Silicom .(US:SILC)2023-04-27 13:42Financial Performance - Sales in 2022 increased by 17.2% to US$ 150,582 thousand compared to US$ 128,460 thousand in 2021, driven by high demand for Smart Edge products [225]. - Gross profit in 2022 was US$ 51,956 thousand, with a gross profit margin of 34.5%, slightly down from 34.6% in 2021 [227]. - Net income in 2022 was US$ 18,306 thousand, representing a 73.7% increase compared to US$ 10,541 thousand in 2021 [241]. - Financial income, net in 2022 amounted to US$ 2,464 thousand, a significant increase from financial expenses of US$ 152 thousand in 2021 [237]. Expenses - Research and development expenses in 2022 increased by 2.3% to US$ 20,563 thousand, influenced by a decrease in capitalization of internal software development costs [229]. - Sales and marketing expenses in 2022 rose by 5.9% to US$ 6,990 thousand, reflecting continued investment in networking and data infrastructure solutions [232]. - General and administrative expenses in 2022 decreased by 3.5% to US$ 4,477 thousand, primarily due to a strengthening of the US Dollar against the New Israeli Shekel and the Danish Krone [234]. - Cash used in operating activities in 2022 amounted to US$ 4,090 thousand, compared to cash provided of US$ 1,079 thousand in 2021, primarily due to increased inventory and decreased trade accounts payable [250]. Research and Development - Research and development expenses were US$ 20,563 thousand in 2022, constituting approximately 13.66% of sales, compared to US$ 20,091 thousand and 15.64% in 2021 [266]. - The increase in research and development expenses in 2022 was mainly due to a decrease in capitalization of internal software development costs, which amounted to US$ 2,547 thousand in 2022, down from US$ 3,562 thousand in 2021 [267]. - The company expects to continue investing in research and development, with 136 employees engaged in these activities as of March 31, 2023 [266]. Assets and Liabilities - Working capital as of December 31, 2022, was US$ 126,505 thousand, with a current ratio of 5.67 [245]. - Cash and cash equivalents increased by US$ 1,449 thousand to US$ 30,734 thousand as of December 31, 2022 [245]. - The company recorded a net decrease of US$ 11,407 thousand in short-term and long-term marketable securities, attributed to treasury share purchases and investments in property and equipment [245]. - Trade receivables decreased to US$ 27,258 thousand as of December 31, 2022, from US$ 31,120 thousand as of December 31, 2021, due to shorter customer payment cycles [247]. - Trade payables decreased to US$ 15,922 thousand as of December 31, 2022, from US$ 29,918 thousand as of December 31, 2021, attributed to reduced material purchases in the second half of 2022 [248]. - Inventories increased to US$ 87,985 thousand as of December 31, 2022, compared to US$ 75,753 thousand as of December 31, 2021, due to increased inventory purchasing to support customer delivery expectations [249]. Market and Customer Insights - The company anticipates that trends such as Cloud adoption and Disaggregation will impact demand for its products, with a potential decrease in demand for Server Adapters but an increase for Smart Cards and CPE devices [273][275]. - The sales cycles for the company's products are long, but each Design Win represents an opportunity for sustained long-term revenues [278]. - The company’s top four ultimate customers accounted for approximately 33% of revenues in 2022, indicating a concentration risk [549]. Risk Management - As of December 31, 2022, there were no short or long-term interest-bearing loans or debts, resulting in no exposure to interest rate risk [540]. - The company is not engaged in any hedging or transactions to manage risks related to foreign currency exchange rate or interest rate fluctuations as of December 31, 2022 [547]. - A hypothetical 10% weakening of the U.S. Dollar relative to the NIS would have increased operating expenses by approximately US$ 2,166 thousand for the year ended December 31, 2022 [546]. - Inflation in Israel and fluctuations in the U.S. Dollar exchange rate resulted in a decrease in the fair value of assets by US$ 1,671 thousand in 2022 [543]. Investment Portfolio - As of December 31, 2022, the investment portfolio consisted of approximately US$ 19.2 million invested in corporate and government debt securities classified as "held to maturity" [537]. - The company was not required to adjust the carrying value of its investment securities as of December 31, 2022, indicating stability in its investment portfolio [538]. - A hypothetical 10% increase in the year-end Dollar exchange rate would decrease the accounts receivable balance by US$ 550 thousand [542]. Indemnification Agreements - The maximum liability under the Indemnification Agreements for any monetary obligation imposed on an officer or director is currently US$ 3,000,000 for each instance of a covered scenario [285].