptions to manufacturing and sales and marketing, development and customer support activities, the impact of war, rising inflation, changing interest rates, volatile exchange rates as well as any continuing effects or new effects resulting from pandemic and global economic uncertainty, which may impact customer demand through customers exercising of greater caution and selectivity with their short-term IT investment plans.

The factors noted are not exhausted. Further information about the company's businesses, including information about factors that could materially affect Silicom's results of operations and financial condition, are discussed in Silicom's annual report on Form 20-F and other documents filed by the company that may be subsequently filed by the company from time to time with the Securities and Exchange Commission.

Therefore, there can be no assurance that actual future results will differ significantly from anticipated results. Consequently, investors are reminded not to rely on forward-looking statements. Silicom does not undertake to update any forward-looking statement as a result of new information or future events or developments, except as may be required by law. In addition, following the company's disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this conference call.

Such non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless otherwise stated, it should be assumed that financials discussed in this conference call will be on a non-GAAP basis.

Non-GAAP financial measures disclosed by management are provided as additional information to investors to provide them with an alternative method for assessing the company's financial condition and operating results. These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release, which you can find on Silicom's website.

With us on the line today are Mr. Liron Eizenman, President and CEO of Silicom; and Mr. Eran Gilad, CFO. Liron will begin with an overview of the results, followed by Eran, who will provide the analysis of the financials. We will then turn over the call to the question-and-answer session. And with that, I would now like to hand the call over to Liron. Liron, please go ahead.

Thank you, Kenny, and good day, everyone. I'd like to welcome all of you to our call to share why we are truly excited about Silicom's momentum and potential ahead as we close out 2025 and move through 2026 and beyond. 2025 was a strong year of execution for Silicom. We are pleased to report better than originally projected growth for the year with the design win momentum giving us good visibility ahead. Q4 revenues grew 17% year-over-year to $16.9 million, well ahead of our guidance range between $15 million and $16 million.

It confirms that the demand for our core product is high, resilient and strengthening. Our solid Q4 performance is in part due to the success of the strategic initiatives we undertook in earlier quarters, the progress we have made executing through 2025 and the resulting positive impact across our business. Furthermore, our opportunity pipeline is broader than it has ever been, and we continue to expand the pipeline for our core solutions.

In 2025, we achieved 8 major new design wins across Edge systems, SmartNICs and FPGA solutions with both new customers and existing Tier 1 customers expanding their engagements with us. Those design wins give us strong visibility into 2026 and beyond, supporting our expectations for double-digit revenue growth for the year ahead.

Just to give an example, a few weeks ago, we announced that the global networking and Security as a Service leader significantly expanded its deployment of Silicom Edge devices into multiple additional use cases, increasing our expected annual revenues from this customer from $3 million to $4 million to between $8 million and $10 million, more than double, with some of those incremental revenues expected in the coming months.

This achievement highlights the strength of our blue-chip customer relationships, recurring revenue growth model, particularly our strategy of growing by expanding existing design wins alongside new customer wins. Looking ahead, based on the depth of our pipeline and ongoing customer engagements, we are again targeting between 7 and 9 design wins in the current year, spanning across all our product lines.

This gives us strong confidence in the sustainability of the continued growth of our business through the coming years. With that, we are very optimistic about the potential ahead, and we expect to report accelerated double-digit revenue growth in 2026 and beyond. Our balance sheet remains very strong. At year-end, our working capital and marketable securities totaled $111 million, including $74 million in cash, deposits and highly rated bonds with no debt.

This represents approximately $20 per share. Beyond all this, our stable and growing core business, along with a fortress balance sheet provides us with the flexibility to not only execute on our ongoing strategy but also allow us to invest and capitalize on market opportunities. Today, I will discuss 3 tectonic shifts with powerful new growth potential in the technology infrastructure market that leverage our core expertise, capabilities, IP and customer base that we intend to capitalize on.

