Silvaco Group Inc

2. Summary of Significant Accounting and Reporting Policies

Basis of presentation and consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") and include the accounts of Silvaco and all of the Company's wholly owned subsidiaries with operations in North America, Europe, Asia and South America. All intercompany transactions and balances have been eliminated upon consolidation.

Reclassifications

The Company reclassified its presentation of cash flows from operating activities and financing activities in the Consolidated Statements of Cash Flows for the year ending December 31, 2022 to conform to the current year’s presentation. Such reclassifications had no effect on the previously reported consolidated financial position, consolidated results of operations or consolidated operating or financing cash flows of the Company.

War in Ukraine

On February 24, 2022, Russia launched a full scale invasion of Ukraine. As a result of local economic uncertainties and disruption created by the initiation of war in 2022, the Company recorded an impairment charge of $560,000 associated with goodwill and intangible assets held by Silvaco's Ukrainian subsidiary which management determined would not be recoverable. See also Note 6, Goodwill and Intangible Assets.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the amounts of revenue and expenses during the reported periods. The Company’s most significant estimates relates to revenue recognition. Other use of estimates include, but are not limited to, accounts receivable allowances, share-based payment compensation, valuation of goodwill and other intangible assets, contingent consideration, uncertain tax positions and income taxes. Actual results could differ from those estimates.

Revenue recognition

The Company's revenue is derived principally from software licensing and related maintenance and service. Silvaco enters into agreements that include combinations of software solutions and maintenance and services which are accounted for as separate performance obligations with differing revenue recognition patterns. The Company recognizes revenue pursuant to ASC Topic 606, Revenue from Contracts with Customers. The core principle of this guidance is that an entity should recognize revenue to depict the delivery of software to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such software or services. To achieve this objective the Company applies a five-step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Revenue from software licenses is classified as software license revenue. Software license revenue is recognized upfront upon delivery of the licensed software. Typically, the Company's software solutions are licensed with post-contract support ("PCS"), which includes unspecified technical enhancements and customer support. The PCS is classified as maintenance and service revenue and is recognized ratably over the term of the contract, as the Company satisfies the PCS performance obligation over time.

The Company also offers standard SIP licenses, developed both in house and in partnership with industry-recognized companies. The Company’s SIP licenses provide customers with access to SoC design intellectual property (“IP”) which meet established industry standards, thus saving customers the time and resources required to re-invent similar design methodology. SIP licenses offered by the Company are generally ready to use upon delivery. No modification is required in order for the customer to obtain value for use in their integrated circuit designs. Silvaco does not license SIP without support.

Revenue associated with the license of the Company’s SIP is classified as software license revenue and recognized as revenue upon delivery of the licensed SIP. Under certain SIP license agreements, the Company also derives revenue through royalties from customers who agree to pay usage-based fees to embed the Company's licensed software into their own software offerings. Royalties are generally recognized as revenue during the period in which the customer sells its solutions which incorporate the Company’s SIP. The PCS is classified as maintenance and service revenue and is recognized ratably over the term of the contract, as the Company satisfies the PCS performance obligation over time.

In connection with the Company’s SIP, which was developed in partnership with a third party vendor, Silvaco has entered into various renewable license agreements under which the Company has the right to sell the technology it licenses from the third party vendor. When the Company licenses these particular SIP to a customer, Silvaco generally acts as a principal to the transaction because the Company controls the promised SIP that it delivers to the customer. Consistent with its role as principal, the Company recognizes SIP revenue on a gross basis. Royalty costs are reported in cost of revenue upon delivery pursuant to the terms and conditions of the Company’s contractual obligations with the licensors. The Company’s licensing arrangement with this third party vendor terminated on October 30, 2023.

The Company recognized an immaterial portion of its revenue from device characterization and modeling services for the years ended December 31, 2022 and 2023. Revenue is recognized upon the completion of the requested services and, as applicable, satisfaction of customer acceptance terms. Revenue from these services is classified as maintenance and service revenue.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. Invoicing may vary from timing of revenue recognition. When the timing of invoicing or collections precedes revenue recognition, the Company records deferred revenue. When timing of revenue recognition precedes invoicing or collections, the Company records a contract asset. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component.

Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheets as accounts receivable and accrued expenses. The collection and payment of these amounts are reported on a net basis in the consolidated statements of income (loss).

Silvaco does not offer a right of return. The Company warrants to its customers that its software will perform substantially as specified in its current user manuals. Silvaco has not experienced significant claims related to software warranties beyond the scope of maintenance support, which the Company is already obligated to provide. The warranty is not sold, and cannot be purchased, separately. The warranty does not provide any type of additional service to the customer or performance obligation for Silvaco.

The Company's agreements with customers generally require Silvaco to indemnify the customer against claims that the Company's software infringes third-party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including by affirming Silvaco's right to replace an infringing product.

Significant Judgments

Silvaco's contracts typically include promises to transfer licenses, which enables customers to use the Company's software, and services. Judgment is required to determine if the promises are separate performance obligations, and if so, to allocate the transaction price to each performance obligation. The Company uses the estimated standalone selling price method to allocate the transaction price for each performance obligation. The estimated standalone selling price is determined using all information reasonably available to the Company, including market conditions and other observable inputs, historical pricing and the value relationship between Silvaco's various product and service offerings. The corresponding revenues are recognized as the related performance obligations are satisfied.

Contract Assets and Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables (billed), contract assets (unbilled), or contract liabilities (deferred revenue) on the Company’s consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to the right to invoice, or deferred revenue when revenue is recognized subsequent to invoicing. For time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers are invoiced in single or annual amounts. The Company records an unbilled receivable when revenue is recognized and it has an unconditional right to invoice and receive payment.

Financing

Silvaco is required to adjust promised amounts of consideration for the effects of the time value of money if the timing of the payments provides the customer or the Company with a significant financing benefit. Silvaco considers various factors in assessing whether a financing component exists, including the duration of the contract, market interest rates and the timing of payments. The Company's contracts do not include a significant financing component requiring adjustment to the transaction price.

Sales Commissions

Sales commissions associated with multi-year contracts for new term-based licenses are deferred, capitalized, and amortized over an estimated customer life of five years. Capitalized sales commissions are included in prepaid and other current assets and other assets on the Company's consolidated balance sheets. Amortization of sales commissions is included in selling and marketing expenses on the Company's consolidated statements of income (loss). The Company applies a practical expedient to expense sales commissions as incurred when the amortization period would have been one year or less. During the years ended December 31, 2022 and 2023, the Company capitalized sales commissions of $829,000 and $1.4 million, respectively. Amortization of sales commissions during the years ended December 31, 2022 and 2023 was $719,000 and $848,000, respectively.

Cash

Cash consists of cash held in checking and savings accounts.

