Silvaco Group, Inc.(SVCO) - 2025 Q2 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business operations, acquisitions, and other financial commitments for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets The balance sheets highlight changes in assets, liabilities, and equity, reflecting shifts in cash, marketable securities, and the impact of litigation settlements - The significant increase in restricted cash to $16.5 million as of June 30, 2025, from zero at December 31, 2024, is due to securing an irrevocable standby letter of credit for a litigation settlement[7][31] - Total assets decreased by 10.3% primarily driven by a 23.4% decrease in total current assets, largely due to reductions in cash and cash equivalents and current marketable securities, partially offset by an increase in non-current assets[7] Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Cash and cash equivalents | $13,132 | $19,606 | $(6,474) | -33.0% | | Restricted cash | $16,500 | $— | $16,500 | N/A | | Current marketable securities | $25,853 | $63,071 | $(37,218) | -59.0% | | Total current assets | $82,127 | $107,280 | $(25,153) | -23.4% | | Total non-current assets | $45,502 | $35,065 | $10,437 | 29.8% | | Total assets | $127,629 | $142,345 | $(14,716) | -10.3% | | Total current liabilities | $38,610 | $34,488 | $4,122 | 12.0% | | Total liabilities | $48,041 | $42,262 | $5,779 | 13.7% | | Total stockholders' equity | $79,588 | $100,083 | $(20,495) | -20.5% | Condensed Consolidated Statements of Operations The statements of operations reveal a decrease in total revenue but a significant improvement in net loss, primarily due to reduced litigation and stock-based compensation expenses - Total revenue decreased by 19.5% for the three months ended June 30, 2025, and 15.3% for the six months ended June 30, 2025, primarily due to a significant decline in software license revenue, partially offset by growth in maintenance and service revenue[9][134][135] - Net loss significantly improved by 75.5% for the three months ended June 30, 2025, and 22.5% for the six months ended June 30, 2025, largely driven by a substantial reduction in litigation settlement expenses and stock-based compensation compared to the prior year[9][122][127][132] Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (Absolute) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | :----------------------------- | :----------------------------- | :---------------- | :--------- | | Software license revenue | $7,217 | $11,023 | $(3,806) | -34.5% | $17,226 | $23,281 | $(6,055) | -26.0% | | Maintenance and service revenue | $4,831 | $3,937 | $894 | 22.7% | $8,914 | $7,568 | $1,346 | 17.8% | | Total revenue | $12,048 | $14,960 | $(2,912) | -19.5% | $26,140 | $30,849 | $(4,709) | -15.3% | | Gross profit | $8,544 | $10,099 | $(1,555) | -15.4% | $19,620 | $24,015 | $(4,395) | -18.3% | | Operating loss | $(10,143) | $(37,789) | $27,646 | -73.1% | $(29,775) | $(35,401) | $5,626 | -15.9% | | Net loss | $(9,409) | $(38,388) | $28,979 | -75.5% | $(28,682) | $(37,010) | $8,328 | -22.5% | | Basic and diluted net loss per share | $(0.32) | $(1.55) | $1.23 | -79.4% | $(0.99) | $(1.65) | $0.66 | -40.0% | Condensed Consolidated Statements of Comprehensive Loss The statements of comprehensive loss show a significant reduction in comprehensive loss, driven by improved net loss and positive foreign currency translation adjustments - Comprehensive loss significantly decreased by 77.6% for the three months ended June 30, 2025, and 25.9% for the six months ended June 30, 2025, primarily driven by the improved net loss and positive foreign currency translation adjustments[12] - Foreign currency translation adjustments shifted from a loss in 2024 to a gain in 2025, contributing positively to comprehensive income[12][34] Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (Absolute) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | :----------------------------- | :----------------------------- | :---------------- | :--------- | | Net loss | $(9,409) | $(38,388) | $28,979 | -75.5% | $(28,682) | $(37,010) | $8,328 | -22.5% | | Foreign currency translation adjustments | $820 | $(199) | $1,019 | -512.1% | $1,096 | $(384) | $1,480 | -385.4% | | Unrealized loss on marketable securities | $(51) | $— | $(51) | N/A | $(121) | $— | $(121) | N/A | | Comprehensive loss | $(8,640) | $(38,587) | $29,947 | -77.6% | $(27,707) | $(37,394) | $9,687 | -25.9% | Condensed Consolidated Statements of Stockholders' Equity The statements of stockholders' equity show a decrease in total equity, primarily due to accumulated deficit from net losses, partially offset by increased paid-in capital from stock issuances - Total stockholders' equity decreased by 20.5% from December 31, 2024, to June 30, 2025, primarily due to the accumulated deficit increasing by $28.7 million from net losses, partially offset by an increase in additional paid-in capital from stock issuances[7][16] - Additional paid-in capital increased by $7.2 million, driven by common stock issuances for a business combination ($2.4 million) and share-based award plans ($0.4 million), and stock-based compensation expense ($5.0 million) during the six months ended June 30, 2025[16] Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands, except