Growth engines focused on those markets will give Silicom unique venture style upside potential over and above the disciplined, well-capitalized and stable public company that we are known for. The 3 major structural shifts in infrastructure are AI inference, post-quantum cryptography and white label switching. Those are not small niche markets, and they are not cyclical trends. They are large markets undergoing structural changes in how infrastructure is built. They also share a common theme, timing.

In each case, early positioning matters, but so does credibility and execution. That's where we believe our platform gives us a meaningful advantage. Let me start with AI inference, which we believe represents the largest opportunity for Silicom. AI infrastructure investments are shifting from training models to querying the models at scale known as inference. Inference is continuous, distributed and extremely latency sensitive.

While training preliminarily happens via network GPU cards at the core of the data center, inference happens everywhere continuously at the edge, in telcos and in enterprise data centers. This creates massive networking and interconnect bottlenecks, and that's exactly the problem that Silicom excels in solving.

We already have initial orders for our inference optimized FPGA-based solution to be utilized by our customer at a POC with a hyperscaler end user, and we are developing a dedicated AI-NIC based on a leading high-performance networking chip for another AI inference leader. We have initial orders in hand and follow-on POCs underway. We are also engaging with multiple customers, and we are in advanced discussions with additional AI inference chip vendors.

While it's still in early stage, this is increasingly becoming a real and huge potential opportunity for us, which is built directly on our IP, engineering experience and leveraging existing customer relationships. This is a very large long-term and massive greenfield growth opportunity for Silicom with the AI inference hardware market expected to approach $80 billion-plus level by the end of this decade.

Our second potential upside engine is post-quantum cryptography, PQC, a future mandatory global security upgrade. Quantum computers are expected to have the eventual capability to break through today's encryption. That future risk is forcing governments, financial institutions and infrastructure providers to act now to mitigate harvest now, decrypt later attacks. This is not discretionary spending. It's a required transition, and this market is expected to grow to over $3 billion by 2030.

We already offer one of the only production-ready hardware-based PQC accelerator solutions available today with clear cost and performance advantages over solutions in software. It implements in networking hardware encryption algorithms that quantum computers cannot decrypt and is therefore considered safe in the post-quantum world. Our legacy in cryptographic acceleration, combined with FPGA flexibility allows customers to migrate now, ensure backward compatibility and remotely adapt new post-quantum algorithms as standards evolve.

Two leading customers have already selected our solution for early deployments, leveraging long-standing relationships and existing IP. Our third new potential area for growth is white label switching, which is the next phase of network disaggregation and is expected to reach over $6 billion by 2030. We already supply white label edge, SD-WAN and SASE platforms to many Tier 1 customers. Expanding into switching is a natural extension of those relationships and capabilities.

This transition mirrors what we have already seen in servers and storage. Disaggregation starts with hyperscalers and then expands into the broader market. That expansion is now happening in white label switches into enterprises and service providers. Cost pressure, flexibility and vendor independence are driving the shift. Creating opportunities to take share from proprietary incumbents.

We have already shipped initial quantities of multiple switch platforms to a leading cybersecurity customer and are engaged in discussions with others. Looking to the near future, in terms of guidance, we project that revenues for the first quarter of 2026 will range between $16.5 million to $17.5 million, representing 18% growth year-over-year at the midpoint, which is a great start to 2026. This affirms our expectation of generating double-digit annual growth in 2026.

In summary, Silicom's core business is growing ahead of our earlier projections, and we are very pleased with our progress in 2025. We look forward to continuing to build on it over the coming quarters and years. With 8 major new design wins secured in 2025, we have a solid foundation for accelerated double-digit growth in the core business throughout 2026.

Our solid pipeline of opportunities, momentum across all our product lines, combined with our deep customer relationships, make us believe that we will broaden our design win roster with a further 7 to 9 design wins during the current year. The 3 significant venture style upside opportunities, AI inference networking, post-quantum cryptography and white label switches that I highlighted have the potential to become massive growth engines on top of our core business over the years ahead.