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets, as follows:

Repairs and maintenance are charged to expense as incurred. Gains or losses from the sale or retirement of property and equipment are included within general and administrative expenses in consolidated statements of loss.

Research and development

Research and development costs consist primarily of personnel costs for product development, engineering, quality assessment and other related costs associated with the development of new products, enhancements to existing products, quality assurance and testing. Research and development costs are expensed as incurred. Internally developed software costs required to be capitalized as defined by ASC 350-40, Internal-Use Softwareare not material to the Company's consolidated financial statements.

Goodwill and other intangible assets

Goodwill represents the excess of the fair value of consideration transferred over the fair value of net identifiable assets acquired. Other intangible assets consist of customer relationships, developed technology and noncompete agreements which are amortized over their useful lives of five years. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable.

Goodwill is not amortized but is tested annually for impairment and more often if there is an indicator of impairment.

The Company performs testing for impairment of goodwill on an annual basis, or as events occur or circumstances change that would more likely than not reduce the fair value of the Company’s single reporting unit below its carrying amount. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable.

During the year ended December 31, 2022, the Company recorded an impairment charge of $560,000 to reduce the carrying value of intangible assets associated with Silvaco’s Ukrainian subsidiary which management determined would not be recoverable. No impairments charges were recorded to goodwill.

No indicators of impairment or impairments charges were identified or recorded to goodwill or intangible assets during the year ended December 31, 2023.

Impairment of long-lived assets

The Company continually monitors events and changes in circumstances that could indicate the carrying amounts of long-lived assets, including property and equipment, may not be recoverable. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the future undiscounted cash flows of the underlying assets. The Company's policy is to record an impairment loss when it is determined that the carrying amount of the asset may not be recoverable. As a result of local economic uncertainties and disruption created by Russia’s invasion of Ukraine in February of 2022, the Company recorded an impairment charge of $560,000 during the year ended December 31, 2022 associated with intangible assets held by Silvaco's Ukrainian subsidiary which management determined would not be recoverable. No impairment charge was recorded for the year ended December 31, 2023

Deferred transaction costs

Deferred offering costs are capitalized and consist of fees and expenses incurred in connection with the Company’s anticipated initial public offering (“IPO”), including the legal, accounting, printing, and other IPO-related costs. Upon completion of the IPO, these deferred transaction costs will be reclassified to stockholders’ equity and recorded against the proceeds from the offering. If the Company terminates its planned IPO or if there is a significant delay, all of the deferred offering costs will be immediately written off to operating expenses in the consolidated statements of operations. The balance of deferred offering costs as of December 31, 2023 was $1,163,000 which is included in total current assets on the consolidated balance sheets. No balance was outstanding as of December 31, 2022.

Concentrations of credit risk

As of December 31, 2022, customer A represented 28% of the Company’s accounts receivable. As of December 31, 2023, customer A represented 20% and customer B represented 15% of the Company’s accounts receivable.

In addition to the concentration of credit risk with respect to trade receivables, the Company's cash on deposit with financial institutions is also exposed to concentration risk. The Company's cash on deposit with financial institutions are insured through various public and private bank deposit insurance programs, foreign and domestic; however, a significant portion of cash balances held as of December 31, 2022 and December 31, 2023 exceeded insured limits.

As of December 31, 2023, $1.0 million, or 23%, of the Company’s cash was maintained with one financial institution in the United States, where the Company’s current deposits are in excess of federally insured limits. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. If the financial institutions with whom the Company does business were to become distressed or to be placed into receivership, the Company may be unable to access the cash it has on deposit with such institutions. If the Company is unable to access its cash as needed, the Company’s financial position and ability to operate its business could be adversely affected.

Since 2016, Silvaco has generated revenues from licensing to the Company’s customers, a certain SIP which the Company has licensed from a third party vendor. The license agreement with the third party vendor relating to this SIP expired on October 30, 2023. During the years ended December 31, 2022 and 2023, the Company generated $4.2 million and $4.5 million in software license revenue, respectively, from licensing this SIP to its customers. In connection with this license agreement with the vendor, the Company recognized $2.1 million and $2.0 million in royalty expense during years ended December 31, 2022 and 2023, respectively.

Allowance for credit losses

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(“CECL”), which replaces the legacy incurred loss impairment methodology with an expected credit loss model that requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses over the lifetime of a financial asset. The Company adopted CECL using the modified retrospective approach which required the Company to recognize the cumulative effect of adoption as an adjustment to retained earnings. Accordingly, the Company’s comparative financial statements of December 31, 2022, have not been adjusted. As of January 1, 2023, the Company recorded cumulative-effect opening balance sheet adjustment to an allowance for estimated credit losses on the Company’s contract asset portfolio and accounts receivable of $220,000, with an offsetting entry to decrease the opening balance of retained earnings.

The Company assesses its ability to collect outstanding receivables and contract assets and provides customer-specific allowances for credit losses and general allowances for the portion of receivables and contract assets that are estimated to be uncollectible. Allowances for credit losses are based on historical collection experience and expected credit losses, customer specific financial condition, current economic trends in the customer's industry and geographic region, changes in customer demand and the overall economic climate in the market the Company serves. Provisions for the allowance for expected credit losses attributable to bad debt are recorded as general and administrative expenses. Account balances deemed uncollectible are written off, net of actual recoveries. If circumstances related to specific customers or the market the Company serves change, the Company’s estimate of the recoverability of its accounts receivable and contract assets could be further adjusted. The Company does not have any material account receivable or contract asset balances that are past due and has not written off any significant balances in its portfolio against the allowance for credit losses for the periods presented. The following table presents the Company’s allowance for credit losses during the years ended December 31, 2022 and 2023:

*Opening balance as of January 1, 2023 includes a cumulative-effect adjustment of $220,000 for expected credit losses on financial assets in connection with the Company’s adoption of CECL.

Income taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of the enactment date.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company determines that Silvaco will be able to realize deferred tax assets for which a valuation allowance was used to reduce their carrying value, the adjustment to the valuation allowance will be recorded as a reduction to the provision for income taxes.

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more-likely-than-not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitations has expired, or the appropriate taxing authority has completed its examination even though the statute of limitations remains open.

The Company recognizes interest and penalties related to income taxes within the income tax provision line in the consolidated statements of income (loss). Accrued interest and penalties are included within accrued income taxes in the consolidated balance sheets.

Foreign currencies

The financial statements of Silvaco's international subsidiaries with local functional currencies are translated to U.S. dollars upon consolidation. Assets and liabilities are translated at the effective exchange rate on the balance sheet date. Results of operations are translated at average exchange rates, which approximate rates in effect when the underlying transactions occurred. For the years ended December 31, 2022 and 2023, the Company recorded foreign currency translation adjustments of $(419,000) and $(85,000), respectively, within accumulated other comprehensive loss.