shares) | Metric | June 30, 2025 | December 31, 2024 | Change (Absolute) | Change (%) | | :-------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Common Stock Shares | 29,603,494 | 28,526,615 | 1,076,879 | 3.8% | | Additional Paid-in Capital | $137,572 | $130,360 | $7,212 | 5.5% | | Accumulated Deficit | $(56,694) | $(28,012) | $(28,682) | 102.4% | | Accumulated Other Comprehensive Loss | $(1,293) | $(2,268) | $975 | -43.0% | | Total Stockholders' Equity | $79,588 | $100,083 | $(20,495) | -20.5% | Condensed Consolidated Statements of Cash Flows The statements of cash flows indicate increased cash usage in operating activities, a shift to cash inflow from investing, and reduced cash from financing compared to the prior year - Net cash used in operating activities increased by 88.9% to $16.6 million for the six months ended June 30, 2025, primarily due to the initial $16.0 million payment for a litigation settlement, partially offset by related party funding and changes in working capital[19][174] - Investing activities shifted from a significant cash outflow of $67.9 million in 2024 to a cash inflow of $27.8 million in 2025, driven by maturities and sales of marketable securities, partially offset by business acquisitions[19][175] - Financing activities saw a substantial decrease in cash provided, moving from $106.4 million in 2024 (due to IPO proceeds) to a net cash outflow of $1.6 million in 2025, reflecting payroll taxes and vendor financing payments[19][176] Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :---------------- | :--------- | | Net cash used in operating activities | $(16,613) | $(8,794) | $(7,819) | 88.9% | | Net cash provided by (used in) investing activities | $27,817 | $(67,865) | $95,682 | -141.0% | | Net cash (used in) provided by financing activities | $(1,599) | $106,424 | $(108,023) | -101.5% | | Net increase in cash and cash equivalents and restricted cash | $10,026 | $29,853 | $(19,827) | -66.4% | | Cash and cash equivalents and restricted cash, end of period | $29,632 | $34,274 | $(4,642) | -13.5% | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, business operations, acquisitions, and other financial commitments 1. Description of Business The company provides Technology Computer Aided Design (TCAD), Electronic Design Automation (EDA) software, and Semiconductor Intellectual Property (SIP) solutions - Silvaco Group, Inc. provides Technology Computer Aided Design (TCAD) software, Electronic Design Automation (EDA) software, and Semiconductor Intellectual Property (SIP) solutions[21] - The company's solutions help semiconductor and photonics companies increase productivity, accelerate time-to-market, and reduce development and manufacturing costs[21] - Target markets include display, power devices, automotive, memory, high-performance computing (HPC), internet of things (IoT), and 5G/6G mobile[21] 2. Summary of Significant Accounting and Reporting Policies This section outlines the company's key accounting policies, including its status as an emerging growth company and details on customer concentration and restricted cash - The company is an emerging growth company and has elected to use the extended transition period for complying with new or revised accounting standards[25] - As of June 30, 2025, $16.5 million in restricted cash was held to secure an irrevocable standby letter of credit for a litigation settlement, classified as a current asset[31] - Foreign currency translation adjustments resulted in income of $0.8 million and $1.1 million for the three and six months ended June 30, 2025, respectively, compared to losses in the prior year periods[34] Customer Concentration (Accounts Receivable) | Customer | June 30, 2025 | December 31, 2024 | | :--------- | :------------ | :---------------- | | Customer A | 21% | * | | Customer B | 21% | * | | Customer C | 9% | * | | Customer D | * | 21% | | Customer E | * | 15% | Customer Concentration (Revenue) | Customer | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Customer B | 11% | * | * | * | | Customer F | * | 37% | * | 19% | 3. Revenue This section details the company's revenue recognition policies and future revenue expectations from remaining performance obligations - Revenue is primarily derived from software licensing (recognized upfront upon delivery) and maintenance and services (recognized ratably over the contract term)[40] - As of June 30, 2025, approximately $36.4 million of revenue is expected to be recognized from remaining performance obligations, with about 50% expected within the next 12 months[43] - During the six months ended June 30, 2025, the Company recognized $3.6 million of revenue that was part of the deferred revenue balance as of December 31, 2024[45] 4. Acquisitions This section outlines recent business acquisitions, including the Cadence OPC Business and Tech-X Corporation, and their financial impact - On March 4, 2025, Silvaco acquired Cadence's Optical Proximity Correction (OPC) Business for $11.5 million in cash, enhancing its computational lithography solutions[46][47] - On April 29, 2025, Silvaco acquired Tech-X Corporation for $8.0 million, consisting of $3.9 million cash, 457,666 shares of common stock ($2.4 million fair value), and contingent consideration ($1.7 million