Silicom (SILC) Q3 2026 Earnings Call Transcript

DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Investor Relations - Kenny Green
• President and Chief Executive Officer - Liron Eizenman
• Chief Financial Officer - Eran Gilad

TAKEAWAYS

• Revenue -- $26.7 million, growing 71% year over year and exceeding the management guidance range of $25 million to $26 million.
• Revenue Growth Trajectory -- Accelerated throughout the fiscal year, rising from 17% in the fourth quarter of 2025 to 33% in the first quarter of 2026, 59% in the second quarter, and 71% in the third quarter.
• Non-GAAP Net Income -- $0.3 million, representing a return to profitability ahead of the company's internal schedule compared to a net loss of $2.1 million in the prior-year period.
• Non-GAAP EPS -- $0.04, compared to a non-GAAP loss per share of $0.36 in the third quarter of 2025.
• Full-Year Revenue Guidance -- Raised to a range of $96 million to $98 million, representing 57% year-over-year growth, up from the $82 million to $83 million range provided six months ago.
• Fourth Quarter Revenue Guidance -- $27 million to $28 million, representing 66% year-over-year growth at the upper end of the range.
• Design Wins -- Eight secured year to date, already exceeding the low end of the full-year target range of seven to nine wins.
• Custom Server Adapter Win -- $3 million in expected revenue for 2026, projected to grow to nearly $10 million in 2027 following an award from an existing blue-chip customer.
• Cloud-Based Cybersecurity Win -- $5 million in expected annual revenue at full ramp-up for an edge networking device with integrated 5G connectivity.
• Non-GAAP Gross Margin -- 30.3%, compared to 32.1% in the third quarter of 2025, remaining within the target range of 27% to 32%.
• Operating Expenses -- $8.1 million, an increase of 9% year over year despite the 71% increase in revenue, reflecting significant operating leverage.
• Non-GAAP Operating Income -- $20,000, improving from an operating loss of $2.4 million in the third quarter of the previous year.
• Regional Revenue Breakdown -- 78% from North America, 11% from Europe and Israel, and 11% from the Far East and the rest of the world over the last 12 months.
• Customer Concentration -- One customer accounted for approximately 13% of total revenue during the last 12 months.
• Working Capital and Marketable Securities -- $107 million, representing approximately $18 per share.
• Cash and Liquidity -- $45 million in cash equivalents and highly rated marketable securities with zero debt.
• Inventory -- $73 million, consisting of high-quality components and products to support current ramp-ups.
• Nine-Month Financials -- $69.6 million in revenue, a 55% increase over the $45 million reported in the first nine months of 2025.
• AI Inference Volume -- Tens of thousands of units per year anticipated by AI inference players, supporting the industry transition to dual-source procurement strategies.
• Design Win Revenue Cycle -- Six months typically required to see initial revenues followed by a full ramp-up within 12 months of a win.

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RISKS

• Eizenman stated, "another prospect recently suspended a project to change their strategic direction," noting the fluid nature of the AI inference market.
• Eizenman noted that "one of our current customers now has a dual-source option," which may impact Silicom's share of that customer's total volume despite the high overall unit demand.

SUMMARY

Silicom Ltd. (NASDAQ:SILC) reported that the business has reached a strategic inflection point, evidenced by four consecutive quarters of accelerating year-over-year revenue growth. Management reported that the current performance is driven by the simultaneous effect of new design wins being added to the base and previous wins entering their high-growth ramp-up phases. The company returned to non-GAAP profitability during the third quarter, which occurred earlier than initial projections. Management stated that the business model is now built on a predictable platform of recurring revenue derived from a legacy of over 400 active design wins. Furthermore, the company raised its full-year guidance for the second time in 2026, citing strong visibility into customer deployment schedules and a deep pipeline across AI inference, edge systems, and post-quantum cryptography.

• The company reported that its competitive position in the AI inference market is strengthening as players adopt dual-source strategies, with CEO Eizenman stating, "this shift represents a strong long-term net positive for Silicom, opening up far more opportunities than risks."
• A key differentiator for a recent tier 1 cloud cybersecurity win was the strength of Silicom's integrated cellular connectivity, which led to a contract expected to yield over $5 million annually.
• Management indicated that its AI inference pipeline is highly active, with CEO Eizenman noting, "We are in final discussions with a new customer about a major evolving use case, and we expect to reach an agreement very soon."
• The company is evaluating higher-end edge devices with existing customers, including GPU-integrated solutions specifically designed for edge AI use cases.
• Silicom maintains a conservative financial profile with $107 million in working capital and marketable securities and no debt, providing the flexibility to invest in growth initiatives.
• The company expects continued growth into 2027 based on the momentum of current design wins and the broad pipeline of new opportunities.

