Silvaco Group Inc

Previous wording

You should read the following discussion and analysis of financial condition and results of operations together with our audited consolidated financial statements set forth in our the Company’s final prospectus relating to the initial public offering, dated May 8, 2024 (the “Prospectus”), relating to the Registration Statement on Form S-1 (File No. 333-278666), as amended (“Registration Statement”), filed with the SEC on May 10, 2024, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (“Securities Act”). This discussion contains forward-looking statements that involve risks, uncertainties and assumptions set forth in our Registration Statement. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q titled “Risk Factors.” Forward-looking statements may be identified by words including, but not limited to, “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” “forecast,” "likely," "potential," "seek," or the negatives of such terms and similar expressions. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see "Key Operating Indicators and Non-GAAP Financial Measures."

Current wording

You should read the following discussion and analysis of financial condition and results of operations together with our audited consolidated financial statements set forth in our final prospectus relating to the initial public offering, dated May 8, 2024 (the “Prospectus”), relating to the Registration Statement on Form S-1 (File No. 333-278666), as amended (“Registration Statement”), filed with the SEC on May 10, 2024, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (“Securities Act”). This discussion contains forward-looking statements that involve risks, uncertainties and assumptions set forth in our Registration Statement. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q titled “Risk Factors.” Forward-looking statements may be identified by words including, but not limited to, “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” “forecast,” "likely," "potential," "seek," or the negatives of such terms and similar expressions. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see "Key Operating Indicators and Non-GAAP Financial Measures."

Previous wording

Our go-to-market strategy centers on selling software solutions and associated maintenance and services. Our software solutions accounted for 77% and 75% of our revenue for the three months ended March 31, 2024 and 2023, respectively, and associated maintenance and services accounted for 23% and 25% of our revenue the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024 and 2023, approximately 88% and 76% of our bookings came from existing customers, respectively, and 12% and 24% came from new customers, respectively.

Current wording

Our go-to-market strategy centers on selling software solutions and associated maintenance and services. Our software solutions accounted for 74% and 75% of our revenue for the three and six months ended June 30, 2024, respectively, and 71% and 73% of our revenue for the three and six months ended June 30, 2023, respectively. Associated maintenance and services revenue accounted for 26% and 25% of our revenue for the three and six months ended June 30, 2024, respectively, and 29% and 27% of our revenue for the three and six months ended June 30, 2023, respectively. For the three and six months ended June 30, 2024, approximately 91% and 89% of our bookings came from existing customers, respectively, and 9% and 11% came from new customers, respectively. For the three and six months ended June 30, 2023, approximately 81% and 79% of our bookings came from existing customers, respectively, and 19% and 21% came from new customers, respectively.

Previous wording

During the three months ended March 31, 2024, we continued to experience an increase in bookings and revenue. Our bookings were $16.1 million and $15.7 million for the three months ended March 31, 2024 and 2023, respectively. Our revenue was $15.9 million and $14.3 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

During the three and six months ended June 30, 2024, we continued to experience an increase in bookings and revenue. Our bookings were $19.5 million and $35.6 million for the three and six months ended June 30, 2024, respectively, and $14.4 million and $30.0 million for the three and six months ended June 30, 2023, respectively. Our revenue was $15.0 million and $30.8 million for the three and six months ended June 30, 2024, respectively, and $12.5 million and $26.8 million for the three and six months ended June 30, 2023, respectively.

Previous wording

According to Grand View Research, the global EDA software market was estimated to reach $11.1 billion in potential revenue in 2022 and is expected to reach $22.2 billion in potential revenue in 2030, representing a 9% CAGR, driven in part by the growth in the integrated circuits and electronics manufacturing markets, growing complexity of semiconductor and photonics designs and increasing challenges associated with advanced materials and shrinking process technology nodes across the EDA market. We believe these trends will increase the demand for our software solutions over time, which will have a direct impact on our future revenues and results of operations. In response to this increase in complexity and new challenges facing designers, we have increased investments in our research and development for new software product offerings. For example, our research and development expense was 23% and 24% of revenue for the three months ended March 31, 2024 and 2023, respectively. We plan to continue to invest in our software solutions to establish and expand a leadership position in our target markets. We also plan to use our research and development efforts to continue to cater to strategic customer needs.

