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 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

The following discussion should be read together with our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 Quarterly Report on Form 10-Q 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.

Previous wording

We are a provider of TCAD software, EDA software and SIP. TCAD, EDA and SIP solutions enable semiconductor and photonics companies to increase productivity, accelerate their products’ time-to-market and reduce their development and manufacturing costs. We have decades of expertise developing the “technology behind the chip” and providing solutions that span from atoms to systems, starting with providing software for the atomic level simulation of semiconductor and photonics material for devices, to providing software and SIP for the design and analysis of circuits and system level solutions. We provide SIP for SoC and ICs, and SIP management tools to enable team collaborations on complex SoC designs. Our customers include semiconductor manufacturers, OEMs and design teams who deploy our solutions in production flows across our target markets, including display, power devices, automotive, memory, HPC, IoT and 5G/6G mobile markets.

Current wording

We are a provider of technology computer aided design (“TCAD”) software, electronic data automation (“EDA”) software and semiconductor intellectual property (“SIP”). TCAD, EDA and SIP solutions enable semiconductor and photonics companies to increase productivity, accelerate their products’ time-to-market and reduce their development and manufacturing costs. We have decades of expertise developing the “technology behind the chip” and providing solutions that span from atoms to systems, starting with providing software for the atomic level simulation of semiconductor and photonics material for devices, to providing software and SIP for the design and analysis of circuits and system level solutions. We provide SIP for system-on-a-chip (“SoC”) and integrated circuits (“ICs”), and SIP management tools to enable team collaborations on complex SoC designs. Our customers include semiconductor manufacturers, original equipment manufacturers (“OEMs”) and design teams who deploy our solutions in production flows across our target markets, including display, power devices, automotive, memory, high performance computing (“HPC”), internet of things (“IoT”) and 5G/6G mobile markets.

Previous 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.

Current wording

Our go-to-market strategy centers on selling software solutions and associated maintenance and services. Our software solutions accounted for 62% and 72% of our revenue for the three and nine months ended September 30, 2024, respectively, and 74% and 73% of our revenue for the three and nine months ended September 30, 2023, respectively. Associated maintenance and services revenue accounted for 38% and 28% of our revenue for the three and nine months ended September 30, 2024, respectively, and 26% and 27% of our revenue for the three and nine months ended September 30, 2023, respectively. For the three and nine months ended September 30, 2024, approximately 88% and 90% of our bookings came from existing customers, respectively, and the remainder of our bookings came from new customers. For the three and nine months ended September 30, 2023, approximately 85% and 80% of our bookings came from existing customers, respectively, and the remainder came from new customers.

Previous wording

We believe that the growth of our business and our future success are dependent upon many factors including those described above under “Risk Factors” and elsewhere in this quarterly report and those described below. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address to sustain the growth of our business and enhance our results of operations.

Current wording

We believe that the growth of our business and our future success are dependent upon many factors including those described above in “Part II, Item 1A. Risk Factors” and elsewhere in this quarterly report and those described below. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address to sustain the growth of our business and enhance our results of operations. The growth of our business and our future success are also subject to uncertainties and risks as described in Part II, Item 1.A., Risk Factors of this Quarterly Report on Form 10-Q.

Previous wording

Building long-term relationships with our existing customer base is critical in driving renewals for our licenses and overall revenue growth. We have a global sales force selling to semiconductor companies and engineering universities which instruct the next generation of chip designers and fabrication facility managers on the use and benefits of our design tools. Most of our customers enter into multi-year software license agreements for a fixed price including a multi-year software license and maintenance and services.

Current wording

Building long-term relationships with our existing customer base is critical in driving renewals for our licenses and overall revenue growth. We have a global sales force selling to semiconductor companies and engineering universities that also instruct fabrication facility managers and the next generation of chip designers on the use and benefits of our design tools. Most of our customers enter into multi-year software license agreements for a fixed price including a multi-year software license and maintenance and services.