All of this is made possible by the unique platform we've built over the past 2 decades, a thriving core business, our technological expertise, a proven ability to execute in our Tier 1 customer base, all backed by a rock-solid balance sheet. This enables us to invest in venture scale growth while at the same time, maintaining our conservative financial profile.

Silicom represents a unique convergence, a company with a stable growing core business that addresses $100 billion plus in new opportunities in some of the hardest technology markets. We have the technology; the fortress balance sheet and customers trust us to execute and look forward to further scaling our core business as we work to capture the venture style upside. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.

Thank you, Liron, and good day to everyone. Revenues for the fourth quarter of 2025 were $16.9 million, 17% above the $14.5 million reported in the fourth quarter of last year. The geographical revenue breakdown over the last 12 months was as follows: North America, 74%; Europe and Israel, 17%; Far East and rest of the world, 9%. During 2025, we had one 10% plus customer, which accounted for about 14% of our revenues.

I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the noncash compensation expenses in respect of auctions and RSUs granted to directors, officers and employees, taxes on amortization of acquired intangible assets as well as lease liabilities, financial expenses. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today.

Gross profit for the fourth quarter of 2025 was $5.1 million, representing a gross margin of 30.2% compared to a gross profit of $4.2 million or a gross margin of 29.1% in the fourth quarter of 2024. I note that our short to midterm expected gross margin range remains between 27% to 32%. Operating expenses in the fourth quarter of 2025 were $7.5 million compared with $6.9 million reported in the fourth quarter of 2024.

Our operating expenses were higher than expected due to the relative weakness of the U.S. dollar, the currency in which we report versus the Israeli shekel and the Danish krone, the main currencies in which a large portion of our expenses are generated. Net loss for the quarter was $1.9 million compared to a net loss of $5.1 million in the fourth quarter of 2024. Loss per share in the quarter was $0.34. This is compared with a loss per share of $0.87 as reported in the fourth quarter of last year.

Now turning to the balance sheet. As of December 31, 2025, our working capital and marketable securities amounted to $111 million, including $42 million in high-quality inventory and $74 million in cash, cash equivalents, bank deposits and highly rated marketable securities with no debt. That ends my summary. I would like to hand back to the operator for a questions-and-answer session. Operator?

[Operator Instructions] The first question is from Ryan Koontz of Needham.

This is Jeff Hopson on for Ryan Koontz. Congrats on the quarter. Just for the new 3 opportunities, the time line seems like maybe AI inference is the most near term with those 2 customer discussions and orders. Is that kind of how you think about it? Or maybe could you compare the timing between the 3 opportunities?

So all 3 opportunities, all of them, I would say, are in the initial stages right now. So from a quarter perspective, they have almost no meaningful revenue for this quarter, obviously. And even for 2026 as a whole, I think we are not expecting them to be still huge.

There is an opportunity for that, but we are definitely expecting our core business to be very, very strong in 2026 and keep growing. And each of those opportunities, it can boom at any point in time. But right now, we're still in the early stages, but we feel that we are very strong in the early stages and that we feel very strong traction on each of those.

Got it. Makes sense. I guess a follow-up on that. Are you expecting similar sales cycles or design processes, the time line to be similar than your historic business?

So in some of those projects, we are -- as we said, we are leveraging existing IP, and we're leveraging existing know-how. So it's not like we're starting from scratch. So for some of those opportunities, it's actually taking some of our existing products, making some changes on them, so we can react very, very fast, and it can actually be a quick road to revenue here and quick road to design wins.

On some of the others, we do need to do some development, but we already started with that. So we are deep into the development of some of those. So we think overall, we are expecting it to be faster than what we've seen in the past.

Perfect. And maybe just one more for me. Are there any changes to kind of your sales process or any additional investments on that side to go after some of these new opportunities?

We think we have the right team and the right size of the team and the right know-how and expertise. And everything I said is not only true for one team. It's not only R&D, it's the R&D, it's the operation, it's the sales. The entire team is really well structured to support this growth and the existing relationship that we have with customers that we're building on and capitalizing on, we expect to continue with that. So right now, we think we are structured just with the right team and the right size and right investments, and we keep -- we plan to keep doing that.