Certain sales and intercompany transactions are denominated in foreign currencies. These transactions are recorded in functional currency at the appropriate exchange rate on the transaction date. Monetary assets and liabilities denominated in a currency other than the Company's functional currency or its subsidiaries' functional currencies are remeasured at the effective exchange rate on the balance sheet date. Gains and losses resulting from foreign exchange transactions are included in interest and other expense, net. The Company recorded net foreign exchange losses of $525,000 and $335,000 for the years ended December 31, 2022 and 2023, respectively, which is included in interest and other expense, net, in the consolidated statements of loss.

Accumulated other comprehensive loss

Accumulated other comprehensive loss is composed entirely of foreign currency translation adjustments.

Stock-based compensation

The Company accounts for stock-based payments in accordance with the authoritative guidance issued by the FASB on stock-based compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of actual forfeitures. For stock-based payment awards that contain performance criteria, stock-based compensation expense is recorded when the achievement of the performance condition is considered probable of achievement and is recorded on a straight-line basis over the requisite service period. If such performance criteria are not met, no compensation expense is recognized and any recognized compensation expense is reversed. For awards with market and service conditions, the Company recognizes stock-based compensation on a straight-line basis for all awards for which the service conditions are met, regardless of whether the market condition is achieved.

Fair value of financial instruments

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

■Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

■Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices), for substantially the full term of the asset or liability.

■Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

As of December 31, 2022 and 2023, the carrying amount of the Company’s cash, accounts receivable, accounts payable and accrued expenses approximated their fair values due to their short maturities. See Note 16, Fair Value of Financial Instruments for additional information. The Company's related party line of credit is carried at net carrying value.

Research and development tax credits

Silvaco is a recipient of research and development ("R&D") tax credits associated with the Company's French subsidiary. Pursuant to French law, the tax credit is determined on the basis of the eligible R&D expenses incurred during the calendar year. Eligible expenditures include tax deductible depreciation expenses relating to fixed assets, created or acquired newly, assigned to eligible R&D projects, including patents acquired; costs relating to staff qualifying as scientists or engineers; expenses resulting from outsourced R&D projects; expenses incurred for patent registration or in connection with the defense of patents; and expenses relating to the monitoring of technical developments. The tax credits, which are recorded as a reduction of R&D expense, can be offset against corporate income tax liabilities payable with respect to the calendar year during which the eligible R&D expenditures were incurred. Any excess credit can be carried forward and offset against the tax liability of the taxpayer during the next three years. Credits unused after three years will be refunded to the taxpayer. Research and development tax credits are included in prepaid expenses and other current assets in the Company's consolidated balance sheets.

Leases

The Company determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. A contract is or contains a lease when the Company has the right to control the use of an identified asset for a period of time. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by the lessee. On the commencement date, leases are evaluated for classification and assets and liabilities are recognized based on the present value of lease payments over the lease term. Leases are classified as either operating or finance leases based on certain criteria. This classification determines the timing and presentation of expenses on the income statement, as well as the presentation of the related cash flows and balance sheet. Operating leases with terms greater than 12 months are recorded on the balance sheet as operating lease right-of use assets, other accrued expenses and liabilities, and long-term operating lease liabilities. The Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for all asset classes.

The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The right of use (ROU) asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Variable lease payments, consisting primarily of reimbursement of costs incurred by lessors for common area maintenance, real estate taxes and insurance, are not included in the lease liability and are recognized as they are incurred.

As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental secured borrowing rate at lease commencement to measure ROU assets and lease liabilities. The discount rate used for operating leases is primarily determined based on an analysis of the Company’s incremental secured borrowing rate. The related lease payments are expensed on a straight-line basis over the lease term, including, as applicable, any free-rent period during which the Company has the right to use the asset.

The Company has no finance leases. See Note 4 for further information.

Advertising

Advertising costs are expensed as incurred and were $19,000 and $28,000 for the years ended December 31, 2022 and 2023, respectively.

Net Loss per Share

Basic net loss per share is computed based on the weighted average number of shares of common stock outstanding. Diluted net loss per share is computed based on the weighted average number of common shares outstanding increased by dilutive common stock equivalents, attributable to RSU grants.

The following potentially dilutive outstanding securities for the years ended December 31, 2022 and 2023 were excluded from the computation of diluted net loss per share because the issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied. See Note 11, Restricted Stock Units for additional information.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before consolidated financial statements are issued or are available to be issued. The Company recognizes in the consolidated financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the consolidated financial statements. The Company’s consolidated financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before consolidated financial statements are available to be issued.

Recently Adopted Accounting Pronouncements

Financial Instruments - credit losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(“CECL”), which required the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, including contract assets, at each reporting date. Silvaco adopted the new standard on January 1, 2023, the first day of fiscal 2023, and recorded a cumulative-effect adjustment to decrease retained earnings in the amount of $220,000 for expected credit losses on financial assets at the adoption date. See the Company’s accounting policy note above regarding allowance for credit losses for further discussion.

Accounting Guidance Issued and Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the guidance on the consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

3. Revenue

The Company's revenue is derived principally from contracts which promise to deliver combinations of software licensing and related maintenance and services, which are accounted for as separate performance obligations with differing revenue recognition patterns. The transaction price is allocated to each distinct performance obligation based on the relative standalone selling price. Software license revenue consists of the Company’s software sold under a software license. Revenue related to stand-alone software applications are generally recognized upon shipment and delivery of license keys. For certain arrangements revenue is recognized based on usage or ratably over the term of the arrangement. Maintenance and service revenue consists of both maintenance revenues and professional services revenues which is recognized based on usage or ratably over the term of the arrangement. Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a contract asset when revenue is recognized prior to invoicing. An accounts receivable is recorded upon invoicing. Deferred revenue is recorded when invoicing precedes revenue recognition.

The Company accounts for a contract with a customer when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights and payment terms can be identified, the contract has commercial substance, and it is probable the Company will collect substantially all of the consideration it is entitled to. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised software or providing service to a customer.

For multi-year software licenses, the Company generally invoices customers annually at the beginning of each annual coverage period.

The contract balances of the Company’s accounts receivable and contract assets, net of allowance for expected credit losses, and deferred revenue as of January 1, 2022, December 31, 2022 and December 31, 2023 were as follows:

The short-term and long-term components of the Company’s contract assets, net of allowance for expected credit losses, was as follows as of December 31, 2022 and 2023.