INDUSTRY GLOSSARY

• Design Win: A technical achievement where a company's component or solution is selected to be integrated into a customer's final product design, typically leading to long-term recurring revenue.
• SmartNIC: A network interface card that includes an on-board processor to offload data processing tasks from a server's central processing unit.
• FPGA (Field Programmable Gate Array): An integrated circuit designed to be configured by a customer or a designer after manufacturing, often used for hardware acceleration.
• uCPE/vCPE (Universal/Virtualized Customer Premises Equipment): Devices that use network function virtualization to provide various networking services like firewalls or routers on a single hardware platform.
• AI Inference: The process of using a trained machine learning model to make predictions or decisions based on new data.
• Post-Quantum Cryptography (PQC): Cryptographic algorithms designed to be secure against a cryptanalytic attack by a quantum computer.
• SD-WAN (Software-Defined Wide Area Network): A virtual WAN architecture that allows enterprises to leverage any combination of transport services to securely connect users to applications.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Silicom third quarter 2026 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. 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 now to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Kenny Green: Thank you, operator. I would like to welcome all of you to Silicom's third 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 deployment of the company's products and 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 earlier today and 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 over the call to the question and answer session. With that, I would now like to hand the call over to Liron. Liron, please go ahead.

Liron Eizenman: Thank you, Kenny, and good day, everyone. I am very happy to share another truly outstanding set of results for the third quarter of 2026. Results that surpassed our guidance and that clearly show that our strategic plan and our business are performing significantly better than we planned. Very importantly, this quarter, we returned to profitability well ahead of our plans. As we look toward the end of 2026 and into 2027, I am excited about Silicom's continued momentum, the clear visibility we have, and the vast opportunities before us. The third quarter was a truly exceptional one for Silicom, showing a strong acceleration of the growth inflection that we have been talking about all year.

Revenues for the third quarter came in at $26.7 million, up an outstanding 71% year-over-year, and ahead of the $25 million-$26 million guidance range. Equally important, thanks to strong execution and the inherent leverage in our business model, we have returned to profitability with positive non-GAAP net income this quarter, well ahead of our initial expectations. Our revenue growth is fundamentally volume driven, fueled by higher unit shipments across our core portfolio and accelerating customer deployments. You can see the acceleration in our business clearly in the trajectory of our revenue growth over the past few quarters. In Q4 2025, we reported 17% year-over-year growth, followed by 33% in Q1 this year, 59% in Q2, and now 71% in Q3.

Our guidance for the fourth quarter points to continued very strong growth at a similar level of 66% year-over-year at the top of the range. Our business is now built on a highly predictable platform of recurring revenue based on years of design win momentum. As our recent design wins ramp up, they add to the base, and that is what is driving this sharp inflection in our business. With this strong momentum, we are once again increasing our revenue guidance for the full year 2026 to a range of $96 million-$98 million. This follows an increase in our 2026 guidance last quarter and is another indication of how we are performing well ahead of our expectations.

As I often discuss, the long-term growth and strength of our core business are best tracked via our design win momentum. The design wins we secure today drive our growth for years to come, which makes them one of the most important indicators of our future performance. I want to discuss why our design wins translate so powerfully into revenue growth. First, every new design win is added to our existing base of business. This base of active design wins continues to generate a stable, recurring stream of revenue, and each new win adds further revenues on top of it.

Second, many of the design wins we have secured in recent years are now in their strong growth phase, ramping up from initial orders towards full-scale deployments. It is the combination of those two effects, new wins adding to the base and recent wins ramping up within it, that is driving the strong revenue growth you are seeing today, and that gives us great confidence in our continued growth ahead. As you may remember, at the beginning of the year, I announced that for 2026 as a whole, we were targeting between seven and nine new design wins.

