Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Second Quarter 2023 Results Conference Call. All participants are at present in a listen-only mode. Following management presentations 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 now like to hand over the call to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to begin?

Thank you, operator. I would like to welcome you to Silicom second quarter 2023 results conference call. Before we start, I'd like to draw your attention to the following Safe Harbor statements. This conference call contains projections or other forward-looking statements regarding future events or the future performance of the Company. These statements are only predictions and they change as time passes. Silicom does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of Silicom's increasing dependency for substantial revenue growth on the limited number of customers in the evolving cloud-based SD-WAN, NFV and edge market; the speed and the extent to which solutions are adopted by these markets; the likelihood that Silicom will rely increasingly on customers which provide solutions in these evolving markets, resulting in an increasing dependency on a smaller number of larger customers; difficulty in commercializing and marketing of Silicom's products and services; maintaining and protecting brand acquisitions; protection of intellectual property, competition; the disruptions to our manufacturing; sales and marketing; development and customer support activities; the impact of the war in Ukraine; rising inflation; rising interest rates; volatile exchange rates and commodities prices as well as any continuing or new effects resulting from the COVID-19 pandemic and the global economy uncertainty, which may impact customer demand through their exercising greater caution and selectivity with their short-term IT investment plan; as well as those other factors discussed in our earnings report on Form 20F and other documents filed by the Company and that may be substantially filed by the Company from time to time with the Securities and Exchange Commission. In addition, following the Company's disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during…

Thank you, Kenny (sic) [Ehud]. I would like to welcome all of you to our financial results conference call discussing our second quarter '23 results. We are happy to show a good set of second quarter '23 results. We grew our second quarter revenue to $38.1 million, in line with our expectations. It was a 12% increase over the second quarter of last year. We are indeed happy with those results, especially against the background of a more challenging economic environment and more limited visibility, which I will discuss in a few minutes. Our continued success has added to more than 18 years or more precisely, 74 quarters, of uninterrupted profitability, and we reported second quarter earnings of $0.66 per diluted share. Our strong balance sheet has been the outcome of a very planned and executed strategy by the management. As we discussed a few quarters ago, as supply chain issues improved, we continued to decrease our inventory. In this quarter, we further decreased our inventory by $10 million, moving towards a normalized level of inventory that matches current components' lead times. Also, as discussed a few quarters ago, we continue to improve our cash, which currently stands at $63 million with no debt. It represents an increase of $10 million during the second quarter. Our strong cash position remains a key strategic asset and enables us to capitalize quickly on opportunities. As we have shown, we are very happy to share the rewards of our continued profitability and cash generation with our shareholders. Based on our improved cash position and our expectations to continue to be profitable during the coming years, we intend to accelerate the pace at which we repurchase our shares under the $15 million share repurchase plan that we announced three months ago. Our strategic decision…

Thank you, Liron, and hello, everyone. Revenues for the second quarter of 2023 were $38.1 million, up 12% compared with revenues of $34.2 million as reported in the second quarter of last year. Our geographical revenue breakdown over the last 12 months were as follows: North America, 79%; Europe and Israel, 17%; Far East and rest of the world, 4%. During the last 12 months, we had one 10%-plus customer, and our top three customers together accounted for about 30% of our revenues. I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the noncash compensation expenses in respect of options and RSUs granted to directors, officers and employees, acquisition-related adjustments as well as lease liabilities, financial income. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the second quarter of 2023 was $12.3 million, representing a gross margin of 32% and compared to a gross profit of $12.3 million or gross margin of 36% in the second quarter of 2022. The variance in the gross margin is a function of the specific product mix sold in the quarter, and both remain in line with the expected range of our gross margin guidance of between 23% and 36% -- not 23%, sorry, 32% and 36%. Operating expenses in the second quarter of 2023 were $7.5 million compared to $7.3 million reported in the second quarter of 2022. Operating income for the second quarter of 2023 was $4.8 million compared to operating income of $5 million as reported in the second quarter of 2022. Net income for the quarter was $4.5 million compared to $4.7 million in the second quarter of 2022. Earnings per diluted share in the quarter was $0.66. This is a year-over-year decrease of $0.04 compared with EPS of $0.70 as reported in the second quarter of last year. For the first half year of 2023, our earnings per diluted share were $1.27, an increase of $0.13 compared with EPS of $1.14 as reported in the first half last year. Now turning to the balance sheet. As of June 30, 2023, the Company's cash, cash equivalents and marketable securities totaled $63.3 million with no debt or $9.31 per outstanding share. During the second quarter, Silicom purchased approximately 25,000 shares at a cost of $0.9 million under the new $15 million share repurchase plan we announced during the quarter. In total, Silicom has purchased an aggregate of $44 million in share buybacks in recent years. As mentioned by Liron, based on our strong balance sheet, improved cash position and our expectations to continue to remain profitable during the coming years, we intend to accelerate the pace at which we repurchase our shares. That ends my summary. I would like to hand back over to the operator for question-and-answer session. Operator?