The next question is from Greg Weaver of Invicta Capital Management.

Just following up on this AI inference opportunity. You mentioned about connectivity bottlenecks. Can you get more specific in terms of kind of what's the use case? Is this to connect various nodes in an AI cluster or say, external memory? And when I see talk of UALink and Ultra Ethernet, is that kind of where you'd be playing?

So when -- I mean, in general, yes, I mean, when we are talking about the challenges of networking, when we're talking about -- and our focus is mainly on the inference side, as I said, and not on the training side. So the inference happens everywhere. And when we say everywhere, it could be at the edge of the network, it could be a local data center. It could be a telco data center; it could be even in the enterprise.

And there are so many different installation types and deployment types and types of different networking they need to support, then different cards, different companies developing different inference chips, not all of them able to provide all the different layers that they need to cope with. So they will only focus on the inference chip, but they need someone to complement it on the networking side.

So if you want to do, as you said, scale out to multiple servers, multiple boards, how do you do it efficiently? How are you making sure that the network is not the bottleneck and that you actually get the most that you can out of the inference chip. That, I think, is the key. And there's no like it's very fragmented and very different from deployment type to another. That's where the opportunity is created.

Okay. I appreciate the color there. And kind of to follow up on the question about sales, you said your sales team is in place. How about R&D in terms of to support some of these new opportunities? Do we foresee more spending there?

Right now, we don't think that we need because, as I said, it's -- we are really building on the IP and the know-how and the team that we have that is running for so many years together, and it's an expert team. If we will need, obviously, we have the -- as I said, we have the fortress here in terms of cash and everything we need in order to do that, if we will feel that we need to do it. Right now, we don't feel that we need to do it. But definitely, we have the capabilities to do it. In any case, we don't expect it to be significant.

Well, if you get some traction in some of these spaces, I wouldn't mind it.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Eizenman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website, www.silicom-usa.com. Mr. Eizenman, would you like to make a concluding statement?

Thank you, operator. Thank you, everybody, for joining the call and for your interest in Silicom. We look forward to hosting you on our next call in 3 months. Good day.

Thank you. This concludes Silicom's Fourth Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Silicom's Investor Relations team at EK Global Investor Relations at 1 (212) 378-8040 or view it in the News section of the company's website, www.silicom-usa.com. I would like to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. I would like to welcome all of you to Silicom's quarterly results conference call. Before we start, I would like to draw your attention to the following safe harbor statement. This conference call contains forward-looking statements. Such statements may include, but are not limited to, anticipated future financial operating results and Silicom's outlook and prospects. Those statements are based on management's current beliefs, expectations and assumptions, which may be affected by subsequent business, political, environmental, regulatory, economic and other conditions and are subject to known and unknown risks and uncertainties and other factors, many of which are outside of Silicom's control, which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements.

These include, but are not limited to, Silicom's increasing dependence for substantial revenue growth on a limited number of customers, the speed and extent to which Silicom solutions are adopted by the relevant markets, difficulties in the commercializing and marketing of Silicom's products and services, maintaining and protecting brand recognition, protection of intellectual property, competition, disruptions to manufacturing and sales and marketing; development and customer support activities, the impact of war, rising inflation, changing interest rates, volatile exchange rates as well as any continuing or new effects resulting from pandemic and global economic uncertainty, which may impact customer demand through customers exercising greater caution and selectivity with their short-term IT investment plans. The factors noted are not exhaustive.

Further information about the company's business, including information about factors that could materially affect Silicom's results of operations and financial conditions are discussed in Silicom's annual report on Form 20-F and other documents filed by the company that may be subsequently filed by the company from time to time with the Securities and Exchange Commission, the SEC. Therefore, there can be no assurance that actual future results will not differ materially or significantly from anticipated results. Consequently, investors are reminded not to rely on those forward-looking statements.