Current wording

According to Grand View Research, the global EDA software market was estimated to reach $11.1 billion in potential revenue in 2022 and is expected to reach $22.2 billion in potential revenue in 2030, representing a 9% CAGR, driven in part by the growth in the integrated circuits and electronics manufacturing markets, growing complexity of semiconductor and photonics designs and increasing challenges associated with advanced materials and shrinking process technology nodes across the EDA market. We believe these trends will increase the demand for our software solutions over time, which will have a direct impact on our future revenues and results of operations. In response to this increase in complexity and new challenges facing designers, we have increased investments in our research and development for new software product offerings. For example, our research and development expense was 52% and 37% of revenue for the three and six months ended June 30, 2024, respectively, and 25% and 24% of revenue for the three and six months ended June 30, 2023, respectively. We plan to continue to invest in our software solutions to establish and expand a leadership position in our target markets. We also plan to use our research and development efforts to continue to cater to strategic customer needs.

Previous wording

Revenue from our software licenses is classified as software license revenue. Software license revenue is recognized upfront upon delivery of the licensed product. We also offer licenses of our standard SIP developed in house, and we offer licenses to our SIP developed in partnership with a third party vendor. Our SIP licenses provide customers with access to SoC design SIP which meet established industry standards, thus saving customers the time and resources required to develop similar design methodologies. Our SIP are generally ready to use upon delivery, meaning no customization is required for our customers to obtain value from the use of our SIP in their IC designs. We recognize revenue associated with licenses of our SIP at the commencement of the contract upon delivery of the licensed SIP. With respect to our SIP developed in partnership with a third party vendor, we generally acted as a principal to the transaction because we controlled the promised SIP that we delivered to the customer. Consistent with our role as the principal, we recognized SIP revenue of our SIP developed in partnership with the third party vendor on a gross basis. Any royalty fees based upon unit sales, revenue or flat fees which were paid to the third party vendor were reported in cost of revenue upon delivery pursuant to the terms and conditions of our contractual obligations with the licensors.

Current wording

Revenue from our software licenses is classified as software license revenue. Software license revenue is recognized upfront upon delivery of the licensed product. We also offer licenses of our standard SIP developed in house, and we offer licenses to our SIP developed in partnership with a third party vendor. Our SIP licenses provide customers with access to SoC design SIP which meet established industry standards, thus saving customers the time and resources required to develop similar design methodologies. Our standard SIPs are generally ready to use upon delivery, meaning no customization is required for our customers to obtain value from the use of our SIP in their IC designs. We recognize revenue associated with licenses of our SIP at the commencement of the contract upon delivery of the licensed SIP. With respect to our SIP developed in partnership with a third party vendor, we generally acted as a principal to the transaction because we controlled the promised SIP that we delivered to the customer. Consistent with our role as the principal, we recognized SIP revenue of our SIP developed in partnership with the third party vendor on a gross basis. Any royalty fees based upon unit sales, revenue or flat fees which were paid to the third party vendor were reported in cost of revenue upon delivery pursuant to the terms and conditions of our contractual obligations with the licensors.

Previous wording

We also recognized an immaterial portion of our revenue from device characterization and modeling services for the three months ended March 31, 2024 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.

Current wording

We also recognized an immaterial portion of our revenue from device characterization and modeling services for the three and six months ended June 30, 2024 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.

Previous wording

Cost of revenue consists of personnel costs comprised of salaries and benefits for employees directly involved in our customer support function, such as customer support engineering salary and benefits, costs of our other customer services, allocation of overhead and facility costs and royalties related to the recognized revenue. Gross profit represents revenue less cost of revenue.

Current wording

Cost of revenue consists of personnel costs comprised of salaries and benefits for employees directly involved in our customer support function, such as customer support engineering salary and benefits, costs of our other customer services, allocation of overhead and facility costs and royalties related to the recognized revenue. We recognized $2.5 million of stock-based compensation expense in cost of revenue during the three and six months ended June 30, 2024. Gross profit represents revenue less cost of revenue.