estimated fair value)[53] OPC Business Acquisition: Assets Acquired (in thousands) | Asset Type | Fair Value | | :------------------ | :--------- | | Contract asset | $615 | | Developed Technology| $1,000 | | Customer Relationships | $4,990 | | Goodwill | $5,311 | | Deferred revenue | $(416) | | Net assets acquired | $11,500 | Tech-X Acquisition: Preliminary Fair Value of Assets Acquired (in thousands) | Asset Type | Fair Value | | :------------------ | :--------- | | Cash | $851 | | Accounts receivable | $749 | | Customer relationships | $1,730 | | Developed technology| $1,280 | | Tradename | $130 | | Goodwill | $4,355 | | Net assets acquired | $7,993 | 5. Goodwill and Intangible Assets This section details changes in goodwill and intangible assets, including amortization expense and estimated future amortization - Goodwill increased by $4.4 million and $9.7 million during the three and six months ended June 30, 2025, respectively, due to the Tech-X and OPC Business acquisitions[61] Intangible Assets, Net (in thousands) | Intangible Asset | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Developed technology | $2,257 | $134 | | Customer relationships| $6,403 | $— | | Trade name | $119 | $— | | Licensed IP | $3,734 | $4,232 | | Total intangible assets | $12,514 | $4,369 | Amortization Expense by Function (in thousands) | Function | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $249 | $249 | $498 | $249 | | Research and development | $71 | $47 | $122 | $117 | | General and administrative | $302 | $— | $364 | $— | | Total amortization expense | $622 | $296 | $984 | $366 | Estimated Future Amortization Expense (in thousands) | Year Ending December 31, | Amount | | :----------------------- | :----- | | Remainder of 2025 | $1,313 | | 2026 | $2,465 | | 2027 | $2,421 | | 2028 | $2,400 | | 2029 | $1,653 | | Thereafter | $2,262 | | Total net carrying value | $12,514| 6. Related Parties This section details transactions and agreements with related parties, including lease agreements and the litigation settlement funding arrangement - The Company has commercial lease agreements with related parties controlled by Katherine Ngai-Pesic (founding principal stockholder and chairperson) for its corporate and international offices, incurring $0.1 million in rent expense for each of the three and six months ended June 30, 2025 and 2024[63][64] - In May 2025, the Company and Co-Defendants (Ms. Ngai-Pesic and Iliya Pesic) agreed to a $32.5 million litigation settlement, with the Company bearing 75% ($24.4 million) and Co-Defendants 25% ($8.1 million); the Company made an initial $16.0 million payment, including $6.0 million funded by Co-Defendants[66] - As of June 30, 2025, the Company's remaining liability for the settlement is $14.4 million; the Company may assume an additional $2.1 million if Co-Defendants default[66] 7. Debt and Financing Obligations This section outlines the company's debt and financing obligations, including the repayment of the East West Bank Loan, a vendor financing obligation, and the conversion of the Micron Note - The East West Bank Loan ($5.0 million facility) was repaid in full and terminated in May 2024, resulting in a $0.1 million loss on debt extinguishment[67] - A vendor financing obligation of $3.1 million as of June 30, 2025, arose from an amended license agreement with NXP Semiconductors, with an imputed interest rate of 9%[68] - The $5.0 million Micron Note was converted into 294,217 shares of common stock in May 2024 upon IPO, leading to a $0.7 million loss on debt extinguishment[69][70] Vendor Financing Obligation Payments (in thousands) | Year Ending December 31, | Amount | | :----------------------- | :----- | | Remainder of 2025 | $— | | 2026 | $1,200 | | 2027 | $1,200 | | 2028 | $1,200 | | Total undiscounted cash flows | $3,600 | | Less: Imputed interest | $537 | | Present value | $3,063 | | Current portion | $1,114 | | Non-current portion | $1,949 | 8. Stock-Based Compensation This section details the company's stock incentive plans, RSU activity, and stock-based compensation expense by function - The 2024 Stock Incentive Plan superseded the 2014 Plan, with 2,414,426 shares reserved for future issuance as of June 30, 2025[71] - The 2024 Employee Stock Purchase Plan (ESPP) allows employees to purchase common stock at 85% of the lesser of the fair market value at the beginning or end of the offering period[73] - Total stock-based compensation expense decreased significantly to $2.1 million (Q2 2025) and $4.4 million (YTD 2025) from $21.8 million (Q2 & YTD 2024), primarily due to the IPO-related expense recognition in 2024[78] RSU Activity (Six Months Ended June 30, 2025) | Metric | Number of Awards | | :---------------------- | :--------------- | | Balance as of Dec 31, 2024 | 1,503,662 | | Granted | 2,264,061 | | Vested | (657,936) | | Forfeited / canceled | (214,389) | | Balance as of June 30, 2025 | 2,895,398 | Stock-Based Compensation Expense by Function (in thousands) | Function | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $359 | $2,467 | $558 | $2,467 | | Research and development | $576 | $4,065 | $820 | $4,065 | | Sales and marketing | $411 | $3,552 | $734 | $3,552 | | General and administrative | $774 | $11,745 | $2,285 | $11,745 | | Total | $2,120 | $21,829 | $4,397 | $21,829 | 9. Income Taxes This section provides details on the company's income tax benefit/provision and effective tax rates, explaining the differences from the federal statutory rate - The company recorded an income tax benefit for both the three and six months ended June 30, 2025, compared to a provision in the prior year, with effective tax rates of 5% and 1% respectively[79] - The primary difference between the effective tax rate and the federal statutory rate is due to state income taxes, foreign income taxes, permanent differences, and a full valuation allowance against net deferred tax assets[80] Income Tax (Benefit) Provision (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax (benefit) provision | $(526) | $214 | $(313) | $1,019 | | Effective tax rate | 5% | (1)% | 1% | (3)% | 10. Segment Reporting This section clarifies that the company operates as a single segment and how the chief operating decision maker reviews financial information - The Company operates as a single operating segment, focusing on TCAD, EDA, and design IP solutions for semiconductor design challenges[83] - The Chief Executive Officer, as the chief operating decision maker, reviews financial information on a consolidated basis for resource allocation and performance evaluation[83] Consolidated Net Loss Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $12,048 | $14,960 | $26,140 | $30,849 | | Payroll expenses | $14,941 | $31,523 | $29,473 | $40,861 | | All other expenses, net | $6,516 | $21,825 | $25,349 | $26,998 | | Total expenses | $21,457 | $53,348 | $54,822 | $67,859 | | Net loss | $(9,409) | $(38,388) | $(28,682) | $(37,010) | 11. Commitments and Contingencies This section outlines the company's warranties, the Nangate litigation settlement, restricted cash for the settlement, and a BIS warning letter regarding export controls - The Company provides warranties on software licenses (up to 90 days) and other tools (up to one year) but has not incurred related costs in the reported periods[86] - In May 2025, the Company and Co-Defendants settled the Nangate litigation for $32.5 million; the Company's share is 75%, with a remaining liability of $14.4 million as of June 30, 2025[91] - Restricted cash of $16.5 million is held to secure a standby letter of credit for the Nangate settlement, expiring June 30, 2026[92] - In April 2025, BIS issued a warning letter regarding past potential violations of U.S. export control laws, reserving the right for future enforcement[93] 12. Fair Value of Financial Instruments This section details the fair value measurements of financial instruments, including cash equivalents, marketable securities, and contingent consideration liabilities - Contingent consideration liabilities are valued using a discounted cash flow model and increased to $1.7 million as of June 30, 2025, primarily due to the Tech-X acquisition[96][97] Fair Value Measurements as of June 30, 2025 (in thousands) | Financial Instrument | Carrying Value | Level 1 | Level 2 | Level 3 | | :------------------- | :------------- | :------ | :------ | :------ | | Cash equivalents: Money market funds | $6,149 | $6,149 | $— | $— | | Available-for-sale marketable securities: U.S. government agencies securities | $25,853 | $— | $25,853 | $— | | Total Financial Assets | $32,002 | $6,149 | $25,853 | $— | | Liabilities: Contingent consideration | $1,699 | $— | $— | $1,699 | | Total Financial Liabilities | $1,699 | $— | $— | $1,699 | Changes in Contingent Consideration Liability (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :----------------------------- | :----------------------------- | | Fair value as of January 1 | $11 | $112 | | Change in fair value| $52 | $(18) | | Earn-out payments | $(46) | $(22) | | Acquisitions | $1,682 | $— | | Fair value as of June 30 | $1,699 | $72 | 13. Subsequent Events This section reports on significant events occurring after the reporting period, specifically the acquisition of Mixel Group, Inc - On August 1, 2025, the Company acquired Mixel Group, Inc. for a preliminary aggregate purchase price of $22.0 million, consisting of $19.0 million in cash and $3.0 million in Company shares[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, discussing key factors affecting performance, recent acquisitions, revenue components, and a detailed comparison of financial results for the three and six months ended June 30, 2025, and 2024 Overview This overview describes Silvaco's core business as a provider of TCAD, EDA software, and SIP solutions, and highlights the composition of its revenue and recent booking trends - Silvaco is a provider of TCAD, EDA software, and SIP solutions for semiconductor and photonics companies, aiming to increase productivity and reduce costs[100] - Software solutions represented 60% and 66% of revenue for the three and six months ended June 30, 2025, respectively, while maintenance and services accounted for 40% and 34%[102] - Bookings declined by 33.8% for Q2 2025 and 25.3% for YTD 2025, driven by softer end market demand across the semiconductor industry[103][152] Bookings (in thousands) | Period | Bookings | | :----- | :------- | | Q2 2025 | $12,912 | | Q2 2024 | $19,478 | | YTD 2025 | $26,593 | | YTD 2024 | $35,600 | Recent Acquisitions This section