Silicom .(SILC) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q1 2020 was reported at $22.2 million, a decrease of 26.4% from $30.2 million in Q1 2019, and aligned with the updated guidance of $21 million to $22 million [8][19] - Gross profit for Q1 2020 was $7.3 million, resulting in a gross margin of 33%, compared to a gross profit of $10.3 million and a gross margin of 34.1% in Q1 2019 [20] - Operating income decreased to $1.6 million in Q1 2020 from $4.4 million in Q1 2019, while net income was $2.3 million or 10.3% of revenues, down from $4 million or 13.3% in the previous year [20] - Earnings per diluted share were $0.31, compared to $0.52 in Q1 2019 [20] - As of March 31, 2020, the company had $79.9 million in cash and cash equivalents, with no debt, equating to $11.05 per outstanding share [21] Business Line Data and Key Metrics Changes - The company reported a strong focus on Edge compute units and FPGA solutions, which are expected to drive future growth [13][18] - A significant purchase order of $15 million for the Intelligent Bypass unit was received from a major systems integrator, indicating ongoing demand for traditional products [11][12] Market Data and Key Metrics Changes - Geographical revenue breakdown showed North America contributing 70%, Europe and Israel 23%, and the Far East and rest of the world 7% [19] - The company noted that its top three customers accounted for approximately 35% of revenues over the last 12 months [19] Company Strategy and Development Direction - The company is focusing on providing full solutions that integrate Edge compute units with FPGA and other offloading solutions, which is seen as a unique capability in the market [13][14] - Management emphasized the importance of the Telco space and the growing interest from customers in integrated hardware solutions [14][15] - The company is optimistic about long-term growth opportunities, particularly in Edge-related business and FPGA solutions for cloud and Telco data centers [18] Management Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the COVID-19 pandemic, particularly in supply chain disruptions and logistics, but noted that demand has not decreased [22][24] - The company refrained from issuing guidance for Q2 2020 due to limited visibility but expressed optimism for a return to growth once pandemic-related disruptions subside [16][18] - Management highlighted the strategic potential of the new relationship with the major systems integrator, which could lead to further opportunities in government projects [12][43] Other Important Information - The company authorized a new share repurchase plan of up to $15 million, with approximately $13 million already spent on repurchasing shares in the previous plan [17] - The company reported a sequential decline in operating expenses, attributed to reduced travel costs due to the pandemic [32][34] Q&A Session Summary Question: Supply and logistics pressures due to COVID-19 - Management indicated that most issues experienced were related to supply chain delays, particularly from vendors in quarantine, and not a reduction in demand [22][24] Question: Expectations for supply constraints in the June quarter - Management noted that while supply constraints persist, it is unclear if conditions will worsen or improve in the upcoming quarter [25][26] Question: Gross margin dip in the March quarter - The dip was attributed mainly to a change in product mix, with more Edge products sold, rather than increased costs [29] Question: Update on SD-WAN demand - Management reported an increase in demand for low-end devices due to work-from-home initiatives, while higher-end units saw a decline [37] Question: Timing for shipping the $15 million order - Shipments are expected to begin in Q3 2020, contingent on resolving supply chain issues [42] Question: Stock buyback details - The company repurchased approximately $5 million in stock during Q1 2020, with an average cost of $30 per share [44][71] Question: Future demand outlook - Management expressed uncertainty about the timing of demand recovery but noted that demand has not disappeared [52]