Previous wording

Our operating expenses consist of research and development, selling and marketing, and general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses and commissions. Our operating expenses also include consulting costs, costs of facilities, information technology, depreciation and amortization. We expect our operating expenses to fluctuate as a percentage of revenue over time. Historically, we have not recognized stock-based compensation, but we expect we will do so after the closing of our IPO. We expect that this expense will be a component of general and administrative expense, research and development expense, selling and marketing expense and cost of revenue, and any such amounts could be significant. As of March 31, 2024, we had $39.1 million in unrecognized stock-based compensation expense, of which $12.8 million relates to awards that have met the Time-Based Requirement but not the Liquidity Event Requirement, and the remaining $26.3 million in unrecognized stock-based compensation expense relates to awards that have not met either requirement. In the period in which the Liquidity Event Requirement is satisfied, we 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 the IPO, which is a qualifying Liquidity Event, occurred on March 31, 2024, the Time Based Requirement would have been accelerated, in accordance with their terms, for an additional 228,043 RSUs, and we would have recognized cumulative combined stock-based compensation expense of $16.5 million for active and former employees and service providers.

Current wording

Our operating expenses consist of research and development, selling and marketing, general and administrative expenses, and estimated litigation claim. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, stock-based compensation expense, bonuses and commissions. Our operating expenses also include consulting costs, costs of facilities, information technology, depreciation and amortization. We expect our operating expenses to fluctuate as a percentage of revenue over time. Historically, we have not recognized stock-based compensation expense, but after the consummation of the IPO, we recognized an aggregate of $21.8 million of stock-based compensation expense during the three and six months ended June 30, 2024. Of the aggregate stock-based compensation expense recorded during the three and six months ended June 30, 2024, we recognized $11.7 million, $4.1 million, and $3.6 million in general and administrative expense, research and development expense, and selling and marketing expense, respectively.

Previous wording

Our research and development expense consists primarily ofpersonnel costs comprised of salaries, benefits for employees directly involved in our research and development efforts, as well as engineering, quality assessment, other related costs associated with the development of new products, enhancements to existing products, quality assurance and testing and allocated overhead costs. We expense research and development costs as incurred. We believe that continued investment in our software solutions and services is important for our future growth and acquisition of new customers and, as a result, we expect our research and development expenses to continue to increase, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Current wording

Our research and development expense consists primarily ofpersonnel costs comprised of salaries, stock-based compensation expense, and benefits for employees directly involved in our research and development efforts, as well as engineering, quality assessment, other related costs associated with the development of new products, enhancements to existing products, quality assurance and testing and allocated overhead costs. We expense research and development costs as incurred. We believe that continued investment in our software solutions and services is important for our future growth and acquisition of new customers and, as a result, we expect our research and development expenses to continue to increase, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Previous wording

Selling and marketing expense consists of personnel costs comprised of salaries, benefits, sales commissions, travel costs, and field application engineering directly involved in our selling and marketing efforts, as well as professional and consulting fees, advertising expenses, and allocated overhead costs. We expect selling and marketing expense to continue to increase as we increase our sales and marketing personnel and grow our international operations, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Current wording

Selling and marketing expense consists of personnel costs comprised of salaries, stock-based compensation expense, benefits, sales commissions, travel costs, and field application engineering directly involved in our selling and marketing efforts, as well as professional and consulting fees, advertising expenses, and allocated overhead costs. We expect selling and marketing expense to continue to increase as we increase our sales and marketing personnel and grow our international operations, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Previous wording

General and administrative expense consists of personnel costs associated with our executive, legal, finance, human resources, information technology and other administrative functions, including salaries, benefits and bonuses. General and administrative expense also includes professional and consulting fees, accounting fees, legal costs, and allocated overhead costs. We expect general and administrative expense to increase as we expand our finance and administrative personnel, grow our operations, and incur additional expense associated with operating as a public company, including director and officer liability insurance and legal and compliance costs, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Current wording

General and administrative expense consists of personnel costs associated with our executive, legal, finance, human resources, information technology and other administrative functions, including salaries, stock-based compensation expense, benefits and bonuses. General and administrative expense also includes professional and consulting fees, accounting fees, legal costs, and allocated overhead costs. We expect general and administrative expense to increase as we expand our finance and administrative personnel, grow our operations, and incur additional expense associated with operating as a public company, including director and officer liability insurance and legal and compliance costs, although it may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses.