I am very pleased to report that we have secured eight new designs this year,already matching our total for the full year 2025. With two months of 2026 still to go, we have already exceeded the low end of our target range, and we are on track to meet or even exceed its upper end. I want to spend a few moments discussing the two design wins that we secured during the third quarter. In July, an existing blue-chip customer awarded us a new design win for a custom high-speed server adapter, which we engineered to its exact specifications for a distinct use case within its infrastructure.

Having already integrated one of our off-the-shelf server adapters, as well as an FPGA SmartNIC, this customer came back to us for a fully custom product. This win is expected to grow our total business with this customer from approximately $3 million in 2026 to nearly $10 million next year. More recently, in September, we secured a design win with a new customer, a tier 1 cloud-based cybersecurity giant, for a Silicom edge networking device with an integrated 5G wireless connectivity. After evaluating our solution for many months, the customer selected Silicom specifically for the strength of our integrated cellular connectivity, which proved to be the key differentiator in a highly competitive process.

The customer has already placed an initial order, with ramp-up expected to begin before the end of this year. At full ramp-up, we expect revenues from this design win to exceed $5 million annually for this device alone. In parallel, we are evaluating additional higher-end edge devices with this customer, including a GPU-integrated edge device designed for edge AI use cases. Those wins are a good example of how our strategy works. We continue to grow our business by securing design wins with both new and existing customers, and each successful design win opens the door for further wins, often with satisfied customers coming back to us for additional products and additional use cases.

Those kinds of wins reflect the long-term trusted supplier relationships we have cultivated over many years of operations with leading blue-chip customers. Importantly, together, we expect them to make a significant contribution to further growth in 2027, on top of the very significant growth we are already delivering in 2026. Beyond the wins already secured, our pipeline of opportunities remains very broad and deep, spanning our entire product portfolio, edge systems, SmartNICs, and FPGA-based solutions, as well as AI inference, white box switches and post-quantum cryptography across both new and existing customers. We expect this pipeline to continue converting into design wins, laying the ground for sustained strong growth well beyond this year.

Turning to our outlook for the fourth quarter. Based on the predictable recurring revenues from our design win platform, we expect revenues in the range of $27 million-$28 million, representing 66% year-over-year growth at the upper end of the guidance. For the full year, we have raised our revenue guidance to a range of $96 million-$98 million, representing 57% year-over-year growth. This is the second time this year that we have raised our full-year guidance, which stood at $82 million-$83 million just six months ago. I also want to emphasize a particularly important milestone. Last quarter, we told you that we expected to return to quarterly non-GAAP profitability during the second half of the year.

We have already achieved this in the third quarter. Driven by our strong execution and the significant inherent leverage in our business model, and with the strong growth we expect in the fourth quarter, we expect to build significantly on this profitability in the current quarter. This is an important turning point for Silicom, and it shows the earnings power that our growing revenues are starting to unlock. Let me now turn to the AI inference market, where we continue to see tangible and significant potential. The AI networking and interconnect market is highly dynamic, requiring rapid architectural changes. This plays directly to our core strength of quickly tailoring sophisticated solutions.

As a direct result of those fast-moving dynamics, our pipeline is highly active. We are in final discussions with a new customer about a major evolving use case, and we expect to reach an agreement very soon. Conversely, another prospect recently suspended a project to change their strategic direction. We have a strong track record of thriving in exactly this kind of fluid environment. To secure their supply chain, AI inference players are increasingly adopting dual-source strategies. Because those customers anticipate needing very high product quantities in the range of tens of thousands annually, they believe they will have sufficient volume to support both sources.

This shift represents a strong long-term net positive for Silicom, opening up far more opportunities than risks. While one of our current customers now has a dual-source option, this broader trend is already driving new pipeline growth, including at least one new prospect currently evaluating us for their dual-source plans. We are uniquely equipped to capture those expanding opportunities. Our ability to deliver both FPGA-based and ASIC-based solutions ensures that we can provide the most cost-effective, high-performance architectures to AI inference companies as they scale. Ultimately, the behavior of decision-making and extended timeframes in the AI inference space closely mirror those of our traditional markets.