Previous wording

When we renew expiring contracts with our customers, we may increase our bookings by selling them additional or new software or SIP. Over time, we expect that existing customers will choose to upgrade and purchase additional products, particularly as we de-emphasize our lower margin products, which we expect will over the long term drive margin expansion. Our ability to continue to generate sales from our existing customers and to expand those relationships is dependent on our ability to continue to offer software solutions that our existing customers demand. Any failure to continue to generate sales with our existing customers or expand our product and service offerings with our existing customers may have an adverse effect on our revenue and results of operations.

Current wording

When we renew expiring contracts with our customers, we may increase our bookings by selling them additional or new software or SIP. Over time, we expect that existing customers will choose to upgrade and/or purchase additional products, particularly as we de-emphasize our lower margin products, which we expect will over the long term drive margin expansion. Our ability to continue to generate sales from our existing customers and to expand those relationships is dependent on our ability to continue to offer software solutions that our existing customers demand. Any failure to continue to generate sales with our existing customers or expand our product and service offerings with our existing customers may have an adverse effect on our revenue and results of operations.

Previous wording

To meet the increasing complexity of semiconductor designs, the introduction of new advanced materials, and the increased costs associated with more advanced semiconductor technology nodes, we will need to continually enhance our product offerings through our own in-house research and development efforts, acquisitions, or strategic partnerships with third parties. The in-house development of new product offerings or enhancements to our existing product offerings requires significant research and development activities and time and may or may not result in offerings we can successfully market and sell to customers. For example, we have developed an artificial intelligence-based solution named fab technology co-optimization or FTCOTM for wafer level fabrication facilities. FTCO utilizes manufacturing data to perform statistical and physics-based machine learning software simulations to create a computer model of a wafer, which we call the “digital twin” of the wafer, in order to simulate the fabrication of wafers. We may also seek to acquire companies or assets for products or solutions which we believe are complementary to our existing products or solutions. Additionally, we currently, and have in the past, and may in the future, partner with third parties to expand our product offerings to our customers. If in the future, we enter into additional licensing agreements with other third parties and are unable to extend the term of those licensing arrangements, we will experience an associated decline in revenue relating to those products.

Current wording

To meet the increasing complexity of semiconductor designs, the introduction of new advanced materials, and the increased costs associated with more advanced semiconductor technology nodes, we will need to continually enhance our product offerings through our own in-house research and development efforts, acquisitions, or strategic partnerships with third parties. The in-house development of new product offerings or enhancements to our existing product offerings requires significant research and development activities and time and may or may not result in offerings we can successfully market and sell to customers. For example, we have developed an artificial intelligence, or AI, -based solution named fab technology co-optimization or FTCOTM for wafer level fabrication facilities. FTCO utilizes manufacturing data to perform statistical and physics-based machine learning software simulations to create a computer model of a wafer, which we call the “digital twin” of the wafer, in order to simulate the fabrication of wafers. We may also seek to acquire companies or assets for products or solutions which we believe are complementary to our existing products or solutions. Additionally, we currently, and have in the past, and may in the future, partner with third parties to expand our product offerings to our customers. If in the future, we enter into additional licensing agreements with other third parties and are unable to extend the term of those licensing arrangements, we will experience an associated decline in revenue relating to those products.

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 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.

Current wording

According to Grand View Research, the global EDA software market was valued at $11.1 billion in 2022 and is forecasted 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 38% and 37% of revenue for the three and nine months ended September 30, 2024, respectively, and 22% and 24% of revenue for the three and nine months ended September 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

Our success depends in part on our ability to identify, complete and integrate acquisitions. Our goal for future potential acquisition is to pursue acquisitions that will increase our competitiveness in our markets, and increase our bookings and revenue. Our ability to successfully identify, complete and integrate acquisitions will depend on a number of factors, including access to adequate capital, potential competition for the assets, and technology fit. When we engage in M&A, we aim to retain the customers of our acquired companies due to our expanded offerings or improved services. As a result, acquiring target companies is a key part of our growth strategy and may allow us to access and serve a broader range of customers, which ultimately may lead to more bookings, increased revenue growth and expansion in our market share presence.