Previous wording

Interest and other expense, net includes interest income earned on cash balances or other sources, interest expense associated with cost of borrowings, leases or interest-bearing agreements, foreign exchange gains and losses and changes in the fair value of contingent consideration associated with legacy acquisitions.

Current wording

Interest and other expense, net includes interest expense associated with cost of borrowings, leases or interest-bearing agreements, foreign exchange gains and losses and changes in the fair value of contingent consideration associated with legacy acquisitions.

Previous wording

The following table sets forth our results of operations for the three months ended March 31, 2024 and 2023:

Current wording

The following table sets forth our results of operations for the three and six months ended June 30, 2024 and 2023:

Previous wording

The following table summarizes our results of operations as a percentage of total revenue for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our results of operations as a percentage of total revenue for the three and six months ended June 30, 2024 and 2023:

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Total revenue increased $1.6 million, or 11%, to $15.9 million for the three months ended March 31, 2024 from $14.3 million for the three months ended March 31, 2023. The growth in total revenue was driven primarily by a $2.4 million increase in sales revenue associated with our TCAD and EDA tools partially offset by a $0.7 million decline in revenue derived from IP sales, as a result of our intermittent lapse in our contractual arrangement with NXP. Software license revenue increased $1.6 million, or 15%, to $12.3 million for the three months ended March 31, 2024 from $10.7 million for the three months ended March 31, 2023. We recognized maintenance and service revenue of $3.6 million in each of the three months ended March 31, 2024 and 2023.

Current wording

Total revenue increased $2.4 million, or 19%, to $15.0 million for the three months ended June 30, 2024 from $12.5 million for the three months ended June 30, 2024. The growth in total revenue was driven primarily by a $3.1 million increase in revenue associated with our TCAD and EDA tools, partially offset by a $0.7 million decline in revenue derived from IP sales, as a result of the lapse in the previous contractual arrangement with NXP. Software license revenue increased $2.2 million, or 25%, to $11.0 million for the three months ended June 30, 2024 from $8.8 million for the three months ended June 30, 2023. Maintenance and service revenue increased $0.3 million, or 7%, to $3.9 million for the three months ended June 30, 2024 from $3.7 million for the three months ended June 30, 2023.

Previous wording

Gross profit increased $1.6 million, or 13%, to $13.9 million for the three months ended March 31, 2024 from $12.3 million for the three months ended March 31, 2023. Gross profit margin increased to 88% for the three months ended March 31, 2024 from 86% for the three months ended March 31, 2023, primarily due to the increase of TCAD and EDA tool sales partially offset by a decrease in IP sales.

Current wording

Gross profit increased $1.6 million, or 7%, to $24.0 million for the six months ended June 30, 2024 from $22.4 million for the six months ended June 30, 2023. Gross profit margin decreased to 78% for the six months ended June 30, 2024 from 84% for the six months ended June 30, 2023. Excluding the impact of $2.5 million in non-cash stock-based compensation expense recorded upon the consummation of the IPO, gross profit increased$4.1 million, or 18%, to $26.5 million for the six months ended June 30, 2024 from $22.4 million for the six months ended June 30, 2023, and gross profit margin increased to 86%for the six months ended June 30, 2024 from 84% for the six months ended June 30, 2023, primarily due to the increase of TCAD and EDA tool sales partially offset by a decrease in IP sales.

Previous wording

Selling and marketing expenses were $3.3 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively. The increase of $0.5 million, or 18%, was primarily due to higher compensation of $0.3 million primarily related to increased headcount, and a $0.2 million increase in marketing related events during the three months ended March 31, 2024.

