Ladies and gentlemen, thank you for standing by. Welcome to the Silicom Fourth Quarter 2024 Results Conference Call. All participants are present in listen-only mode. Following management's formal presentation, 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. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin, please?

Thank you, operator. I would like to welcome all of you to Silicom's quarterly results conference call. Before we start, I would like to draw your attention to the following Safe Harbor statement. This conference call contains forward-looking statements. Such statements may include, but are not limited to, anticipated future financial and operating results and Silicom's outlook and prospects. Those statements are based on management's current beliefs, expectations and assumptions, which may be affected by subsequent business, political, environmental, regulatory, economic and other conditions and are subject to known and unknown risks and uncertainties and other factors, many of which are outside of Silicom's control, which might cause actual results to differ materially from expectations expressed or implied in the forward-looking statements. These include, but are not limited to, Silicom's increasing dependence for substantial revenue growth on a limited number of customers, the speed and extent to which Silicom solutions are adopted by the relevant market difficulties in the commercialization and marketing of Silicom's products and services maintaining and protecting brand recognition protection of intellectual property competition disruption to manufacturing and sales and marketing, development and customer support activities, the impact of war in Israel and in the Ukraine, rising inflation, changing interest rates, volatile exchange rates as well as any and continuing or new effects resulting from the COVID-19 pandemic and global economic uncertainty, which may impact customer demand through customers exercising greater caution and selectivity with their short-term IT investment plan. The factors noted are not exhaustive. Further information about the company's businesses, including information about factors that could materially affect Silicom's results of operations and financial condition are discussed in Silicom's annual report on Form 20-F and other documents filed by the company and that may be subsequently filed by the company from time-to-time with the Securities…

Thank you, Kenny. Welcome everyone to our conference call to discuss the results of the fourth quarter and full year 2024. We are pleased with our achievement this quarter, delivering financial results in line with the expectations and even more importantly, we made continuous progress in line with our strategic plan aimed at bringing renewed revenue growth, profitability and ultimately increased shareholder value. Strategically, I'm happy to say that we are on track and during the past quarter, we saw strong design win momentum, increasing the visibility of our potential mid to long-term revenue growth. Those achievements highlight the effectiveness of our strategy and position us well with the potential revenues from recent wins expected to ramp-up from 2026. Our renewed focus on our core product lines coupled with our strong relationship with our customers and potential new customers created a significant pipeline, which we hope to convert to even more design wins in 2025. While we continue to overcome short-term challenges, during the quarter, we achieved milestone after milestone with a variety of customers and projects and we advanced exciting opportunities through our broad pipeline towards future design wins. All this is a clear indication that we are on-track for a return to strong double-digit growth in 2026 and beyond. In terms of our financial performance for the fourth quarter, our revenue came in at the center of our expected range at $14.5 million. During 2024, we generated $17.3 million in cash with $10 million well over half of our cash generation used to repurchase our own shares as part of our ongoing buyback plan. This is aligned with our long-term strategy of shareholder value creation. Our ability to pursue this strategy is due to our strong balance sheet built-up over our many years of success and cash generation.…

Thank you, Liron, and good day to everyone. Revenues for the fourth quarter of 2024 were $14.5 million a decline from revenues of $18.8 million as reported in the fourth quarter of last year. The geographical revenue breakdown over the last 12 months was as follows: North America 76%, Europe and Israel 16%, Far East and Rest of the World 8%. During the last 12 months, our top -- our two 10% plus customers together accounted for about 26% of our revenues. I will be presenting the rest of the financial results on a non-GAAP basis, which excludes the non-cash compensation expenses in respect of options and RSUs granted to directors, officers and employees, impairment of goodwill, taxes on amortization and impairment of acquired intangible assets, impairment of intangible assets and related write-offs as well as lease liabilities, financial expenses. For the full reconciliation from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the fourth quarter of 2024 was $4.2 million, representing a gross margin of 29.1% and compared to a gross profit of $5.3 million or gross margin of 28% in the fourth quarter of 2023. As discussed previously, in the near-term our gross margin is expected to be at our lower end of our expected 27% to 32% range and as our revenues grow from current levels over the longer-term, it is expected to increase towards the upper-end. Operating expenses in the fourth quarter of 2024 were $6.9 million compared with $6.8 million reported in the fourth quarter of 2023. Operating loss for the fourth quarter of 2024 was $2.7 million compared to operating loss of $1.5 million as reported in the fourth quarter of 2023. Net loss for the quarter was $3.4 million compared to a net loss of $0.5 million in the fourth quarter of 2023. Loss per share in the quarter was $0.58. This is compared with net loss per share of $0.07 as reported in the fourth quarter of last year. Now turning to the balance sheet. As of December 31, 2024, our working capital and marketable securities amounted to $121 million, including $41 million in high-quality inventory accounts receivable net of accounts payable of $3 million, and $79 million in cash, cash equivalents and highly rated marketable securities with no debt. During 2024, we used $10 million for the repurchase of about 650,000 shares. That ends my summary. I would like to hand back over to the Operator for questions-and-answers 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 Ryan Koontz of Needham & Company.