Silicom does not undertake to update any forward-looking statement as a result of new information or future events or developments, except as may be required by law. In addition, following the company's disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this call. Such non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance.

Management believes that the presentation of these non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing cooperation and prospects for the future. Unless otherwise stated, it should be assumed that the financials discussed in this conference call will be on a non-GAAP basis. Non-GAAP financial measures disclosed by management are provided as additional information to investors to provide them with an alternative method for assessing the company's financial conditions and operating results. These measures are not in accordance with or a substitute for GAAP.

A full reconciliation of non-GAAP to financial to GAAP financial measures are included in today's earnings release, which you can find on Silicom's website. And with us on the line today, we have Mr. Liron Eizenman, President and CEO; and Mr. Eran Gilad, CFO. Liron will begin with an overview of the results, followed by Eran, who will provide the analysis of the financial results. We'll then turn over the call to the question-and-answer session. And with that, I would now like to hand the call over to Liron, the CEO. Liron, please go ahead.

Thank you, Kenny. I would like to welcome everyone to our conference call to discuss the results of the third quarter of 2025. We are pleased with the ongoing progress that we have made in the third quarter, marked by another period of strong execution in line with our strategic plan and demonstrating solid design win momentum and success across various product lines. The design win momentum is tracking ahead of expectations. Since the beginning of the year, we have achieved 8 major new design wins with important new customers as well as existing ones, which builds out for us an impressive roster of design wins, the key for our expected growth from 2026 and beyond.

I remind you that our goal was to reach between 7 and 9 design wins for the full year of 2025. As of October end, we have suppressed the lower end of our 2025 target range and with 2 months left to the end of the year, we are just 1 design-win short of the upper end of this ambitious target range. We see new design wins as the most tangible indicator of our progress in addition to the breadth and depth of our opportunities funnel. The focus on our core product lines, coupled with deep relationship with customers and potential new customers has created this solid funnel.

We expect to continue to convert this funnel to further design wins in 2026 and have set for ourselves a new aggressive target of between 7 to 9 additional design wins in the coming year, spanning all product lines, including FPGAs, Edge solutions and SmartNICs. Our third quarter performance demonstrates that we are successfully advancing and meeting our milestones and our solid momentum underlies our optimism for returning to double-digit revenue growth in 2026 and beyond.

In terms of financial results for the quarter, we reported revenues of $15.6 million in the upper half of the quarter's guidance range. Our balance sheet has remained very strong. At September end, our working capital and marketable securities totaled $114 million, including $76 million in cash, deposits and highly rated bonds with no debt, representing approximately $20 per share. The financial strength provide us with flexibility that we need to execute on our strategy and seize opportunities as they arise. I would like to focus on our design win momentum.

In the third quarter, we secured 3 significant design wins. And earlier this week, we announced another important and fourth recent design win. Each win demonstrates the strength of our product portfolio, the trust of our customers base and most importantly, it is a solid indication of the successful implementation of our growth strategy. Those new design wins span all our product lines, FPGA, SmartNICs and Edge networking systems and are for a variety of applications, underscoring the continued relevance of our solutions across diverse customer needs and market segments and applications.

One of those design wins was awarded by a long-term network optimization customer of ours. This customer selected our advanced Edge system as a platform for several of its next-generation appliances. With this expansion, our business with this customer is expected to increase dramatically to around $4 million annually at a full run rate. This win highlights the natural progression of our deep relationship with this customer from networking cards to FPGA smart cards and now to Edge systems.

More broadly, it reflects our strong customer partnership drives, repeat and expanding engagement across all our product lines while also laying the groundwork for other opportunities, including additional innovative Edge platforms currently under discussion. We also achieved the first design win with a U.S.-based provider of multisite networking solutions, which selected our customized edge device to enhance scalability, security and efficiency across its customer base.

Initial deployments are expected to begin by year-end 2025 with a projected run rate of approximately $1 million annually in 2026. Importantly, the customer is pursuing several additional sizable projects, each with multimillion-dollar revenue potential and is in discussion with us regarding another customized edge product for a separate use case, together representing a significant long-term growth opportunity. Earlier this week, we secured a design win from a leading SASE provider, which selected our edge networking system combined with a Silicom NIC to support wired 5G and WiFi connectivity.