Current wording

Selling and marketing expenses were $7.2 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively. The increase of $4.2 million, or 145%, was primarily due to $3.6 million of stock-based compensation expense recorded as a result of the consummation of the IPO, a $0.3 million increase in salary and benefits expenses, primarily related to increased headcount and merit increases, a $0.2 million increase in commission expenses and a $0.1 million increase in trade show related expenses.

Previous wording

Interest and other expense, net, was$0.2 million and$0.3 million for the three months ended March 31, 2024 and 2023, respectively. Interest and other expense, net, includes interest income earned on cash balances or other sources, interest expense associated with cost of borrowings, leases or interest-bearing agreements, foreign exchange gains and losses and changes in the fair value of contingent consideration associated with legacy acquisitions. The decrease in interest and other expense, net, was primary the result of foreign exchange.

Current wording

Interest and other expense, net, was$0.3 million and$0.2 million for the three months ended June 30, 2024 and 2023, respectively, and$0.6 million for each of the six months ended June 30, 2024 and 2023, respectively. Interest and other expense, net, includes interest expense associated with cost of borrowings, vendor financing, leases, vendor financing or interest-bearing agreements, foreign exchange gains and losses and changes in the fair value of contingent consideration associated with legacy acquisitions. The increase in interest and other expense, net, for the three months ended June 30, 2024 was primarily due an increase in the amount of interest-bearing debt outstanding during the period. The Company does not have any interest-bearing debt outstanding as of June 30, 2024.

Previous wording

Income tax provision was$0.8 million and$0.4 million for the three months ended March 31, 2024 and 2023, respectively. See Note 9 of ourcondensed consolidated financial statements for the three months ended March 31, 2024 and 2023 for further discussion.

Current wording

Income tax provision (benefit) was a provision of$0.2 million and a benefit of$0.1 million for the three months ended June 30, 2024 and 2023, respectively, and provisions of$1.0 million and$0.3 million for the six months ended June 30, 2024 and 2023, respectively. See Note 9 of ourcondensed consolidated financial statements for further discussion.

Previous wording

We define a booking as a signed contract and related purchase commitment from a customer, based on the value set forth in a purchase order. We believe bookings are a useful metric to measure the success of customer sales and provide an indication of trends in our operating results that are not necessarily reflected in our revenue, because our revenue recognition is based on the later satisfaction of our customer obligations, and not of the sales to customers at the time of sale. Reported bookings may be subject to adjustments and potential cancellations prior to the satisfaction of our customer obligations. For the three months ended March 31, 2024 and 2023, we recorded $16.1 million and $15.7 million in bookings, respectively.

Current wording

We define a booking as a signed contract and related purchase commitment from a customer, based on the value set forth in a purchase order. We believe bookings are a useful metric to measure the success of customer sales and provide an indication of trends in our operating results that are not necessarily reflected in our revenue, because we recognize revenues on the later satisfaction of the obligations to our customers, and not at the time of sale to a customer. Reported bookings may be subject to adjustments and potential cancellations prior to the satisfaction of the obligations to our customers. For the three and six months ended June 30, 2024, we recorded $19.5 million and $35.6 million in bookings, respectively, as compared to $14.4 million and $30.0 million in bookings for the three and six months ended June 30, 2023, respectively.

Previous wording

We define non-GAAP operating income (loss) as our GAAP operating income (loss) adjusted to exclude certain costs, including certain transaction-related costs, IPO preparation costs, acquisition-related litigation costs, stock-based compensation, amortization of acquired intangible assets, impairment charges, and executive severance costs. We define non-GAAP net income (loss) as our GAAP net income (loss) adjusted to exclude certain costs, including certain transaction-related costs, IPO preparation costs, acquisition-related litigation costs, stock-based compensation, amortization of acquired intangible assets, impairment charges, executive severance costs, change in fair value of contingent consideration, foreign exchange (gain) loss, gain on extinguishment of debt, and the income tax effect on non-GAAP items. We monitor non-GAAP operating income (loss) and non-GAAP net income (loss) as non-GAAP financial measures to supplement the financial information we present in accordance with GAAP to provide investors with additional information regarding our financial results.