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2023, approximately $29.8 million of revenue is expected to be recognized from remaining performance obligations. This figure represents contracted revenue that has not yet been recognized, which includes both deferred revenue and backlog, net of cancellations and adjustments. The Company's backlog represents installment billings for periods beyond the current billing cycle. The Company expects to recognize revenue on approximately 55% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Deferred Revenue

Deferred revenue is comprised mainly of unearned revenue related to maintenance and service on software licenses and pending software license deliveries. Maintenance and technical support revenue is recognized ratably over the coverage period. Software license revenue is recognized upfront upon delivery of the licensed software. Deferred revenue also includes contracts for professional services to be performed in the future which are recognized as revenue when the company delivers the related service pursuant to the terms of the customer arrangement.

The Company's deferred revenue as of December 31, 2022 and 2023 was as follows:

During fiscal year 2022 and 2023, the Company recognized revenue of $5.8 million and $7.2 million, respectively, that was included in the deferred revenue balance at the beginning of fiscal year 2022 and 2023, respectively. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of revenue during fiscal years 2022 and 2023 as described above. Approximately 61% of the Company's deferred revenue as of December 31, 2023 is expected to be recognized over the next 12 months with the remainder recognized thereafter.

4. Leases

The Company’s headquarters are located in Santa Clara, California, where the Company has an operating lease covering its corporate office expiring in March of 2025. The Company also has operating leases in Duluth, Georgia, and abroad, in Japan, France, China, the United Kingdom, Taiwan, Singapore, and Korea, among other countries. The expiration dates for these operating leases range from 2024 through 2029. As of December 31, 2022 and 2023, the Company’s operating lease right-of-use assets and operating lease liabilities were as follows:

The components of operating lease cost were as follows:

(1)Variable lease cost includes common area maintenance, utilities, security, insurance and property taxes.

Additional information related to the Company’s operating leases for the years ended December 31, 2022 and 2023 was as follows:

As of December 31, 2023 maturities of operating lease liabilities were as follows:

Rent expense for the years ended December 31, 2022 and 2023 was $1.4 million and $1.2 million, respectively.

5. Property and Equipment, Net

The Company’s property and equipment at December 31, 2022 and 2023 consisted of the following:

During the year ended December 31, 2023, the Company recorded a $46,000 noncash loss on the disposal of fixed assets. No fixed asset disposals were recorded during the year ended December 31, 2022. Depreciation expense was $235,000 and $262,000 for the years ended December 31, 2022 and 2023, respectively.

6. Goodwill and Intangible Assets

Goodwill represents the excess of the fair value of consideration transferred over the fair value of net identifiable assets acquired. Identifiable intangible assets acquired in business combinations and asset acquisitions are recorded based on their fair values on the date of acquisition.

Goodwill and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. In connection with Russia’s invasion of Ukraine in February 2022, the Company recorded an impairment charge of $560,000 to reduce the carrying value of $284,000 of developed technology and $276,000 of customer relationships associated with the Company’s Ukrainian subsidiary which management determined would not be recoverable.

There were no changes to goodwill during the years ended December 31, 2022 and 2023.

For the years ended December 31, 2022 and 2023, intangible assets were classified as follows:

Amortization expense for the intangible assets reflected above was $316,000 and $339,000 for the years ended December 31, 2022 and 2023, respectively.

As of December 31, 2023, estimated future amortization expense for the intangible assets reflected above was as follows:

7. Significant Balance Sheet Components

Prepaid expenses and other current assets consisted of the following:

Other assets consisted of the following:

(a)Balance reflects commissions paid for new contracts, primarily new multi-year term license arrangements to be amortized over the anticipated customer life of five years.

8. Related Parties

On December 8, 2021, Silvaco entered a promissory note with the Company's founding principal stockholder for $500,000 ("Promissory Note") which was repaid in full in July 2022.

On March 30, 2022, Silvaco entered a second related party note payable with the Company's founding principal stockholder for $500,000 (“March 2022 Note”) bearing interest at 3.25% payable and due on March 30, 2023. The March 2022 Note was repaid in full in December 2022.

On May 1, 2022, the Company entered into a commercial lease agreement with Kipee, a related party controlled by the Company's founding principal stockholder, for Silvaco's corporate office in Santa Clara, California. In connection with this lease arrangement, the Company recorded rent expense of $144,000 and $216,000 of rent expense during the year ended December 31, 2022 and 2023, respectively. The Company's right-of-use asset and operating lease liability under this three year arrangement, which commenced on May 1, 2022 and expires on March 31, 2025, is $259,000 as of December 31, 2023. The short term and long term components of the Company’s operating lease liability for this commercial office lease are $209,000 and $50,000 as of December 31, 2023, respectively.

The Company has two international office leases with New Horizons (Cambridge) LTD (“NHC”) and New Horizons France (“NHF”) in Cambridgeshire, England and Grenoble, France, respectively. NHC and NHF are real estate entities owned and controlled by the Company's founding principal stockholder. In connection with these lease arrangements, the Company recorded rent expense of $278,000 and $314,000 during the year ended December 31, 2022 and 2023, respectively.

On June 13, 2022, Silvaco entered into a $4.0 million line of credit with the Company's founding principal stockholder. In connection with this line of credit, the Company recorded interest expense of $75,000 and $190,000 during the year ended December 31, 2022 and 2023, respectively. As of December 31, 2023, the balance of this line of credit was $2.0 million. See Note 10, Debt, for further discussion.

During the year ended December 31, 2023, the Company recorded $436,000 in legal expenses pursuant to an indemnification agreement for attorney’s fees incurred, by the son of the Company's founding principal stockholder incurred relating to his former role as a member of the board of directors.

In February of 2012, Gu-Guide LP, a real estate entity controlled by the Company’s founding principal stockholder, Bank of the West and Silvaco Group, Inc. entered into a loan agreement pursuant to which Bank of the West agreed to lend Gu-Guide LP certain amounts of money (the “Loan”). The Loan is secured by a building representing a total of 9,000 square feet located at 4701 Patrick Henry Drive, Santa Clara, California 95054. In the event that the proceeds from the foreclosure of the foregoing collateral are insufficient to repay the outstanding amounts under the Loan, Silvaco Group Inc. has guaranteed the repayment of the outstanding amounts under the Loan. As of December 31, 2023, $0.8 million is outstanding under the Loan.

9. Accrued Expenses and Other Long-Term Liabilities

Accrued expenses consisted of the following:

Other long-term liabilities consisted of the following:

(a)Silvaco has entered into various renewable license agreements under which the Company has been granted access to the licensor's technology and the right to sell the technology in its product line. Royalties are payable to developers of the software at various rates and amounts, which generally are based upon unit sales, revenue or flat fees. Royalty fees are reported in cost of revenue upon delivery pursuant to the terms and conditions of the Company’s contractual obligations.