Hi, this is Jeff Hopson on for Ryan Kuntz at Needham. Thank you for the questions and thank you for the very comprehensive presentation today. It was very helpful to visualize all the opportunities and design wins at Silicom. Maybe if we could just go into some of those design wins. As you laid out the timeline, it does take a long time from design to revenue. What is then the typical contract length or yearly engagements for each of these design wins on average?

We estimate usually it spans around 4 to 5 years. So it's quite a lot of work to get started and win. But once we are there, usually a customer would go for us for 4, 5 years and then discussions would start on the next-generation, but that's very typical for us.

And then for these new products or new designs, are there any architectural design changes? Or what's kind of the underlying competitive advantage that Silicon has for these new opportunities?

I mean, first of all, we are really at the I would say, at the edge of the newest technology working with the best silicon vendors out there and working very, very closely with them to make sure we are usually the first to be out with a product as long as the silicon launches. We are also launching our product. But I mean, that's not the only thing. We're also providing a full solution for our customers in the sense that we also understand software very well and we can give them all the supply chain capabilities they need around the product to be successful. But always being first and we invest quite heavily in R&D that puts us in a very strong position to be a great, let's say, also consultant to our customers about what to do. Many times they come to us and ask us, oh, we have that kind of problem, how can you help us solve that? And we're able to give them. And one thing that really distinguish us from others is our very rich product line that we can actually also integrate our network interface cards, Smart NICs, FPGA cards or acceleration cards into our own systems and basically become a one stop shop for our customers to get everything they need on hardware from one company.

Thank you. And for then the investment in R&D, are there any initial thoughts, I know for sales for 2025, you're thinking low-single-digit. Is there any initial estimates on R&D spend or hiring sales people for the New Year?

In general, we are not expected to expand dramatically, if at all, it will be something very specific that we need here or there, but nothing dramatic.

Thank you. I'll re queue and let more questions.

[Operator Instructions] There are further questions from Ryan Koontz of Needham & Company.

Hi, Jeff Hopson again. Just maybe 2 more from me. I know you guys had the long-term target for gross margins of 28% to 32%. Is there any variability in the gross margin expectations for the 3 segments of opportunities that you laid out in the presentation?

I mean, it's changing from product-to-product, from use case to use case. Still, we think the average that we'll see eventually after all taking all the different opportunities into play would be in the range that you mentioned 27% to 32%. Some products obviously have more, some products have some less, but that's what we expect overall to stay in that range.

Perfect. Thank you. And maybe just one more. You did have AI data infrastructure as one of the opportunities in Smart NIC. I guess overall for AI, is the technology at the edge yet or is that something that's too out in the future for being a real driver?

We think that for the edge, it's still, I would say, PoC level at the moment. It's not full production right now. But definitely, it's something that comes up with customers from time-to-time. And we see still, we see on the other side, let's say, on the training side, on the big data center side, some of our customers are providing products to that to those goals, those use cases. So we enjoy through them. And some other opportunities are actually maybe us doing something more direct with those kind of customers. We are pursuing both opportunities.

Perfect. Thank you very much for the questions.

The next question is from Jeff Meyers of Cobia Capital.

Hi, good morning. Maybe you could talk a little bit about the FPGA opportunity, where you've been with those products, what you see going forward and maybe also talk a little bit about gross margins on that front?

Absolutely. So with FPGA, we see several opportunities. We've been always pretty active in the high frequency trading. We continue to be there, but we also see the opportunities growing much more than that. We see actually opportunities together with many of the IP partners that we are partnering with. We see opportunities in streaming. We see opportunities from security. We see opportunities in network equipment companies. So we see quite a lot of opportunities either we provide the IP through one of our partners and we're actually building quite an impressive network of IP partners working with us or actually the customer is taking upon themselves to do the actual IP development. So we have a few very nice opportunities, I would say, at the top of the pipeline right now. We hope that they will materialize. And definitely from a gross margin perspective, usually those products are somewhat better. And we hope that indeed we can maintain a higher GP on those products. And but at the end of the day, I think with looking at all the opportunities we have, I don't think that the range of our overall GP would change, but definitely for those opportunities we will probably see higher GP than the average.

Got it. Thanks, guys.

Thanks, Jeff. Operator?

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 3 months. Good day.

Thank you. This concludes Silicom's fourth quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.