Current wording

We define non-GAAP operating income (loss) as our GAAP operating income (loss) adjusted to exclude certain costs, including certain transaction-related costs, IPO preparation costs, acquisition-related estimated litigation claim and legal costs, stock-based compensation expense, amortization of acquired intangible assets, impairment charges, and executive severance costs. We define non-GAAP net income (loss) as our GAAP net income (loss) adjusted to exclude certain costs, including certain transaction-related costs, IPO preparation costs, acquisition-related estimated litigation claim and legal costs, stock-based compensation expense, amortization of acquired intangible assets, impairment charges, executive severance costs, change in fair value of contingent consideration, foreign exchange (gain) loss, loss on debt extinguishment, and the income tax effect on non-GAAP items. We monitor non-GAAP operating income (loss) and non-GAAP net income (loss) as non-GAAP financial measures to supplement the financial information we present in accordance with GAAP to provide investors with additional information regarding our financial results.

Previous wording

(1)Reflects litigation-related expenses incurred in connection with our acquisitions.

Current wording

(1)Reflects litigation-related expenses incurred in connection with our acquisitions and the Nangate Litigation estimated claim accrual.

Previous wording

(5)Reflects the increase in income tax expenses due to non-GAAP adjustments.

Current wording

(6)Reflects the increase in income tax expenses due to non-GAAP adjustments.

Previous wording

Since inception, we have financed operations primarily through proceeds received from payments from our customers and borrowings from Ms. Ngai-Pesic, including without limitation, the 2022 Credit Line. Our primary sources of liquidity are cash including cash generated from operations. As of March 31, 2024, we had $5.7 million in cash, of which $3.7 million was held by our foreign subsidiaries.

Current wording

Since inception, we have financed operations primarily through proceeds received from payments from our customers, borrowings from Ms. Ngai-Pesic and other lenders, and the net proceeds from the sale of our common stock in the IPO. Our primary sources of liquidity are cash, cash equivalents and marketable securities including cash generated from operations. As of June 30, 2024, we had $34.3 million in cash and cash equivalents, of which $3.4 million was held by our foreign subsidiaries, $54.6 million in short-term marketable securities and $13.4 million in long-term marketable securities.

Previous wording

On June 13, 2022, we entered into the $4.0 million 2022 Credit Line with Ms. Ngai-Pesic bearing interest at a rate of prime plus 1% per annum. As of March 31, 2024, the principal balance of the 2022 Credit Line was $2.0 million. Subsequent to our IPO, on May 13, 2024, the 2022 Credit Line was repaid in full.

Current wording

On June 13, 2022, we entered into a $4.0 million line of credit (“the 2022 Credit Line”) with Ms. Ngai-Pesic bearing interest at a rate of prime plus 1% per annum. As of December 31, 2023, the principal balance of the 2022 Credit Line was $2.0 million. In May 2024, the 2022 Credit Line was repaid in full and terminated.

Previous wording

In December 2023, we entered into the East West Bank Loan which 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 as reported in The Wall Street Journal or (ii) four and one half percent (4.5%). In addition, if any payment required of us under the East West Bank Loan is not made within ten (10) days after such payment is due, we are required to pay East West Bank a late fee equal to the lesser of (i) six (6%) of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law, not in any case to be less than $5.00. The outstanding balance on the East West Bank Loan as of March 31, 2024 was $4.3 million, and we were in compliance with all covenants. Subsequent to our IPO on May 13, 2024, the East West Bank Loan was repaid in full and terminated.

Current wording

In December 2023, we entered into a loan facility with East West Bank (“the East West Bank Loan”) which 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 as reported in The Wall Street Journal or (ii) four and one half percent (4.5%). In addition, if any payment required of us under the East West Bank Loan is not made within ten (10) days after such payment is due, we are required to pay East West Bank a late fee equal to the lesser of (i) six (6%) of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law, not in any case to be less than $5.00. We drew $4.3 million on the East West Bank Loan during the six months ended June 30, 2024 and repaid the outstanding amounts due under the East West Bank Loan in full during the three and six months ended June 30, 2024. In May 2024, the East West Bank Loan was repaid in full and terminated.