(b)On March 2, 2018, Silvaco, Nangate Inc, Nangate Denmark APS (together with Nangate, Inc. referred to as “Nangate”) and Nangate's shareholder representative, Ole Christian Andersen, entered into a stock purchase agreement, pursuant to which Silvaco agreed to purchase all the outstanding capital stock of Nangate. Pursuant to the stock purchase agreement, the selling shareholders of Nangate are entitled to an earn-out over a five-year period between the closing date of the acquisition and March 3, 2023. The earn-out does not have a minimum and is based on 20% of net revenues generated by Nangate on a quarterly basis, subject to an initial hold-back or payout from a working capital adjustment from the close of the acquisition. This earn-out is a liability classified as contingent consideration as the obligation is due in cash. As such the obligation is recorded at its fair value and re-valued period to period with any changes recorded to operating income (expense). In an effort to clarify its obligations with respect to the earnout payment due to the selling shareholders of Nangate, the Company sought declaratory relief in the California Superior Court in December 2020. See also, Note 14, Commitments and Contingencies, and Note 16, Fair Value of Financial Instruments.

(c)Pursuant to the January 2021 stock purchase agreement for the acquisition of PolytEDA, the selling shareholders are entitled to milestone consideration of up to $1.0 million based upon PolytEDA's technical achievement during 2021 and 2022 in addition to earn-out consideration over a three-year period beginning on the second year following the closing of the acquisition through January 2025. The earn-out does not have a minimum and is based on 20% of the operating income generated by PolytEDA on a quarterly basis, subject to an initial hold-back or payout from a working capital adjustment from the close of the acquisition. The milestone consideration and earn-out are liabilities classified as contingent consideration as the obligations are due in cash. As such the obligations are recorded at their fair value and re-valued period to period with any changes recorded to operating income (expense). See also, Note 16, Fair Value of Financial Instruments.

10. Notes Payable

On December 8, 2021, Silvaco entered a promissory note with the Company's founding principal stockholder for $0.5 million ("Promissory Note") bearing an interest rate of 3.25% payable and due on July 1, 2022. As of December 31, 2021, the balance due on the Promissory Note, including accrued interest, was $0.5 million. The Promissory Note was repaid in full in July 2022.

On March 30, 2022, Silvaco entered a second related party note payable to the Company's founding principal stockholder for $0.5 million bearing interest at 3.25% payable and due on March 30, 2023. The March 2022 Note was repaid in full in December 2022.

On June 13, 2022, Silvaco entered into a $4.0 million line of credit with the Company's founding principal stockholder bearing interest at a rate of prime plus 1% per annum. As of December 31, 2022 and 2023, the balance of this line of credit was $2.0 million. Originally the line of credit was due in full upon the earlier of (a) June 13, 2023 and (b) 10 days following the date that the Company secures subordinated financing in an amount equal to or greater than the line of credit. In May of 2023, the due date was revised to be the earlier of (a) June 13, 2024 and (b) 10 days following the date that the Company secures subordinated financing in an amount equal to or greater than the line of credit. Concurrent with entering into the East West Bank Loan agreement, described below, Ms. Ngai-Pesic agreed to (i) extend the repayment term of the 2022 Credit Line to be the later of (a) the expiration or termination date of the East West Bank Loan or (b) June 13, 2024, and (ii) subordinate the right of repayment of any outstanding amount under the 2022 Credit Line to any amount outstanding under the East West Bank Loan. Following the extension of the repayment term, the Company has determined that as of December 31, 2023, the line of credit should be classified as current on the consolidated balance sheet, given that under the certain circumstances previously described, including early termination of the East West Bank Loan, the amount outstanding under the line of credit may become due and payable on June 13, 2024.

In December 2023, the Company entered into a loan facility with East West Bank (the “East West Bank Loan”) which has a maturity date of December 14, 2025 and provides for borrowings of up to $5.0 million bearing interest at a per annum rate equal to one half of one percent (0.5%) above the greater of (i) the prime rate or (ii) four and one half percent (4.5%). The East West Bank Loan is secured by certain of the Company’s assets, including without limitation, certain of the Company’s intellectual property and the equity of certain of the Company’s subsidiaries. In addition, the East West Bank Loan contains customary financial and negative covenants, including a six month minimum Adjusted EBITDA of $1.0 million measured at an initial test date of December 2023 and minimum cash at bank covenant of $1.5 million, with such minimum amount increasing to $10.0 million upon the effectiveness of an initial public offering. As of December 31, 2023, there were no outstanding borrowings under the East West Bank Loan and the Company is in compliance with all covenants.

11. Restricted Stock Units

Silvaco has 8.0 million shares of common stock reserved for its restricted stock units (“RSUs”) grants. Since 2014, the Company has issued RSUs to employees, directors, and advisors, pursuant to the Company's 2014 Stock Incentive Plan (the "2014 Plan"). As of December 31, 2022 and 2023, 5,286,496 and 6,797,137 RSUs were outstanding under the 2014 Plan, including 1,359,150 and 2,051,049 RSUs granted during the years ended December 31, 2022 and 2023, respectively. The RSUs generally have two vesting requirements, a time and service-based requirement (the “Time-Based Requirement”) and a “Liquidity Event Requirement.” The Time-Based Requirement generally requires four years for full vesting of the grants, with 25% vesting after one year and quarterly vesting over the subsequent three years. Certain grants have had modified time-based vesting requirements, including certain grants that have been issued with the time-based service requirement satisfied on the grant date. The Liquidity Event Requirement requires the completion of an underwritten initial public offering or a change of control, as defined in the Company's 2014 Plan documents.

In addition to the RSU awards described above, in the fourth quarter of 2023 the Company granted 60,000 RSUs to an executive which contain vesting conditions with both a Time-Based Requirement and a performance condition requirement linked to the Company achieving certain revenue thresholds. The grant date fair value of these awards was $414,000, and there was no stock-based compensation expense recognized related to such awards during the year ended December 31, 2023. The Company also granted to the executive a total of 150,000 RSUs that vest based on a Time-Based Requirement, a Liquidity Event Requirement and a market condition, based on the volume weighted average price of the Company’s stock as measured over a period of time. The grant date fair value of these awards of $600,000 has yet to be recognized as stock-based compensation expense, as throughout 2023 the Liquidity Event Requirement associated with such awards was not deemed probable of occurring.

The following table summarizes the Company's RSU activity for 2022 and 2023:

The grant date fair value of the RSU awards without market conditions, was based on the Probability-Weighted Expected Return Method, which assessed the value of the Company’s equity based on an analysis of future enterprise values under two IPO scenarios, one “Early” and one “Late”, as well as a "Stay Private" scenario. The estimated value of the common stock in each scenario was then probability-weighted based on inputs provided by management regarding the likelihood of each scenario as of the valuation date.

The grant date fair value of the RSU awards with market conditions, was determined based on the Monte Carlo valuation model, which requires various estimates, including the expected volatility of the common stock of the Company based on the historical volatility of comparable publicly traded companies, the probability of an IPO, the IPO date and the vesting term.

