Silvaco Group, Inc. Common Stock (SVCO) Earnings

Management highlights

- Strategic Transformation Progress - Achieved the targeted $20 million in annualized operating spending reductions, marking three consecutive quarters of declining non-GAAP total spending. - Delivered the first non-GAAP operating profit ($635,000) since late 2024, with GAAP operating loss improving to $4 million. - Returned to positive unrestricted cash growth for the second consecutive quarter post-IPO, ending Q2 with $13 million in cash and cash equivalents (not including the $10 million Micron convertible note closed in Q3). - New Strategic Partnerships - NVIDIA: Integrated NVIDIA accelerated computing, AI frameworks, and the CUDAx platform with Silvaco's physics-based simulation portfolio to enable next-generation digital twins for semiconductor manufacturing, expected to cut simulation cycles from weeks to days. - Dassault Systems Simulia: Develop interoperable connected workflows combining complementary simulation technologies to help semiconductor manufacturers accelerate yield ramps and reduce costly fab resource commitments by identifying issues earlier in development. - Micron: Extended the long-term strategic partnership, with Micron investing $10 million in a Silvaco convertible note. The partnership will continue expanding the jointly developed FTCO (FAB Technology Co-Optimization) platform. - AI Enablement & Productivity Gains - Internal AI adoption has delivered dramatic productivity improvements: prototyping accelerated up to 30x, source code analysis up to 11x, scripting up to 10x, and debugging up to 5x, accelerating product roadmaps and time to market. - Launched AI-enhanced products including an updated Utmost that cuts modeling time by up to 50%, and Javaro Pro that reduces netlist size and cuts simulation time by an average of 6x. - Core Growth Drivers - FTCO: A disruptive AI-integrated multi-physics platform that expands Silvaco's user base beyond traditional TCAD, with significant long-term outsized growth potential as adoption spreads across customer manufacturing processes. - IP: The $1+ billion total addressable market provides substantial headroom for growth, with the business on track to double year-over-year in 2026. - AI: AI is a net positive for Silvaco, creating new product opportunities and accelerating internal development, with no expected disruptive downside to the company's business model.

Guidance

- For Q3 FY2026: Management guides bookings of $18 million ±10%, revenue of $17 million ±10%, non-GAAP gross margin of ~88%, and non-GAAP operating expenses of $14.5 million ±5%. Q3 is expected to be seasonally soft for TCAD, in line with historical trends. - For Q4 FY2026: Management expects record (all-time highest quarterly) revenue and continued non-GAAP operating profitability, supported by strong historical Q4 seasonality (disproportionate contract renewal volume) and a robust current customer pipeline. Partnership contributions and strong IP pipeline growth also support this outlook. - For full year 2026: Management expects full-year revenue to exceed $70 million. - For full year 2027: Management guides double-digit revenue growth (at least 10%), full-year non-GAAP operating profitability, and positive operating cash flow.

Segment performance

Total company revenue in Q2 FY2026 was $17.8 million, representing 48% year-over-year growth. - IP (IT) segment: Delivered record revenue and bookings in Q2, with 238% year-over-year revenue growth. IP revenue is on track to hit $20 million for full year 2026, and the segment's sales pipeline has grown 4x over the past 12 months. It is the short-term primary growth driver for the company. - TCAD (including FTCO) segment: Delivered strong year-over-year growth, and added one new FTCO customer in Q2. It is positioned as the company's long-term major growth driver, with steady incremental customer acquisition and engagement growth expected. - EDA segment: Grew year-over-year, with standout performance from targeted high-leverage products such as Javaro Pro. It is expected to grow in line with, or slightly slower than, the company's overall growth rate, as growth is tied to cross-selling with TCAD and IP segments rather than independent large-scale expansion. Geographically, Americas is the largest region, accounting for 46% of Q2 revenue and growing 30% over the past two quarters. EMEA represented 10% of Q2 revenue, growing 30% sequentially.

Risks & headwinds

- Forward-looking statements regarding future revenue growth, profitability, and partnership outcomes are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in the company's 10-K and most recent 10-Q filings. - FTCO business growth has not yet hit an S-curve inflection point, and growth is expected to be gradual, with no guarantee of rapid near-term scaling. - Quarterly revenue results can be lumpy due to the company's revenue recognition practices, so single-quarter results are not necessarily indicative of long-term growth trends.

Analyst Q&A

• Q: Can FTCO (stated as FDCO by the analyst) meaningfully drive company revenue now that NVIDIA and Micron are partnered, and what is the expected timeline for scaling? Are these two partnerships enough to drive that growth? /

  A: FTCO growth is incremental and long-term, with existing customers expanding usage gradually and new customers driving incremental growth quarter over quarter. The short-term driver of rapid revenue growth for Silvaco is the IP business, which has seen 4x pipeline growth over the last year. FTCO will grow slowly and steadily, with acceleration expected over time as adoption spreads across more customer processes.

• Q: Is there disruption risk from LLMs to Silvaco's EDA and TCAD businesses, or are there opportunities for LLM application? /

  A: AI including LLMs is a significant net positive for Silvaco. For TCAD, AI/LLMs enable digital twin and surrogate models that require large volumes of synthetic data, which Silvaco's 40 years of physics-based modeling expertise is uniquely positioned to provide. For IP, AI improves internal development productivity, and third-party qualified IP (required for industry standards like automotive) cannot be replaced by generic AI generation, so demand for Silvaco's IP remains strong.

• Q: How much incremental CapEx will be required to support the NVIDIA partnership for GPU acceleration? /

  A: Silvaco has already been incrementally investing in GPU infrastructure and AI tools as part of its existing roadmap, and will continue targeted investments to support the partnership. The business has already returned to non-GAAP operating profitability, so the company can balance prioritized growth investments with delivering profitability to investors without disruption.

• Q: How is the $292 million total sales pipeline split between segments, and what is driving the pipeline growth? /

  A: The majority of percentage pipeline growth over the past year has come from the IP segment, which has grown far faster than expected even internally. TCAD and FTCO also have a strong pipeline and have grown nicely, but IP is the main driver of short-term pipeline expansion. EDA pipeline growth is slower, with growth focused on cross-selling with other segments.