Previous wording

On April 16, 2024, we entered into a note purchase agreement with Micron, which has been and is a customer of Silvaco, pursuant to which Silvaco issued to Micron a senior subordinated convertible promissory note in the principal amount of $5.0 million. The Micron Note was contractually subordinated to the East West Bank Loan through a subordination agreement with East West Bank but was senior to all of our other existing debt and was senior to any new future debt incurred (other than any undrawn amount available under the current East West Bank Loan) while it was outstanding. The Micron Note accrued interest at the rate of 8% annually, with principal and interest due upon maturity three years after the date of issuance. The Micron Note was mandatorily convertible into a number of shares equal to (i) the outstanding principal amount and accrued interest divided by (ii) a conversion price equal to (a) the price of Silvaco’s common stock issued in an initial public offering, times (b) 0.90 if the initial public offering of common stock was consummated on or prior to May 31, 2024; 0.85 if the initial public offering of common stock was consummated between June 1, 2024 and April 16, 2025; and 0.80 if the initial public offering of common stock was consummated after April 16, 2025. On May 13, 2024, the Micron Note was converted into 294,217 shares of Silvaco’s common stock in connection with the consummation of our IPO. The shares issued pursuant to the Micron Note have been registered for resale under the Securities Act.

Current wording

On April 16, 2024, we entered into a note purchase agreement with Micron Technology, Inc. (“Micron”), which has been and is a customer of Silvaco, pursuant to which we issued to Micron a senior subordinated convertible promissory note in the principal amount of $5.0 million (“the Micron Note”). The Micron Note accrued interest at a rate of 8% per annum with principal and interest due upon maturity three years after the date of issuance. On May 13, 2024, the Micron Note was converted into 294,217 shares of our common stock in connection with the consummation of the IPO.

Previous wording

On May 13, 2024, we sold an aggregate of 6,000,000 shares of Common Stock in our IPO at a price to the public of $19.00 per share. The gross proceeds from the IPO were $114.0 million, with $106.0 million of net proceeds received by Silvaco after deducting underwriting discounts and commissions. Immediately upon the completion of the IPO, the 2022 Credit Line and the East West Bank Loan were repaid in full, and the East West Bank Loan was terminated.

Current wording

On May 13, 2024, we sold 6,000,000 shares of common stock in the IPO at a price to the public of $19.00 per share. The gross proceeds from the IPO were $114.0 million, with $106.0 million funded to us after deducting underwriting discounts and commissions of $8.0 million.

Previous wording

We believe our cash, the proceeds received in connection with our IPO, the $5.0 million received in connection with the Micron Note, and the remaining available short-term borrowing capacity under our 2022 Credit Line will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations for at least the next 12 months. We currently have no other committed sources of capital.

Current wording

We believe our cash and marketable securities balances, which include the proceeds received in connection with the IPO and the $5.0 million received in connection with the Micron Note will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations for at least the next 12 months. We currently have no other committed sources of capital.

Previous wording

As of March 31, 2024, $3.0 million, or 52%, of our cash was maintained with one financial institution, where our current deposits are in excess of federally insured limits. Past macroeconomic conditions have resulted in the actual or perceived financial distress of many financial institutions, including the recent failures of Silicon Valley Bank, Signature Bank, First Republic Bank and the UBS takeover of Credit Suisse. If the financial institutions with whom we do business were to become distressed or placed into receivership, we may be unable to access the cash we have on deposit with such institutions. If we are unable to access our cash as needed, our financial position and ability to operate our business could be adversely affected.

Current wording

As of June 30, 2024, $8.8 million, or 26%, of our cash and cash equivalents was maintained with one financial institution, where our current deposits are in excess of federally insured limits. Past macroeconomic conditions have resulted in the actual or perceived financial distress of many financial institutions, including the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank and the UBS takeover of Credit Suisse. If the financial institutions with whom we do business were to become distressed or placed into receivership, we may be unable to access the cash we have on deposit with such institutions. If we are unable to access our cash as needed, our financial position and ability to operate our business could be adversely affected.