Success in this environment requires patience and a readiness to provide consistent, long-term support through very long product introductions, initial deployment, and ramp-up periods. We are fully prepared to navigate those extended cycles, having executed exactly this playbook across similar markets for more than 30 years. Finally, this brings me to our continued balance sheet strength, which provides us with the flexibility to invest in our growth while maintaining a conservative financial profile. At the end, our working capital and marketable securities totals $107 million, representing approximately $18 per share, of which $45 million in cash equivalent, and highly rated marketable securities with no debt. In summary, this was another excellent quarter.

It reinforces our confidence in the strength of our target market, the effectiveness of our execution, and the soundness of our strategic plan, and it is a very exciting time for Silicom. Our business delivered 71% year-over-year revenue growth in the third quarter, ahead of our guidance, and we have returned to non-GAAP profitability well ahead of our original timeline. Our design win engine is firing on all cylinders with eight design wins already secured this year, and we have once again raised our full-year revenue guidance to $96 million-$98 million, representing 57% year-over-year growth.

Most importantly, the strong base of design wins we have built, together with our very broad pipeline of opportunities, position our business very well for continued growth in 2027 and beyond. Taken together, those achievements clearly show that we have passed an inflection point. Our customer demand is stronger, and our growth momentum continues to build. With accelerating revenues and our return to profitability, we expect to close 2026 on a high note, carrying this exceptional momentum into a highly promising 2027. We look forward to delivering continued strong growth and returns to our shareholders in the quarters ahead and over the long term.

With that, I will now hand the call over to Eran for a detailed review of the quarter results. Eran, please go ahead.

Eran Gilad: Thank you, Liron, and good day to everyone. I will review the financial results and business performance for the third quarter of 2026. Before beginning the financial overview, I would like to remind you that, unless otherwise indicated, all financial results are non-GAAP. The 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 third quarter of 2026, which were $26.7 million, 71% above the $15.6 million reported in the third quarter of last year.

The geographical revenue breakdown over the last 12 months was as follows: North America, 78%; Europe and Israel, 11%; Far East and the rest of the world, 11%. During the last 12 months, we had one 10%-plus customer, which accounted for about 13% of our revenue. Gross profit for the third quarter of 2026 grew 63% to $8.1 million, compared to a gross profit of $5 million in the third quarter of 2025. Our gross margin of 30.3% in the quarter is comfortably within our expected short to midterm gross margin range of 27%-32%. Operating expenses in the third quarter of 2026 were $8.1 million, compared with $7.4 million reported in the third quarter of 2025.

I highlight that this is an increase of only 9% year over year compared with 71% revenue growth, a clear demonstration of the operating leverage inherent within our business model. Operating income for the third quarter of 2026 turned positive, just above breakeven at $20,000, a significant improvement from the operating loss of $2.4 million reported in the third quarter of 2025. Net income for the quarter was $0.3 million, compared with a net loss of $2.1 million in the third quarter of 2025. We are delighted to have returned to quarterly non-GAAP profitability in the third quarter, well ahead of our initial expectations.

Earnings per share in the quarter were 4 cents, compared with a loss per share of 36 cents in the third quarter of last year. Now, turning to the balance sheet. As Liron mentioned, as of September 30, 2026, our working capital and marketable securities amounted to $107 million, including $73 million in high-quality inventory and $45 million in cash equivalents, and highly rated marketable securities with no debt. That ends my summary. I would like to hand back to the operator for a question and answer session. Operator?

Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions The first question is from Ryan Koontz of Needham & Company. Please go ahead.

Ryan Koontz: Good morning from the West Coast, and great quarter, guys. Really great quarter. A few questions if I could, please. Can you start with reminding us what the revenue ramp, I know there's different scales of different design wins, obviously, but can you remind us of the timing of revenue ramps, typically from the time that you announce a win? Are we talking two quarters to start small and maybe it gets material in three, four quarters? If you could just comment on that just to reset the expectations here on these design wins, that would be really helpful.

Liron Eizenman: Yeah. Obviously, it differs from one design win to another, but usually it's going to be in the range of six months, we start seeing the revenues coming in 12 months, we see the ramp-up, and then usually from that point on, it's basically continuing at that standard planning.

Ryan Koontz: Really helpful. Thank you. This really exemplary growth you're delivering here in the second half with the really strong acceleration now exceeding 50%. These are design wins, I assume then, the primary contributors here are design wins you secured in the second half of 2025. Is that a good way to think about it?