details the company's recent acquisitions of Cadence's OPC Business and Tech-X Corporation, outlining their strategic purpose and financial terms - On March 4, 2025, Silvaco acquired Cadence's OPC Business for $11.5 million in cash to enhance its computational lithography solutions[104] - On April 29, 2025, Silvaco acquired Tech-X Corporation for $8.0 million, comprising cash, common stock, and contingent consideration, to integrate advanced multi-physics simulation tools with its TCAD platform[105] Key Factors Affecting our Results of Operations and Future Performance This section discusses the primary internal and external factors influencing the company's financial performance and future outlook, including economic uncertainties, customer relationships, and R&D investments - Worldwide economic and political uncertainties, including financial market fluctuations, tariffs, and trade protectionism, continue to adversely affect business operations and financial results[106] - Building long-term relationships with existing customers is crucial for driving renewals and overall revenue growth, with approximately 70-73% of bookings from existing customers in H1 2025[108][109] - The company plans to continually enhance product offerings through R&D, acquisitions, and strategic partnerships to meet increasing semiconductor design complexity and expand into new markets[111][112][113] - R&D expense was 49% and 41% of revenue for the three and six months ended June 30, 2025, respectively, reflecting increased investment in software solutions[112] - Future success depends on scaling the business while mitigating expense increases, particularly in general and administrative, and sales and marketing, to achieve gross and operating margin expansion[115] Components of Results of Operations This section breaks down the key components of the company's financial results, including revenue recognition, cost of revenue, and operating expenses, highlighting the impact of stock-based compensation and litigation settlements - Revenue is primarily derived from software licensing (recognized upfront) and maintenance and services (recognized ratably over contract term)[116][117][118] - Cost of revenue includes personnel costs for customer support, overhead, amortization of acquired intangible assets, and royalties; stock-based compensation in cost of revenue decreased significantly in 2025 compared to 2024 due to IPO-related expenses[120] - Operating expenses (R&D, S&M, G&A, litigation settlement) are significantly impacted by personnel costs, including stock-based compensation, which decreased substantially in 2025 post-IPO[122] - Litigation settlement expense was $0 for Q2 2025 and $13.1 million for YTD 2025, significantly lower than $14.7 million in both periods of 2024, reflecting the Nangate settlement accrual[127] Stock-Based Compensation Expense by Function (in thousands) | Function | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $576 | $4,065 | $820 | $4,065 | | Sales and marketing | $411 | $3,552 | $734 | $3,552 | | General and administrative | $774 | $11,745 | $2,285 | $11,745 | | Total | $1,761 | $19,362 | $3,839 | $19,362 | Results of Operations This section provides a summary of the company's financial performance, including total revenue, gross profit, operating loss, and net loss, for the reported periods Results of Operations Summary (in thousands, except percentages) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Total revenue | $12,048 | $14,960 | (19)% | $26,140 | $30,849 | (15)% | | Gross profit | $8,544 | $10,099 | (15)% | $19,620 | $24,015 | (18)% | | Total operating expenses | $18,687 | $47,888 | (61)% | $49,395 | $59,416 | (17)% | | Operating loss | $(10,143) | $(37,789) | (73)% | $(29,775) | $(35,401) | (16)% | | Net loss | $(9,409) | $(38,388) | (75)% | $(28,682) | $(37,010) | (23)% | Results of Operations as a Percentage of Total Revenue | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Software license revenue | 60% | 74% | 66% | 75% | | Maintenance and service | 40% | 26% | 34% | 25% | | Gross profit | 71% | 68% | 75% | 78% | | Total operating expenses | 155% | 320% | 189% | 193% | | Net loss | (78)% | (257)% | (110)% | (120)% | Comparison of the Three and Six Months Ended June 30, 2025 and 2024 This section provides a detailed comparative analysis of the company's financial performance for the three and six months ended June 30, 2025, versus the prior year, focusing on revenue, gross profit, and operating expenses - Total revenue decreased by $2.9 million (19%) for Q2 2025 and $4.7 million (15%) for YTD 2025, primarily due to a decline in TCAD tool revenue, partially offset by increases in EDA tools and IP sales[134][135] - Gross profit decreased by $1.6 million (15%) for Q2 2025 and $4.4 million (18%) for YTD 2025, mainly due to lower revenue, though Q2 2025 gross margin improved to 71% from 68% due to reduced stock-based compensation[136][137] - Research and development expenses decreased by $1.8 million (23%) for Q2 2025 and $0.6 million (5%) for YTD 2025, primarily due to lower stock-based compensation, partially offset by increased employee compensation[139][140] - General and administrative expenses decreased by $10.2 million (56%) for Q2 2025 and $6.7 million (29%) for YTD 2025, largely