Current wording

Our success depends in part on our ability to identify, complete and integrate acquisitions. Our goal for future potential acquisitions is to pursue acquisitions that will increase our competitiveness in our markets and increase our bookings and revenue. Our ability to successfully identify, complete and integrate acquisitions will depend on a number of factors, including access to adequate capital, potential competition for the assets, and technology fit. When we engage in mergers and acquisitions, we aim to retain the customers of our acquired companies due to our expanded offerings or improved services. As a result, acquiring target companies is a key part of our growth strategy and may allow us to access and serve a broader range of customers, which ultimately may lead to more bookings, increased revenue growth and expansion in our market share presence.

Previous wording

We anticipate that our results will be impacted by the increase or decrease of a given product or service as a percentage of total revenue relative to our other products and services. If and as higher margin products become a larger part of our product mix, or conversely as low margin products become a smaller part of our product mix, our gross margin will expand. While we may enter into agreements with third parties for lower margin product solutions, we anticipate our focus on higher margin solutions will continue to lead our other products and services within our product mix, which we anticipate may lead to gross margin and operating margin expansion. Our future ability to shape our product mix with higher margin products making up a larger percentage of our total revenue will impact our results of operations.

Current wording

We anticipate that our results will be impacted by the increase or decrease of a given product or service as a percentage of total revenue relative to our other products and services. As higher margin products become a larger part of our product mix, or conversely as low margin products become a smaller part of our product mix, our gross margin will expand. While we may enter into agreements with third parties for lower margin product solutions, we anticipate our focus on higher margin solutions will continue to lead our other products and services within our product mix, which we anticipate may lead to gross margin and operating margin expansion. Our future ability to shape our product mix with higher margin products making up a larger percentage of our total revenue will impact our results of operations.

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 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.

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 developed in partnership with NXP (the “NXP IP”). 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 the NXP IP, we generally act as a principal to the transaction because we have a license to sell, and therefore control the NXP IP that we deliver to the customer. Consistent with our role as the principal, we recognize SIP revenue of the NXP IP on a gross basis. Any royalty fees based upon unit sales, revenue or flat fees which were paid to NXP were reported in cost of revenue upon delivery pursuant to the terms and conditions of our contractual obligations with the customers.

Previous wording

Typically, our software solutions are sold with post-contract support, or PCS, which includes unspecified technical enhancements and customer support. PCS is classified as maintenance revenue and is recognized ratably over the term of the contract, as we satisfy the PCS performance obligation over time.

Current wording

Typically, our software solutions are sold with post-contract support, or PCS, which includes unspecified technical enhancements and customer support. PCS is classified as maintenance and service revenue and is recognized ratably over the term of the contract, as we satisfy the PCS performance obligation over time.

Previous 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.

Current wording

We also recognized an immaterial portion of our revenue from device characterization and modeling services for the three and nine months ended September 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. 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.

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 $0.3 million and $2.8 million of stock-based compensation expense in cost of revenue during the three and nine months ended September 30, 2024, respectively. Gross profit represents revenue less cost of revenue.

Previous 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.

Current wording

Our operating expenses consist of research and development, selling and marketing, general and administrative expenses, and estimated litigation claim. Related 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 $2.6 million and $24.4 million of stock-based compensation expense during the three and nine months ended September 30, 2024, respectively. Of the aggregate stock-based compensation expense recorded, we recognized $1.4 million, $0.5 million, and $0.4 million in general and administrative expense, research and development expense, and selling and marketing expense, respectively, during the three months ended September 30, 2024, and $13.1 million, $4.6 million, and $3.9 million in general and administrative expense, research and development expense, and selling and marketing expense, respectively, during the nine months ended September 30, 2024.

Previous wording

Estimated litigation claim expense consists of legal costs that became probable and reasonably estimable associated with our obligations with respect to the earnout payment due to the selling shareholders of Nangate, Inc. (“Nangate”), along with a third cross-complainant (collectively, the “Nangate Parties”). On July 23, 2024, a jury awarded the Nangate Parties $11.3 million in damages under breach of contract related claims, including breach of contract and breach of the covenant of good faith and fair dealing, along with the potential for an award of statutory pre-judgment interest, and court and litigation related costs and certain expert expenses subject to the Nangate Parties establishing the legal right to them and to be determined by the court.