Initial orders amounted to approximately $0.5 million with full deployment run rate expected to reach around $3 million annually. We see strong further potential, and we are discussing with this customer the adoption of an additional Silicom platform. We were particularly excited to achieve our second post-quantum cryptography related win from a tech giant with a span of just a few months, providing strong validation of our leadership in this critical emerging space and serving as a reference point for further opportunities.

The design win was from a global application delivery leader for our advanced FPGA smart card, incorporating SSL hardware acceleration and post-quantum cryptography offload. This solution will enable the customer to deliver high performance, enhanced scalability and simplified secure connections. Ramp-up is expected through 2026 with annual revenues anticipated to reach $2 million run rate. Although quantum computers are not likely to be widely available for several years, suppliers of communications equipment and services must plan now in order to defend effectively against harvest-now-decrypt-later attack strategies.

We are seeing that regulators and enterprises are already preparing for the future security threats they pose to privacy since quantum attacks have the potential to break today's widely used encryption standards. Forward-looking companies are, therefore, moving early to integrate PQC into their architectures to ensure business continuity, with emerging privacy and compliance requirements and position themselves as leaders in secure infrastructure in a post-quantum world.

Our PQC-ready smart cards put Silicom ahead of the adoption curve at the forefront of this future transition. The fact that we already offer a mature PQC-ready solution differentiates us clearly as an advanced technology partner, bringing us interest from both equipment suppliers and service providers. All those design wins demonstrate again the value of our broad portfolio and our sterling reputation as a trusted partner. Each of those wins represent a combination of extensive technical collaboration and customer trust, reinforcing our strategy of building enduring relationships that evolve into multiple high-value engagements.

Together, the design wins achieved throughout 2025 establish a solid foundation for accelerated growth from 2026 onwards and strengthen our confidence in maintaining our momentum into 2026 and importantly, marking our return to long-term double-digit revenue growth.

The opportunities funnel remains broad, spanning all our product lines, Edge systems, SmartNICs and FPGA solutions, addressing both new and existing customers across multiple industries and multiple applications. I urge you to review our investor presentation available on our website, which highlights many of those opportunities as well as has examples of those that have successfully passed through the opportunity funnel to become design wins and source of recurring revenues.

As we move into 2026, we expect to see many more opportunities in our funnel transforming into design wins with numerous new opportunities for all of our product lines consistently entering the funnel. As I mentioned earlier, our newly announced target for 2026 is to achieve 7 to 9 new design wins, driving forward our growth strategy and providing the foundation for sustainable long-term value creation at Silicom. In terms of guidance, for the fourth quarter of 2025, we expect revenues in the range of $15 million to $16 million, and we continue to anticipate double-digit annual growth rate in 2026 and beyond.

Our overall objective remains unchanged, to create significant long-term value for our shareholders by achieving EPS above $3, which we expect to reach as revenue scale to $150 million to $160 million range. Importantly, a faster ramp-up of certain high potential deals currently in the pipeline would accelerate this time line, enabling us to achieve our strategic goals ahead of schedule.

In summary, we are very pleased with our continued progress in 2025. With 8 major new design wins already secured year-to-date, well within the target range for the full year, we are executing ahead of the plan and building strong momentum across all our product lines. We remain focused on continuing to build long-term customer relationships and expand our design win funnel providing a solid foundation for the accelerated double-digit growth we expect from 2026.

With our unique technologies, a highly satisfied and growing customer base, a motivated team as well as strong balance sheet to support all our endeavors, we are ideally positioned for 2026 and beyond with the ultimate goal of delivering significant long-term value for our shareholders. We look forward to updating you on our progress as we close out 2025 and head into 2026, which we believe will be an inflection year for Silicom. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.