due to reduced stock-based compensation and IPO preparation costs from the prior year[144][145] - Litigation settlement expense was $0 for Q2 2025 and $13.1 million for YTD 2025, a significant reduction from $14.7 million in both periods of 2024[146] Key Operating Indicators and Non-GAAP Financial Measures This section presents key operating indicators, such as bookings, and reconciliations of non-GAAP financial measures to their most directly comparable GAAP counterparts - Bookings, defined as signed contracts and purchase commitments, decreased to $12.9 million for Q2 2025 and $26.6 million for YTD 2025, from $19.5 million and $35.6 million in the comparable 2024 periods, reflecting softer end market demand[152] Bookings Trend (in thousands) | Period | Bookings | | :----- | :------- | | Jun 30, 2025 | $12,912 | | Mar 31, 2025 | $13,681 | | Dec 31, 2024 | $20,310 | | Sep 30, 2024 | $9,875 | | Jun 30, 2024 | $19,478 | Non-GAAP Operating (Loss) Income Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating loss | $(10,143) | $(37,789) | $(29,775) | $(35,401) | | Add: Acquisition-related litigation settlement and legal costs | $304 | $16,717 | $14,099 | $17,311 | | Add: Acquisition-related professional fees and retention bonus | $1,436 | $— | $2,139 | $— | | Add: Amortization of acquired intangible assets | $622 | $296 | $984 | $366 | | Add: IPO preparation costs | $— | $607 | $— | $873 | | Add: Stock-based compensation expense | $2,120 | $21,829 | $4,397 | $21,829 | | Non-GAAP operating (loss) income | $(5,661) | $1,660 | $(8,156) | $4,978 | Non-GAAP Net (Loss) Income Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(9,409) | $(38,388) | $(28,682) | $(37,010) | | Add: Acquisition-related litigation settlement and legal costs | $304 | $16,717 | $14,099 | $17,311 | | Add: Acquisition-related professional fees and retention bonus | $1,436 | $— | $2,139 | $— | | Add: Amortization of acquired intangible assets | $622 | $296 | $984 | $366 | | Add: IPO preparation costs | $— | $607 | $— | $873 | | Add: Stock-based compensation expense | $2,120 | $21,829 | $4,397 | $21,829 | | Add: Change in fair value of contingent consideration | $17 | $(10) | $52 | $(18) | | Add: Foreign exchange loss | $342 | $114 | $547 | $244 | | Add: Loss on debt extinguishment | $— | $718 | $— | $718 | | Add: Income tax effect of non-GAAP adjustments | $(7) | $(43) | $(12) | $(76) | | Non-GAAP net (loss) income | $(4,575) | $1,840 | $(6,476) | $4,237 | Liquidity and Capital Resources This section discusses the company's sources of liquidity, including cash, marketable securities, and IPO proceeds, and assesses its ability to meet future obligations while highlighting concentration risks - As of June 30, 2025, the Company had $29.6 million in cash, cash equivalents, and restricted cash, with $4.1 million held by foreign subsidiaries, and $25.9 million in short-term marketable securities[164] - The $5.0 million East West Bank Loan was repaid and terminated in May 2024; the $5.0 million Micron Note was converted to common stock in May 2024 following the IPO[165][167] - The IPO in May 2024 generated $106.0 million in net proceeds, which are a primary source of liquidity[168] - The Company believes existing liquidity will be sufficient for at least the next 12 months, but future capital raising may be limited and could result in dilution or restrictive debt covenants[169][170] - 65% of cash and cash equivalents and restricted cash ($19.3 million) is maintained with one financial institution, exceeding federally insured limits, posing a concentration risk[170] Cash Flows This section summarizes the company's cash flow activities from operations, investing, and financing for the reported periods, highlighting significant changes and their drivers - Net cash used in operating activities increased by $7.8 million to $16.6 million in H1 2025, primarily due to the initial $16.0 million litigation settlement payment, partially offset by related party funding and working capital changes[174] - Net cash provided by investing activities was $27.8 million in H1 2025, a significant shift from $67.9 million used in H1 2024, driven by marketable securities maturities and sales, partially offset by business acquisitions[175] - Net cash used in financing activities was $1.6 million in H1 2025, a substantial decrease from $106.4 million provided in H1 2024 (due to IPO proceeds), reflecting payroll taxes and vendor financing payments[176] Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(16,613) | $(8,794) | | Investing activities | $27,817 | $(67,865) | | Financing activities | $(1,599) | $106,424 | | Effect of exchange rate fluctuations | $421 | $88 | | Net change in cash | $10,026 | $29,853 | Contractual Obligations This section details the company's contractual obligations, including operating leases, vendor financing, contingent consideration, and litigation settlement payments - As of June 30, 2025, contractual obligations include current operating lease obligations of $0.9 million and non-current of $1.3 million[178][183] - Vendor financing obligations include a current portion of $1.1 million and a non-current portion of $1.9 million[178][183] - Contingent consideration related to the Tech-X acquisition includes a current obligation of $1.0 million and a non-current obligation of $0.7 million[178][183] - The Company has a current obligation of $14.4 million for the Nangate Settlement Payment, with a contingent settlement payment obligation of up to $2.1 million if Co-Defendants default (not recognized as probable)[179][183] Off-Balance Sheet Arrangements This section describes the company's off-balance sheet arrangements, specifically the restricted cash held to secure a standby letter of credit for a litigation settlement - As of June 30, 2025, the Company held $16.5 million in restricted cash to secure an irrevocable standby letter of credit for the Nangate Settlement Agreement, expiring June 30, 2026[180] Critical Accounting Policies and Significant Judgments and Estimates This section confirms that there have been no material changes to the company's critical accounting policies during the reported period - There have been no material changes to the methodology applied for critical accounting policies during the six months ended June 30, 2025, as previously disclosed in the 2024 Form 10-K[181] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Silvaco Group, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[182] Item 4. Controls and Procedures This section details management's evaluation of the effectiveness of disclosure controls and procedures, reports on changes in internal control over financial reporting, and acknowledges the inherent limitations of control systems Evaluation of Disclosure Controls and Procedures This section confirms management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, with CEO participation, concluded that disclosure controls and procedures were effective as of June 30, 2025[184] Changes in Internal Control Over Financial Reporting This section reports on any material changes to the company's internal control over financial reporting during the period - There were no changes in internal control over financial reporting (ICFR) that materially affected, or are reasonably likely to materially affect, ICFR during the period covered by this report[185] Inherent Limitations on Effectiveness of Controls This section acknowledges the inherent limitations of any control system, emphasizing that reasonable assurance, not absolute, is provided - Management acknowledges that control systems provide only reasonable, not absolute, assurance of achieving objectives due to inherent limitations and cost-benefit considerations[186] PART II. Other Information Item 1. Legal Proceedings Information regarding the company's current legal proceedings is incorporated by reference from Note 11 to the unaudited condensed consolidated financial statements - Information regarding current legal proceedings is detailed in Note 11 of the unaudited condensed consolidated financial statements[187] Item 1A. Risk Factors This section outlines various risks and uncertainties that could materially affect the company's business, financial condition, results of operations, and prospects. These risks span business and industry-specific challenges, intellectual property and data security concerns, litigation, and factors related to the company's status as a controlled public entity Risk Factor Summary This summary highlights the main categories of risks the company faces, including competitive pressures, operational fluctuations, economic downturns, and governance issues - Key risks include significant competition, fluctuating operating results, economic downturns, challenges in product innovation, international operational disruptions, and the need to protect intellectual property[189] - Other risks involve IT system compromises, adverse financial services industry developments, and the impact of being a controlled company with limited stockholder influence[189] Risks Related to Our Business and Industry This section details risks inherent to the company's business and the semiconductor industry, such as competition, economic volatility, product innovation, and international operations - The company faces significant competition from larger companies with greater resources, competing on technology, license quality, features, terms, compatibility, reliability, interoperability, price, and payment terms[190] - Operating results are subject to significant fluctuations due to point-in-time revenue recognition, seasonality (e.g., holidays, customer R&D cycles), and macroeconomic conditions, making period-to-period comparisons unreliable[195][200] - Substantial economic downturns, particularly in key industrial sectors and China (28% of Q2 2025 revenue), can reduce software solution sales and revenue growth[201][204] - Success depends on continuous innovation and timely delivery of new software solutions and enhancements to keep pace with rapid technological changes and meet evolving market demands[214] - Increased R&D investment may be required to address industry performance, new applications, and competitive factors, potentially increasing operating expenses without a proportional revenue increase[220] - A significant portion of revenue (70% in Q2 2025) comes from international customers, exposing the company to risks from government actions, trade disputes, political instability, and adverse foreign exchange fluctuations[224][244] - Geopolitical