Current wording

Estimated litigation claim expense consists of legal costs that became probable and reasonably estimable associated with our obligations with respect to the earnout payment due to the selling shareholders of Nangate, Inc. (“Nangate”), along with a third cross complainant (collectively, the “Nangate Parties”). On July 23, 2024, a jury awarded the Nangate Parties $11.3 million in damages under breach of contract related claims, including breach of contract and breach of convenant of good faith and fair dealing, along with the potential for an award of statutory pre-judgment interest, and court and litigation related costs and certain expert expenses subject to the Nangate Parties establishing the legal right to them and to be determined by the court (the “Contract Damages”). The jury also awarded damages for certain of the fraudulent and negligent misrepresentation claims of $6.6 million to the Nangate Parties and incremental punitive damages, including $17.0 million payable by the Company (the “Fraud Damages”). The Nangate Parties will have the option to choose either the Contract Damages or the Fraud Damages, but in no circumstances will the Nangate Parties receive both remedies. We recorded a charge to estimated litigation claim and accrued expenses and other current liabilities of $0.4 million and $15.1 million during the three and nine months ended September 30, 2024, respectively. See Note 10 of our condensed consolidated financial statements for further discussion.

Previous 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.

Current wording

Interest and other (expense) income, net includes interest expense associated with the 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 and six months ended June 30, 2024 and 2023:

Current wording

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

Previous 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:

Current wording

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

Previous wording

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

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous 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.

Current wording

Total revenue decreased by $3.9 million, or 27%, to $11.0 million for the three months ended September 30, 2024 from $14.9 million for the three months ended September 30, 2023. The decrease in total revenue for thethree months ended September 30, 2024 is primarily due to the economic challenges in Asia and the ongoing strain in U.S.-China trade relations. Revenue associated with our TCAD and EDA tools decreased $1.4 million and $1.9 million, respectively, and revenue derived from IP sales decreased $0.6 million. Software license revenue decreased by $4.3 million, or 38%, to $6.8 million for the three months ended September 30, 2024 from $11.1 million for the three months ended September 30, 2023. Maintenance and service revenue increased by $0.2 million, or 7%, to $4.1 million for the three months ended September 30, 2024 from $3.9 million for the three months ended September 30, 2023.

Previous wording

Research and development expenses were $7.7 million and $3.2 million for the three months ended June 30, 2024 and 2023, respectively. The increase of $4.5 million, or 143%, was primarily due to $4.1 million of stock-based compensation expense recorded as a result of the consummation of the IPO and a $0.4 million increase in software maintenance expense.

Current wording

Research and development expenses were $4.1 million and $3.3 million for the three months ended September 30, 2024 and 2023, respectively. The increase of $0.8 million, or 26%, was primarily due to $0.5 million of stock-based compensation expense recorded during the three months ended September 30, 2024, and a $0.3 million increase in software maintenance expense.

Previous wording

Research and development expenses were $11.3 million and $6.5 million for the six months ended June 30, 2024 and 2023, respectively. The increase of $4.8 million, or 73%, was primarily due to $4.1 million of stock-based compensation expense recorded as a result of the consummation of the IPO, a $0.4 million increase in software maintenance expense, and a $0.3 million increase in consulting, simulation and engineering support expenses.

Current wording

Research and development expenses were $15.5 million and $9.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $5.7 million, or 57%, was primarily due to $4.6 million of stock-based compensation expense recorded as a result of the consummation of the IPO, a $0.8 million increase in software maintenance expense, and a $0.3 million increase in consulting, simulation and engineering support expenses.

Previous 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.