Thank you, Liron, and good day to everyone. Revenues for the third quarter of 2025 were $15.6 million, 6% ahead of the $14.8 million reported in the third quarter of last year. The geographical revenue breakdown over the last 12 months was as follows: North America, 75%; Europe and Israel, 17%; Far East and rest of the world, 8%. During the last 12 months, we had one 10%-plus customer, which accounted for about 14% of our revenues.

I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the noncash compensation expenses in respect of options and RSUs granted to directors, officers and employees, taxes on amortization of acquired intangible assets as well as lease liabilities, financial expenses. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today.

Gross profit for the third quarter of 2025 was $5 million, representing a gross margin of 31.8% compared to a gross profit of $4.2 million or gross margin of 28.8% in the third quarter of 2024. While I note that our short to midterm expected gross margin range remains between 27% to 32%, we are very pleased with achieving a gross margin at the higher end of this range ahead of our strategic plan model.

Operating expenses in the third quarter of 2025 were $7.4 million compared with $6.5 million reported in the third quarter of 2024. Our operating expenses in the quarter were higher than expected due to the relative weakness of the U.S. dollar, the currency in which we report versus the Israeli shekel and the Danish krone, the main currencies in which a large portion of our expenses are generated.

Operating loss for the third quarter of 2025 was $2.4 million compared to an operating loss of $2.3 million as reported in the third quarter of 2024. Net loss for the quarter was $2.1 million compared to a net loss of $1.7 million in the third quarter of 2024. Loss per share in the quarter was $0.36. This is compared with loss per share of $0.28 as reported in the third quarter of last year.

Now turning to the balance sheet. As of September 30, 2025, our working capital and marketable securities amounted to $114 million, including $46 million in high-quality inventory and $76 million in cash, cash equivalents, bank deposits and highly rated marketable securities with no debt. That ends my summary. I would like to hand back to the operator for the questions-and-answer session. Operator?

[Operator Instructions] The first question is from Ryan Koontz from Needham.

Hi, this is Jeff Hopson on for Ryan Koontz from Needham. Just wanted to understand maybe more where Silicom could fit in with the ongoing AI narrative. Obviously, ASICs have a place in AI, but I would think there are also specialized situations where your guys' NICs could be utilized. So just maybe some more info on that.

Absolutely. So when we look at AI, we see opportunities in a few different product lines, maybe even all product lines to be more accurate. So on the one side, we see opportunities for our NICs, our high-speed NICs, 400-gig NICs. Those are just the right equipment you need for the inference systems as well as the training systems. So this is one area that we think this could be very good potential.

Another area is with the FPGA because a lot of things are not really well defined still, I would say, in AI systems and there's a lot of proprietary communication and protocols that FPGA can bridge the gap there where ASICs are not available right now and probably will not be in the foreseeable future.

And the third one is also on the edge systems where we are able to see opportunities for edge inference. We actually just had a webinar together with Intel about it yesterday, showing some use cases of AI at the edge, and we feel there's opportunities with all of them. Some of those are more advanced right now. Some of them are more early exploratory, but I think we definitely have opportunities in all of them.

And then looking at the presentation, you also have some large opportunities with service providers and some telco equipment. Just curious of the spending environment in those 2 in the telecom industry, if that's getting better or if there's certain things that are pushing spending or new types of hardware there?

Yes. I mean we have discussions with both service providers as well as OEMs and enterprises. Service providers, we have like Tier 1, also Tier 2, Tier 3 service providers. Some of them are the really big telcos and some of them are smaller. We definitely see for our products, for our type of products, we see the need. Customers see the need, they actually need our products for the next generation and to support their customers. So this is something that we feel will have good opportunities. We probably will also have design wins with service providers. So we feel good about it.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Eizenman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available by tomorrow on Silicom's website, www.silicom-usa.com. Mr. Eizenman, would you like to make your concluding statement?

Thank you, operator. Thank you, everybody, for joining the call and for your interest in Silicom. We look forward to hosting you on our next call in 3 months. Good day.

Thank you. This concludes Silicom's Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.