Historically the Company has not recorded stock-based compensation expense for the RSUs, due to the Liquidity Event Requirement not being probable. The Company has valued the unrecorded stock-based compensation expense, using historical estimates of the fair value of the Company's common stock. Should the Liquidity Event Requirement (“Liquidity Event”) become probable, the Company would incur share based compensation expense associated with (i) active employees who have fulfilled or are in the process of fulfilling the Time Based Requirement (“active employees”), (ii) certain terminated employees whose RSU’s become fully vested in connection with the Liquidity Event (“terminated employees”), and (iii) the acceleration of the Time Based Requirement for certain awards to executive officers, senior management and directors as a result of Liquidity Event.

As of December 31, 2022, the Company had 5,286,496 outstanding RSUs related to active and certain terminated employees. The total grant date fair value of such outstanding RSUs in unrecognized stock-based compensation expense is $15.7 million. The 3,143,318 RSUs which have contractually met the Time-Based Requirement have a grant date fair value of $7.3 million. The remaining 2,143,178 RSUs which have not met the Time-Based Requirement have a grant date fair value of $8.4 million.

As of December 31, 2023, the Company had 6,797,137 outstanding RSUs related to active and certain terminated employees. The total grant date fair value of such outstanding RSUs in unrecognized stock-based compensation expense is $24.5 million. The 4,121,887 RSUs which have contractually met the Time-Based Requirement have a grant date fair value of $11.8 million. The remaining 2,675,250 RSUs which have not met the Time-Based Requirement have a grant date fair value of $12.7 million.

In the period in which the Liquidity Event Requirement is satisfied, the Company will record cumulative stock-based compensation expense for the service period through such date using the straight-line attribution method, net of actual forfeitures, based on the grant-date fair value of the RSU awards. Had a qualifying Liquidity Event occurred on December 31, 2023, the Time Based Requirement would be accelerated in accordance with their terms for an additional 348,899 RSUs, and the Company would recognize cumulative combined stock-based compensation expense of $14.7 million for active employees, terminated employees, executive officers, and directors.

12. Income Taxes

The domestic and foreign components of the Company's income (loss) before tax provision for the years ended December 31, 2022 and 2023, were as follows:

The components of the Company's income tax provision for the years ended December 31, 2022 and 2023, were as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2022 and 2023 were as follows:

The following is a reconciliation of the federal statutory income tax rate to the Company's effective tax rate for the years ended December 31, 2022 and 2023:

Management establishes a valuation allowance for those deductible temporary differences when it is more likely than not that the benefit of such deferred tax assets will not be recognized. The ultimate realization of deferred tax assets is dependent upon the Company's ability to generate taxable income during periods in which the temporary differences become deductible. Management regularly reviews the deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Through the year ended December 31, 2023, management believes that it is more likely than not that the deferred tax assets will not be realized, such that a full valuation allowance has been recorded.

During the years ended December 31, 2022 and 2023, the valuation allowance increased by $1.4 million and $1.6 million, respectively.

As of December 31, 2023, the Company had federal research and development tax credits of $5.7 million which begin expiring in 2028 and no net operating loss carryforwards for federal income tax purposes.

As of December 31, 2023 the Company had net operating loss carryforwards for state income tax purposes of $2.9 million which begin expiring in 2029 and state research and development credits of $8.0 million which begin expiring in 2024.

The Company has not recorded a provision for deferred U.S. tax expense that could result from the remittance of foreign undistributed earnings since the Company intends to reinvest the earnings in its foreign subsidiaries indefinitely.

The following table summarizes the activity related to the Company's gross unrecognized tax benefits:

The Company records unrecognized tax benefits, where appropriate, for all uncertain income tax positions. The Company recorded unrecognized tax benefits for uncertain tax positions of approximately $7.2 million as of December 31, 2023, of which $1.4 million, if recognized, would impact the effective tax rate.

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. During the 2022 and 2023 tax years, interest and penalties recorded in the statements of loss were $16,000 and $19,000, respectively. The amounts of accrued interest and penalties recorded on the consolidated balance sheets as of December 31, 2022 and 2023 were $58,000 and $77,000, respectively. The Company does not believe there will be material changes in its unrecognized tax positions over the next twelve months.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and certain foreign jurisdictions. The Company is not currently under audit by the Internal Revenue Service or other similar state, local, and foreign authorities. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject for a period of three years for federal and four years for states, after the utilization of net operating losses and credits.

13. Segment Reporting and Geographical Concentration

The Company manages its operations through an evaluation of a consolidated business segment that solves semiconductor design challenges by offering affordable and competitive TCAD software, EDA software and design IP to support engineers and researchers across the globe. The chief operating decision maker, who is the Company’s Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As such, the Company’s operations constitute a single operating segment andone reportable segment.

Revenue is attributed to geography based upon the country in which the software license is used, or maintenance and services are delivered. The Company's single reportable segment recorded customer revenue from the following geographical areas for the years ended December 31, 2022 and 2023:

Property and equipment are attributed to geography based on the country where the assets are located. The following table presents a summary of property and equipment by region as of December 31, 2022 and 2023:

14. Commitments and Contingencies

Warranties

The Company typically provides its customers a warranty on its software licenses for a period of no more than 90 days and on its other tools for a period of no more than one year. Such warranties are accounted for in accordance with the authoritative guidance issued by the FASB on contingencies. For the years ended December 31, 2022 and 2023, the Company has not incurred any costs related to warranty obligations.

Indemnification

Under the terms of substantially all of its license agreements, the Company has agreed to indemnify its customers for costs and damages arising from claims against such customers based on, among other things, allegations that the Company’s software infringes the intellectual property rights of a third party. In most cases, in the event of an infringement claim, the Company retains the right to (i) procure for the customer the right to continue using the software; (ii) replace or modify the software to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither (i) nor (ii) can be reasonably achieved, the Company may terminate the license agreement and refund to the customer a pro-rata portion of the license fee paid to the Company. Such indemnification provisions are accounted for in accordance with the authoritative guidance issued by the FASB on guarantees. From time to time, in the ordinary course of business, the Company receives claims for indemnification, typically from original equipment manufacturers.

Guarantees

In February of 2012, Gu-Guide LP, a real estate entity controlled by the Company’s founding principal stockholder, Bank of the West and Silvaco Group, Inc. entered into a loan agreement pursuant to which Bank of the West agreed to lend Gu-Guide LP certain amounts of money. The Loan is secured by a building representing a total of 9,000 square feet located at 4701 Patrick Henry Drive, Santa Clara, California 95054. In the event that the proceeds from the foreclosure of the foregoing collateral are insufficient to repay the outstanding amounts under the Loan, Silvaco Group Inc. has guaranteed the repayment of the outstanding amounts under the Loan. As of December 31, 2023, $0.8 million is outstanding under the Loan.