Previous wording

Net cash used by operating activities for the three months ended March 31, 2024 was $2.6 million compared to $0.5 million of net cash provided by operating activities for the three months ended March 31, 2023. The $3.1 million decrease in net cash provided by operating activities reflects a $3.5 million decline in net working capital driven by changes in contract assets and accounts receivable during the three months ended March 31, 2024 and a $0.3 million change in the fair value of contingent consideration, partially offset by a $0.6 million increase in our net income.

Current wording

Net cash used by operating activities for the six months ended June 30, 2024 was $8.8 million compared to $2.2 million of net cash provided by operating activities for the six months ended June 30, 2023. The $11.0 million decrease in net cash provided by operating activities was primarily due to a $10.4 million decline in net working capital mainly driven by changes in contract assets and accounts receivable during the six months ended June 30, 2024, and the payment of litigation-related expenses incurred in connection with our acquisitions.

Previous wording

Net cash used for investing activities for the three months ended March 31, 2024 and 2023 reflects purchases of property and equipment of $10,000 and $0.2 million, respectively.

Current wording

Net cash used for investing activities for the six months ended June 30, 2024 and 2023 was $67.9 million and $0.2 million, respectively. During the six months ended June 30, 2024, we used cash of $67.8 million for purchases of marketable securities and $0.1 million on purchases of property and equipment. During the six months ended June 30, 2023, we used $0.2 million of cash to purchase property and equipment.

Previous wording

Net cash provided by financing activities for three months ended March 31, 2024, was $3.9 million and reflects our $4.3 million drawdown on the East West Bank Loan, partially offset by the payment of $0.4 million of transaction costs incurred in connection with the IPO. Net cash used by financing activities for the three months ended March 31, 2023, was $0.6 million and reflects $0.6 million of contingent consideration paid in connection with our Nangate and PolytEDA acquisitions.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024, was $106.4 million. We received $106.0 million in net proceeds from the IPO, $4.9 million in net proceeds from the Micron Note, and $4.3 million from our drawdown on the East West Bank Loan, partially offset by the $4.3 million repayment of the East West Bank Loan, payment of $2.1 million related to deferred transaction costs incurred in connection with the IPO, the $2.0 million repayment of the 2022 Line of Credit and $0.3 million of payments for our vendor financing obligation. Net cash used in financing activities for the six months ended June 30, 2023 was $0.9 million due to contingent consideration paid in connection with our Nangate and PolytEDA acquisitions.

Previous wording

Effects of Exchange Rate Fluctuations on Cash

Current wording

Effects of Exchange Rate Fluctuations on Cash and Cash Equivalents

Previous wording

The effects of exchange rate fluctuations on cash were $27,000 and $0.1 million at March 31, 2024 and 2023, respectively.

Current wording

The effects of exchange rate fluctuations on cash were $88,000 and $0.2 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

Previous wording

Following the completion ofthe IPO, our financial commitments for contractual obligations include our operating lease commitments and contingent consideration. Refer to Note 4, Leases, and Note 12, Fair Value of Financial Instruments, for further discussion. Subsequent to the IPO, on May 13, 2024, the 2022 Credit Line and the East West Bank Loan were repaid in full, and the East West Bank Loan was terminated.

Current wording

Following the consummation ofthe IPO, our financial commitments for contractual obligations include our operating lease commitments, our vendor financing obligation, and contingent consideration. Refer to Note 4, Leases, Note 7, Debt and Financing Obligations, and Note 12, Fair Value of Financial Instruments, of ourcondensed consolidated financial statementsfor further discussion.

Previous wording

There have not been any material changes during the three months ended March 31, 2024 to the methodology applied by management for critical accounting policies previously disclosed in our audited financial statements set forth in our Registration Statement. For further discussion of our critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Registration Statement.

Current wording

There have not been any material changes during the three and six months ended June 30, 2024 to the methodology applied by management for critical accounting policies previously disclosed in our audited financial statements set forth in our Registration Statement. For further discussion of our critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Registration Statement.