Current wording

Selling and marketing expenses were $3.8 million and $3.1 million for the three months ended September 30, 2024 and 2023, respectively. The increase of $0.7 million, or 22%, was primarily due to $0.4 million of stock-based compensation expense recorded during the three months ended September 30, 2024, and a $0.3 million increase in commission expenses.

Previous wording

Selling and marketing expenses were $10.5 million and $5.7 million for the six months ended June 30, 2024 and 2023, respectively. The increase of $4.7 million, or 83%, was primarily due to $3.6 million of stock-based compensation expense recorded as a result of the consummation of the IPO, a $0.7 million increase in salary and benefits expenses, primarily related to increased headcount and merit increases, a $0.1 million increase in professional fees, and a $0.1 million increase in commission expenses.

Current wording

Selling and marketing expenses were $14.3 million and $8.9 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $5.4 million, or 61%, was primarily due to $3.9 million of stock-based compensation expense recorded as a result of the consummation of the IPO, a $0.9 million increase in salary and benefits expenses, primarily related to increased headcount and merit increases, and a $0.5 million increase in commission expenses.

Previous wording

General and administrative expenses were $18.3 million for the three months ended June 30, 2024 as compared to $4.3 million during the three months ended June 30, 2023. The increase of $14.1 million, or 330%, was primarily due to $11.7 million of stock-based compensation expense recorded as a result of the consummation of the IPO and a $2.4 million increase in legal, professional and audit fees.

Current wording

General and administrative expenses were $30.0 million for the nine months ended September 30, 2024 as compared to $13.3 million during the nine months ended September 30, 2023. The increase of $16.7 million, or 126%, was primarily due to $13.1 million of stock-based compensation expense recorded as a result of the consummation of the IPO, and a $3.8 million increase in legal, professional and audit fees.

Previous wording

Estimated litigation claim was$14.7 million for the three and six months ended June 30, 2024. The estimated litigation claim consists of a $14.7 million charge recorded due to a jury’s verdict to award the Nangate Parties $11.3 million with additional statutory pre-judgment interest, and court and litigation related costs and certain expert expenses (the “Nangate Litigation”).

Current wording

Estimated litigation claim was$0.4 million and$15.1 million for the three andnine months ended September 30, 2024, respectively. The estimated litigation claim in the nine month period consists of a $15.1 million charge recorded due to a jury’s verdict to award the Nangate Parties$11.3 million with additional statutory pre-judgment interest, and court and litigation related costs and certain expert expenses (the “Nangate Litigation”). See Note 10 of our condensed consolidated financial statements for further discussion.

Previous wording

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. As a result, $5.6 million was recognized in additional paid-in capital and we recognized a loss on debt extinguishment of $0.6 million during the three and six months ended June 30, 2024. We also recognized a loss on debt extinguishment of $0.1 million associated with the settlement of our East West Bank Loan. See Note 7 of ourcondensed consolidated financial statements for further discussion.

Current wording

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. As a result, $5.6 million was recognized in additional paid-in capital and we recognized a loss on debt extinguishment of $0.6 million during the nine months ended September 30, 2024. We also recognized a loss on debt extinguishment of $0.1 million associated with the settlement of our East West Bank Loan during the nine months ended September 30, 2024. See Note 6 of ourcondensed consolidated financial statements for further discussion.

Previous 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.

Current wording

Interest and other (expense) income, net, was expense of$0.3 million and income of$37,000 for the three months ended September 30, 2024 and 2023, respectively, and expense of$0.8 million and $0.5 million for thenine months ended September 30, 2024 and 2023, respectively. The change in interest and other (expense) income, net for the three months ended September 30, 2024 reflects foreign exchange losses associated with our international operations. The change in interest and other (expense) income, net, for thenine months ended September 30, 2024 was primarily due to an increase in the amount of interest-bearing debt outstanding during the current year. The Company does not have any interest-bearing debt outstanding as of September 30, 2024.

Previous 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.

Current wording

Income tax provision was$0.2 million and$0.3 million for the three months ended September 30, 2024 and 2023, respectively, and$1.2 million and$0.6 million for the nine months ended September 30, 2024 and 2023, respectively. See Note 8 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 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.