Contingencies

The Company is involved in routine legal proceedings in the ordinary course of business. The outcome of such matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity. However, each of these matters is subject to various uncertainties and it is possible that an unfavorable resolution of one or more of these proceedings could materially affect the Company's results of operations, cash flows or financial position.

In an effort to clarify its obligations with respect to the earnout payment due to the selling shareholders of Nangate, the Company sought declaratory relief in the California Superior Court in December 2020. In February 2021, two of the selling shareholders of Nangate (together with a third cross-complainant who joined later, the “Nangate Parties”) filed a cross-complaint against the Company and two members of the Company’s board of directors, alleging, among other causes of action, breach of contract, fraud, and negligent misrepresentation. In January 2022, the Nangate Parties filed a third amended cross-complaint against Silvaco, Inc. and certain of its board members alleging breach of contract, fraud, and unfair business practices and is seeking $20.0 million in damages, along with punitive damages. In the intervening period, the Company and the Nangate Parties have engaged in motion practice related to, among other items, the removal of certain of the Company’s board members from the proceedings. Each party has also responded to requests for production and begun performing depositions. A trial date has been set for the second quarter of 2024. The Company is vigorously defending itself in this litigation. The Company accordingly has not recorded a charge for this contingency.

On August 19, 2021, Aldini sued the Company, the Company’s French affiliate, a member of the Company’s board of directors and the Company’s CEO, among numerous other noncompany defendants, in connection with the Company’s interactions with Dolphin Design SAS (“Dolphin”). Aldini’s allegations center around the bankruptcy and reorganization of Dolphin in 2018 and Silvaco, Inc.’s acquisition of certain memory assets of Dolphin, which Aldini alleges was done in violation of its rights as a shareholder of Dolphin. Aldini AG’s First Amended Complaint asserts various tort claims against Silvaco, Inc., Silvaco France, and officers Iliya Pesic and Babak Taheri, including claims for trade secret theft, conspiracy, and intentional interference with a prospective economic advantage. Silvaco, Inc. filed a motion to dismiss; the trade secret theft and conspiracy claims were dismissed with prejudice and the intentional tort claims were dismissed with leave to amend. On August 23, 2022, Aldini AG filed a Second Amended Complaint against Silvaco, Inc., Silvaco France, and officers Iliya Pesic and Babak Taheri that included similar claims of trade secret theft, conspiracy, and intentional interference with a prospective economic advantage in relation to Silvaco, Inc.’s acquisition of certain assets of Dolphin Design SAS. Aldini AG seeks $703.0 million and punitive damages. On March 17, 2023, the Second Amended Complaint was dismissed on all counts, subject to a right of appeal. Aldini has filed a notice of appeal although their mediation brief relating to this appeal does not include Silvaco. The Company accordingly has not recorded a charge for this contingency.

The Company’s software solutions and technology are subject to export control and import laws and regulations of applicable jurisdictions. Certain of the Company’s software solutions are subject to U.S. export controls and sanctions, including the Export Administration Regulations, U.S. Customs regulations, and the economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). Between August 2019 and June 2022, the Company filed various voluntary disclosures with United States Department of Commerce Bureau of Industry and Security (“BIS”) regarding potential violations of U.S. export control laws and regulations, specifically, the export of the Company’s licenses to certain parties designated on BIS’s Entity List and Unverified List, and the export of certain software modules without a license which was required at the time of the transaction. Such software modules were declassified by BIS in October 2020 to a lesser controlled export classification, meaning that such software generally no longer requires an export license. In July and October 2022 and January 2023, the Company also filed voluntary disclosures with OFAC regarding potential violations of OFAC sanctions programs, specifically the download of certain Company software modules by users in U.S. embargoed countries. The matters described in these voluntary disclosures remain pending before BIS and OFAC. The Company cannot estimate any reasonable possible loss at this time and has not recorded a charge for this contingency. However, if either organization chose to bring an enforcement action against the Company such actions could result in significant penalties.

After establishing its branch office in Russia in 2017, the Company used a local bank (“Bank A”) as its primary financial institution and engaged a local service provider (“Local Agent”) to act as its tax, accounting and legal consultant to advise with respect to matters affecting the branch office. As a result of the conflict in Ukraine, Bank A was sanctioned by OFAC on April 6, 2022, and, based on the recommendation from the Local Agent, the Company established replacement bank accounts at another local bank (“Bank B”), which were opened on June 2, 2022. Following the opening of the new accounts at Bank B, the Local Agent used the Bank B accounts to receive injections of funds from the Company’s US bank accounts; transferred the funds from Bank B to Bank A and paid compensation of certain of the Company’s employees and other expenses using the Company’s bank accounts at Bank A. The discovery of transactions involving the Company’s funds through Bank A following the establishment of the Company’s accounts at Bank B led to the Company’s subsequent voluntary self-disclosure in October 2023 (the “October OFAC Filing”). The Company cannot estimate any reasonable possible loss at this time and has not recorded a charge for this contingency. However, if OFAC chose to bring an enforcement action against the Company such actions could result in significant penalties.

On September 22, 2023, the Company received a demand letter from a customer related to alleged deficiencies in certain intellectual property used by the customer. Management is in initial discussions with the customer regarding the nature of the claims set forth in the letter. Given the early stages of the matter and the unknown financial impact, the Company cannot estimate any reasonable range of loss. The Company accordingly has not recorded a charge for this contingency.

15. Defined Contribution Plan

The Company maintains a defined contribution or 401(k) Plan for its qualified U.S. employees. Participants may contribute a percentage of their compensation on a pre-tax basis, subject to a maximum annual contribution imposed by the Internal Revenue Code. During each of the years ended December 31, 2022 and 2023, the Company contributed $0.1 million related to the 401(k) Plan. In connection with the 401(k) Plan, the Company recorded expense of $0.1 million and $0.5 million during the years ended December 31, 2022 and 2023, respectively.

16. Fair Value of Financial Instruments

Financial Instruments Measured at Fair Value on a Recurring Basis

The following tables present the Company's liabilities that are measured on a recurring basis as of December 31, 2022 and 2023:

Pursuant to the stock purchase agreements for the acquisition of Nangate and PolytEDA, the selling shareholders are entitled to additional milestone and earn out consideration based on net revenues, operating income and technical achievement. The milestone consideration and earn-out liabilities are classified as contingent consideration as the obligations are due in cash. As such the obligations are recorded at their fair value and re-valued period to period with any changes recorded to operating income (expense).

The Company's contingent consideration is valued using a discounted cash flow model, and the assumptions used in preparing the discounted cash flow model include estimates for interest rates and the amount of cash flows, in addition to the expected net revenue, operating income and technical achievement of the acquired technology. See also, Note 9, Accrued Liabilities and Note 14, Commitments and Contingencies.