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Alex Henderson of Needham & Company.

So a couple of baseline questions here. So clearly, the question on the revenues needs to be asked. Is the steep decline in expectations for the September quarter cleaning up the inventory to a large degree? Or is there going to be a process of cleaning up that will retain this type of level of revenues out through the March and into the June quarter of next year? What do you think the slope of that cleanup looks like? And when do you expect that you'll be able to get back to year-over-year growth? Is that all the way out into the September quarter of next year?

So, we still have the low-visibility situation, I would say. I mean it's hard to say, and it's also different from one customer to the other, very hard for me to answer that question right now, but I think we have at least several quarters here, some customers more, some customers less that will see the situation of over-inventory still.

So, the December quarter historically has had a pretty significant seasonality to it. And I get it that there's an inventory correction going on, but do you expect a little bit of a seasonal pop sequentially in the December quarter? Or do you expect that the inventory drawdown will fully offset the seasonality in the December quarter?

I think I would have to say similar to the previous question. It's hard for me to say. I mean the -- it's not -- I don't know if the regular seasonality will be in effect here or not. It really depends on our specific customers and their level of inventory. It's hard for me to say.

Obvious question is from perspective of an exercise of us forecasting it, would you prefer us to assume there's no seasonality?

I think it's a question that I don't have the best answer for it. I think we're tracking it very closely. At the moment, the visibility is still very, very limited. And I don't know if I can offer a very good answer.

Okay. What about on the cost side of the equation? The downdraft here is pretty pronounced. It looks like it's going to be running for at least three or four quarters. Given that outlook, what should we be thinking about in terms of your ability to address the cost side of the equation so that the profitability doesn't get hit too badly?

From a GP perspective, we're not expecting any change. So that remains, as Eran said before, 32% to 36%. On the OpEx side, we're definitely planning to continue investing. I mean, from our perspective, the long-term growth is the key issue here that we want to continue growing in the long term. We believe we have, I mentioned before, some very good design wins that were waiting to accelerate. We're working -- we have a very good pipeline. And in order to support all of that, we need to keep investing.

Okay. So, we're talking about $30 million-plus in OpEx for the year? Is that kind of the right range of expectations?

I think it makes sense.

All right. And just going back to the question of baseline, you made the comment that the last year or two have been artificially enhanced by people building inventory, and now you're saying that they're under-spending. What do you think the real baseline is that you'll be growing off of as we get past this process? What should the '23 full year revenue be if there was no correction or prefer -- if you prefer the $150 million, was that really $10 million, $15 million, $20 million worth of inventory build? Or how do we think about what the baseline is on a quarterly basis? Is it -- you're saying the $30 million to $31 million in the September quarter is well below. So, I'm assuming it's somewhere up in the $35 million range-plus. Is that right?

Maybe, I think it's reasonable to say this number. I think overall, when we're looking -- trying to analyze the situation, obviously, it's not only inventories. I mentioned before also the economic, let's say, concerns, et cetera, that are also in the mix. It's a little bit hard to distinguish between the two. But again, when we analyzed the data, we looked at least $10 million-plus that were pushed out from this quarter per our expectations that customers would put. So, $35 million, maybe a little more could be as well, but it's very hard to say an exact number given that it's a mix of reasons here.

[Operator Instructions] 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?

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' time. Good day.

Thank you. This concludes Silicom Second Quarter 2023 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.