conflicts (e.g., Israel-Hamas, Russia-Ukraine) could disrupt operations, delay software development, and impact global trade and economies, despite no direct revenue from Russia or Ukraine[238][241][242][243] - The ability to raise additional capital in the future may be limited, potentially leading to dilution from equity issuances or restrictive covenants from debt financing, hindering growth strategy execution[246] - Acquisitions, such as OPC Business and Tech-X, involve risks including integration difficulties, unforeseen expenditures, and potential loss of customers or key personnel[252][253][254] Risks Related to Intellectual Property, Information Technology and Data Privacy and Security This section addresses risks concerning the protection of intellectual property, the security of IT systems and data, and compliance with evolving data privacy regulations - Failure to protect proprietary technology and inventions through patents, trade secrets, and other IP rights could adversely impact competitiveness and financial results, with enforcement being costly and difficult[263][264][265] - The company's technology is vulnerable to piracy, unauthorized copying, and other forms of infringement, especially in countries with weak IP protection or enforcement[271] - Risks of security incidents, cyber-attacks, and data breaches are evolving and prevalent, potentially leading to regulatory actions, litigation, reputational harm, and operational disruptions[276][277][287][288] - Reliance on third-party open source software components carries risks of license non-compliance, potential source code release, and vulnerabilities, which could restrict product delivery or lead to litigation[291][292][293][294][295] - Software bugs or defects, especially in new releases or integrated technologies, could expose the company to liability, harm its reputation, and result in loss of market share[296] - Dependence on third-party software and IP licenses means risks of non-renewal, breach, or infringement claims, which could disrupt business and harm financial results[297][298] - Compliance with stringent and evolving data privacy and security laws (e.g., CCPA, GDPR, PIPL) and cross-border data transfer limitations is complex and costly, with potential for significant fines and operational impacts[299][300][301][303][305][308] Risks Related to Intellectual Property Litigation This section highlights the financial and operational risks associated with intellectual property litigation, including substantial expenses and potential business disruption - The company is exposed to intellectual property litigation, which can incur substantial expenses, reduce sales, divert management attention, and potentially lead to significant damages or loss of IP rights[309][312][313] - Obligations to indemnify customers in IP disputes could result in substantial and material expenses, severely disrupting customer operations and harming the company's business[314] Risks Related to Our Status as a Controlled Company This section discusses the implications of the company's status as a controlled company, particularly concerning corporate governance and the influence of the Pesic Family - As a 'controlled company' (Pesic Family owns >50% voting power), Silvaco is exempt from certain Nasdaq corporate governance requirements, potentially limiting other stockholders' influence[315][317] - The Pesic Family's collective voting control (over 65% of common stock) allows them to control all matters affecting the company, including business plans, mergers, and asset dispositions, potentially conflicting with other stockholders' interests[318][322] - Disputes with Ms. Ngai-Pesic or other Pesic Family members, particularly regarding related-party lease agreements, could adversely affect operating results due to potential lack of negotiation leverage[323][325] Risks Related to Legal, Regulatory, Accounting and Tax Matters This section covers risks arising from compliance with various laws and regulations, potential litigation, and changes in tax policies - The company is subject to anti-corruption, anti-bribery, anti-money laundering, export/import controls, and sanctions laws, with non-compliance potentially leading to criminal/civil liability and reputational harm[326][328] - Past voluntary disclosures to BIS and OFAC regarding potential export control and sanctions violations resulted in warning/cautionary letters, but future enforcement actions remain possible[329][330] - Involvement in various investigations and legal proceedings, including the $32.5 million Nangate litigation settlement, could have a material adverse effect on financial position and stock price[333][334] - Changes in tax laws (e.g., TCJA's R&D capitalization), exposure to additional tax liabilities, and audits by tax authorities could affect profitability and result in additional tax payments[335][337][342] Risks Related to the Ownership of Our Common Stock This section addresses risks pertinent to the company's common stock, including price volatility, internal control weaknesses, potential dilution, and dividend policy - The price of common stock is volatile due to various factors (e.g., operating results, market speculation, economic conditions) and could decline, potenti