The following is a reconciliation of changes in the liability related to contingent consideration during the years ended December 31, 2022 and 2023:

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

Nonfinancial assets such as property and equipment, intangibles assets, and goodwill are evaluated for impairment and adjusted to fair value using Level 3 inputs only when impairment is recognized.

In connection with Russia’s invasion of Ukraine in February 2022, the Company recorded an impairment charge of $560,000 to reduce the carrying value of $284,000 of developed technology and $276,000 of customer relationships associated with the Company’s Ukrainian subsidiary which management determined would not be recoverable. The related intangible assets were deemed fully impaired and therefore did not include any sensitive level 3 estimates or inputs as of December 31, 2022.

17. Subsequent Events

During February 2024, the Company drew $3.1 million on the East West Bank Loan.

During February 2024 the board of directors approved the grant of 1,058,559 of restricted stock units under the 2014 Plan. Substantially all the awards include a Time-Based Requirement, which generally requires four years for full vesting of the grants, with 25% vesting after one year and quarterly vesting over the subsequent three years. In addition, such awards contain a Liquidity Event Requirement, which requires the completion of an underwritten initial public offering or a change of control, as defined in the Company's 2014 Plan documents.

On February 29, 2024, the Company entered into an Amended and Restated Employment Agreement with an executive officer (the “A&R Employment Agreement”), effective as of January 1, 2024. The A&R Employment Agreement amended and restated the executive officer’s offer letter agreement with the Company dated November 23, 2021. The A&R Employment Agreement provides that the executive officer is entitled to receive an annual base salary of $485,000 effective as of December 1, 2023. Such base salary shall be evaluated annually by the Board beginning in early 2025, with any Board-approved adjustments effective retroactively as of January 1 of such adjustment year. Additionally, beginning with the fiscal year 2024, the executive officer is also entitled to an annual cash incentive bonus of 60% of his then-current base salary. Further, in accordance with the terms A&R Employment Agreement, the executive officer will earn an additional 700,000 RSUs if the Company closes an initial public offering prior to December 31, 2024. If the 700,000 additional RSUs are earned, (i) 350,000 of these RSUs will vest on the business day after the closing of the initial public offering and (ii) 350,000 RSUs will vest over a two-year period following the IPO, with 50% of these RSUs vesting on the one-year anniversary of the closing of the initial public offering and 1/8th of these RSUs vesting in equal quarterly installments during the next 4 quarters thereafter.

18. Events [Unaudited] Subsequent to the Date of the Report of Independent Registered Public Accounting Firm

On March 18, 2024, the Company’s board of directors authorized an extension of the maximum term of the 2014 Plan to March 18, 2034 and increased the maximum number of shares of common stock authorized for issuance under the 2014 Plan to 9,200,000 shares.

During March 2024, the Company drew $1.2 million on the East West Bank Loan.

On April 11, 2024, the Company amended its license agreement to offer SIP developed in partnership with a third party vendor to extend its term for an additional five years.

Shares

PRELIMINARY PROSPECTUS

, 2024

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than the underwriting discounts and commissions, payable by Silvaco Group, Inc., or the Registrant, in connection with the offer and sale of the common stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission, or the SEC, registration fee, the FINRA filing fee and exchange listing fee.

*To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

The Registrant is incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law, or the DGCL, provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were, are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) actually and reasonably incurred.

Upon the closing of this offering, the Registrant’s amended and restated certificate of incorporation will provide for the indemnification of its directors to the fullest extent permitted under the DGCL. The Registrant’s amended and restated bylaws provide for the indemnification of its directors and officers to the fullest extent permitted under the DGCL. Each of the Registrant’s amended and restated certificate of incorporation and amended and restated bylaws will become effective upon completion of this offering.

Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

■transaction from which the director derives an improper personal benefit;

II-1

■act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

■unlawful payment of dividends or redemption of shares; or

■breach of a director’s duty of loyalty to the corporation or its stockholders.

The Registrant’s amended and restated certificate of incorporation will include such a provision. Under the Registrant’s amended and restated bylaws, expenses incurred by any director or officers in defending any such action, suit or proceeding in advance of its final disposition will be paid by the Registrant upon delivery to it of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it will ultimately be determined that such director or officer is not entitled to be indemnified by the Registrant, as long as such undertaking remains required by the DGCL. Section 174 of the DGCL provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

As permitted by the DGCL, the Registrant has entered into indemnity agreements with each of its directors and officers that require the Registrant, among other things, to indemnify its directors and officers against certain liabilities which may arise by reason of their status or service as directors or officers to the fullest extent not prohibited by law. These indemnification agreements may be sufficiently broad to permit indemnification of the Registrant’s officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act. Under these agreements, the Registrant is not required to provide indemnification for certain matters. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

There is at present no pending litigation or proceeding involving any of the Registrant’s directors or executive officers as to which indemnification is required or permitted, and the Registrant is not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

Prior to the closing of this offering, the Registrant intends to enter into separate indemnification agreements with each of their directors and executive officers. Each indemnification agreement will provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated certificate of incorporation and amended and restated bylaws against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements will provide for the advancement or payment of all expenses to the indemnitee and for the reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated certificate of incorporation and amended and restated bylaws.

The Registrant intends to enter into an insurance policy that covers its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

The Registrant plans to enter into an underwriting agreement which provides that the underwriters are obligated, under some circumstances, to indemnify the Registrant’s directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act.

Item 15. Recent Sales of Unregistered Securities.

Since January 1, 2021, we have granted to our employees, consultants, and other service providers, restricted stock units representing an aggregate of 4,842,199 shares of our common stock, under our 2014 Plan.

The issuances of the securities described above were deemed to be exempt from registration under Rule 701 promulgated under the Securities Act as transactions under compensatory benefit plans and contracts relating to compensation. The recipients of such securities were our directors, employees or bona fide consultants and received the securities under our equity incentive plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

The list of exhibits is set forth under “Exhibit Index” at the end of this registration statement and is incorporated herein by reference.

II-2

(b) Financial Statement Schedules.

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby further undertakes that:

(a)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act will be deemed to be part of this registration statement as of the time it was declared effective.

(b)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.

II-3

EXHIBIT INDEX

II-4

† To be filed by amendment.

• Indicates management contract or compensatory plan.

Certain confidential information – identified by a bracketed asterisk “[*]” – has been omitted from this exhibit pursuant to Item 601(b)(10) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of an unredacted copy to the SEC upon request.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on the 12th of April, 2024.

SILVACO GROUP, INC.

/s/ Dr. Babak A. Taheri

Dr. Babak A. TaheriChief Executive Officer