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 nine months ended September 30, 2024, we recorded $9.9 million and $45.5 million in bookings, respectively, as compared to $12.5 million and $42.5 million in bookings for the three and nine months ended September 30, 2023, respectively.

Previous wording

We report our financial results in accordance with GAAP. However, our management believes that non-GAAP operating income and non-GAAP net income provide investors with additional useful information in evaluating our performance. These financial measures are not required by or presented in accordance with GAAP. We believe, however, that these non-GAAP financial measures, when taken together with our financial results presented in accordance with GAAP, provide meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook and provide a useful measure for period-to-period comparisons of our business performance.

Current wording

We report our financial results in accordance with GAAP. However, our management believes that non-GAAP operating income and non-GAAP net income provide investors with additional useful information in evaluating our performance. These financial measures are not required by or presented in accordance with GAAP. We believe, however, that these non-GAAP financial measures, when taken together with our financial results presented in accordance with GAAP, provide meaningful supplemental information regarding our operating performance and facilitate internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook and provide a useful measure for period-to-period comparisons of our business performance.

Previous wording

Certain items are excluded from our non-GAAP operating income (loss) and non-GAAP net income (loss) because these items are non-cash in nature or are not indicative of our core operating performance and render comparisons with prior periods and competitors less meaningful. We adjust GAAP operating income (loss) and net income (loss) for these items to arrive at non-GAAP operating income (loss) and non-GAAP net income (loss) because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structure and the method by which the assets were acquired. By excluding certain items that may not be indicative of our recurring core operating results, we believe that non-GAAP operating income (loss) and non-GAAP net income (loss) provide meaningful supplemental information regarding our performance.

Current wording

Certain items are excluded from our non-GAAP operating income (loss) and non-GAAP net income (loss) because these items are non-cash in nature or management believes they are not indicative of our core operating performance and render comparisons with prior periods and competitors less meaningful. We adjust GAAP operating income (loss) and net income (loss) for these items to arrive at non-GAAP operating income (loss) and non-GAAP net income (loss) because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structure and the method by which the assets were acquired. By excluding items that may not be indicative of our recurring core operating results, we believe that non-GAAP operating income (loss) and non-GAAP net income (loss) provide meaningful supplemental information regarding our performance.

Previous wording

The following table reconciles operating income to non-GAAP operating income.

Current wording

The following table reconciles operating (loss) income to non-GAAP operating (loss) income.

Previous wording

The following table reconciles net income to non-GAAP net income.

Current wording

The following table reconciles net (loss) income to non-GAAP net (loss) income.

Previous wording

(2)Reflects the amortization of intangible assets attributable to our acquisitions.

Current wording

(2)Reflects the amortization of intangible assets attributable to our acquisitions and the NXP IP.

Previous 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.

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 September 30, 2024, we had $26.6 million in cash and cash equivalents, of which $3.4 million was held by our foreign subsidiaries, and $73.8 million in short-term marketable securities.

Previous 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.

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%). We drew $4.3 million on the East West Bank Loan during the nine months ended September 30, 2024. In May 2024, the East West Bank Loan was repaid in full and terminated.

Previous wording

On April 11, 2024, we amended our license agreement with NXP, pursuant to which we recorded an associated vendor financing obligation of $4.8 million. We determined that the vendor financing obligation had an imputed interest rate of 9%, which is reflective of our borrowing rate with similar terms to that of the license agreement.

Current wording

On April 11, 2024, we amended and restated our license agreement with NXP, pursuant to which we recorded an associated vendor financing obligation. The vendor financing obligation was $4.6 million as of September 30, 2024. We determined that the vendor financing obligation had an imputed interest rate of 9%, which is reflective of our borrowing rate with similar terms to that of the license agreement.

Previous 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.

Current wording

On April 16, 2024, we entered into a note purchase agreement with Micron Technology, Inc. (“Micron”), a customer of the Company, pursuant to which we issued a senior subordinated convertible promissory note (the “Micron Note”) in the principal amount of $5.0 million. 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.