Liron Eizenman: Or before, yes. It's definitely not the design wins we secured in the first half of this year. Those will be mainly contributing for the years to come. So everything we're seeing right now, already in the growth, in the revenue numbers, are design wins we achieved either in 2024 or some of them even earlier than that.

Ryan Koontz: Yeah. Great to hear that. Then, I know you've talked in the past about this AI inference design win and the potential for this to ramp. Any updates for us there? I know investors are keenly interested in that opportunity, but can you share any updates on your view of the opportunity and timing?

Liron Eizenman: Yeah. We continue to be very excited about this opportunity, obviously, and we're seeing good momentum with this customer, and I definitely hope we will have some updates for you soon. Right now, it's moving forward good. As we published, we got the first production order. We're working on delivering it and also working on trying to secure additional orders.

Ryan Koontz: Got it. Super. If you could clarify, your microphone's a little fuzzy. It's a little bit hard to hear you on this call, to be honest, but you had these comments about dual-source. This is from an existing design win you have that's going to dual-source, or can you clarify your comments there?

Liron Eizenman: Absolutely. The comment was general, not about a specific design win or a specific customer. It is about the industry. As those AI inference players are advancing and becoming more mature, they understand that they need a dual-source strategy. This is something we are very familiar in the market for many years. We are starting to see more and more of that. That obviously is two ways. One side is good because it opens up more customers that today are maybe not working with us, maybe working with someone else, and suddenly they come to us, and we have such case actually right now where we are entering very late discussions with a customer about becoming their dual-source.

On the other side, yes, it may also be a situation where we are working with someone and that someone will have now a dual-source strategy. But the good news is the quantities are very, very high. That is what we hear from all those guys. It is in the tens of thousands per year. So even with a dual-source strategy, the volumes that we can get even from one customer could be very big.

Ryan Koontz: Sure. That is really helpful. These designs, obviously, this is different sourcing strategy, different manufacturers, but this is also from a different design vendor making a different product that serves the same requirements as yours, or is it your design being manufactured by different manufacturers?

Liron Eizenman: It would not be our design manufactured by someone else. It would be a competitive solution from someone else. But if I think about it in the whole, I think for us, it is less risk and more opportunity for us, to sum it up, in my view.

Ryan Koontz: Got it. That is really helpful. Any help for us on how we should think about the growth opportunity here in 2027? Do you think this momentum you are seeing in the second half, can we safely say you expect that to carry forward to calendar 2027?

Liron Eizenman: I am personally very excited about 2027. There are no numbers I can share right now, but in general, we believe we continue to grow, and we believe we have a good momentum both on design wins that should ramp up and both on new stuff that we are still winning this year and planning to see the impact of that next year. Very excited. We will continue seeing the growth, I believe, but exact numbers is too early for me to provide.

Ryan Koontz: Fair. Maybe one last one if I could squeeze it in. Just if you think about your, we will call it legacy business from design wins before 2024, for example, design wins 2023 and before. Do you have any idea of the stabilization of that business? Is it in modest decline? Is it essentially flat now? Can you help us with your long-established business with the trajectory of that, even here in the second half of 2026, what is the mix of old versus new design win in terms of growth?

Liron Eizenman: Usually when we have a design win, usually it will stay at least for three to five years, sometimes even more than that. Even design wins that we achieve in 2024, 2023, very likely they will stay with us this year, next year, maybe also in 2028. A lot of times it is a design win after design win. As I mentioned before, it is a design win with another customer gets us a design win with the same customer later on.

If they bought from us, for example, you mentioned legacy, I would not call it legacy, I would say our core business, for example, one of our network adapters, and now they are going to do a refresh next year, they will probably come to us and they will say, "Okay, we had a lower speed grade adapter three years ago. Now we want to go to a higher speed one. What do you guys have? That would be like the automated process for them, and then we will just do a new refresh, new design win with those guys, and that happens a lot.

Even those design wins that are around for three, four years, sometimes even more than that, when they do a refresh, they come to us.

Ryan Koontz: That is really, really helpful. Appreciate all your thoughts there and congrats on a great quarter.

Liron Eizenman: Thank you.

Operator: 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?

Liron Eizenman: 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 three months. Good day.

Operator: Thank you. This concludes Silicom's third quarter 2026 results conference call. Thank you for your participation. You may go ahead and disconnect.

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