Silvaco Group, Inc.

6. Related Parties

The Company has a commercial lease agreement with Kipee International, Inc., a related party controlled by Katherine Ngai-Pesic, who is the Company's founding principal stockholder and chairperson of the Board of Directors, for Silvaco's corporate office in Santa Clara, California. In connection with this lease arrangement, the Company recorded rent expense of $0.1 million during each of the three and six months ended June 30, 2025 and 2024. The Company's original three year commercial office lease for this property commenced on May 1, 2022, and expired on April 30, 2025. The Company and Kipee International entered into a new commercial lease agreement, effective as of May 1, 2025, for a three year period ending on April 30, 2028. The Company's right-of-use asset and operating lease liability for this property is $0.7 million as of June 30, 2025.

The Company has international office leases with New Horizons (Cambridge) LTD (“NHC”) and New Horizons France (“NHF”) in Cambridgeshire, England and Grenoble, France, respectively. NHC and NHF are real estate entities owned and controlled by Ms. Ngai-Pesic. In connection with these lease arrangements, the Company recorded rent expense of $0.1 million during each of the three and six months ended June 30, 2025 and 2024. The Company's right-of-use asset and operating lease liability under the NHC lease, which expires on December 31, 2029, is $0.9 million as of June 30, 2025. The Company's right-of-use asset and operating lease liability under the NHF lease, which expires on April 30, 2026, is $0.1 million as of June 30, 2025.

On June 13, 2022, Silvaco entered into a $4.0 million line of credit with Ms. Ngai-Pesic (the “2022 Credit Line”). In connection with this line of credit, the Company recorded interest expense of $0.1 million during the three and six months ended June 30, 2024. The outstanding amounts due under the 2022 Credit Line were repaid in full and the 2022 Credit Line was terminated in May 2024.

In May 2025, the Company, Ms. Ngai-Pesic, and Iliya Pesic (Ms. Ngai-Pesic and Mr. Pesic, collectively, the “Co-Defendants”) agreed to a settlement in connection with a trial court judgment awarded to the Nangate Parties. The $32.5 million settlement (the “Settlement Payment”) consists of an initial $16.0 million payment paid on June 17, 2025 and four quarterly installment payments of $4.1 million each, payable on August 15, 2025, November 14, 2025, February 13, 2026, and May 15, 2026. Following the Settlement Agreement, the Co-Defendants, each a principal stockholder of the Company and a member of the Company’s board of directors, executed an apportionment agreement with the Company under which the Co-Defendants agreed to bear 25% of the Settlement Payment, with the Company bearing the remaining 75%. In June 2025, the Company made the initial payment of $16.0 million on behalf of the Company and the Co-Defendants, which included $6.0 million contributed by the Co-Defendants in accordance with the apportionment agreement. The Company recorded a charge to litigation settlement and accrued expenses and other current liabilities of $13.1 million for the six months ended June 30, 2025 related to the Settlement Agreement. The Company didnot record a charge during the three months ended June 30, 2025. As of June 30, 2025, the Company’s remaining liability under the Settlement Payment is $14.4 million, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheet. In the event that the Co-Defendants do not satisfy their obligation under the Settlement Agreement, the Company will assume payment of the Co-Defendants litigation settlement obligation of $2.1 million to avoid a default under the Settlement Agreement. In such unlikely circumstance, the Company expects to seek remedies from the Co-Defendants under the apportionment agreement. See Note 11, Commitments and Contingencies for additional information.

7. Debt and Financing Obligations

In December 2023, the Company entered into a loan facility with East West Bank (the “East West Bank Loan”) which had a maturity date of December 14, 2025 and provided for borrowings of up to $5.0 million bearing interest at a per annum rate equal to one half of one percent (0.5%) above the greater of (i) the prime rate or (ii) four and one half percent (4.5%). The Company drew $0 and $4.3 million and recorded interest expense of $0.1 million and $0.2 million on the East West Bank Loan during the three and six months ended June 30, 2024, respectively. In May 2024, the $4.3 million was repaid in full and the East West Bank Loan was terminated. Accordingly, the Company recognized a loss on debt extinguishment of $0.1 million during the three and six months ended June 30, 2024.

On April 11, 2024, the Company amended its license to use, perform, display, copy, reproduce, modify, adapt, alter, customize, translate or otherwise create derivative works based on certain technology of NXP Semiconductors Netherlands B.V. to develop and make licensed designs for the Company’s account, and to market, demonstrate, promote, sell, offer to sell, distribute and otherwise dispose of such licensed designs for total cash consideration of $6.0 million, to be paid over 5 years, pursuant to which the Company recorded an associated vendor financing obligation, which has a balance of $3.1 million as of June 30, 2025. The Company determined that this vendor financing obligation had an imputed interest rate of 9%, which is reflective of its borrowing rate for arrangements with similar terms. The Company recognized interest expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2025, respectively, and $0.1 million for both the three and six months ended June 30, 2024. The Company’s vendor financing obligation is comprised of the following payments as of June 30, 2025:

On April 16, 2024, the Company entered into a note purchase agreement with Micron Technology Inc. (“Micron”), which has been and is a customer of the Company, pursuant to which the Company issued to Micron a senior subordinated convertible promissory note in the principal amount of $5.0 million (the “Micron Note”). 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 East West Bank Loan while it was outstanding). 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. Upon the consummation of the initial public offering (“IPO”), the Micron Note was mandatorily convertible into a number of shares equal to the outstanding principal amount and accrued interest divided by a conversion price equal to (a) the price of the Company’s common stock issued in the initial public offering, times (b)0.90. The Company determined that the feature that allowed for settlement of the Micron Note into a variable number of shares required bifurcation as a derivative liability and should be initially measured at fair value. The Company recorded a derivative liability of $0.5 million and a corresponding debt discount of $0.5 million on the issuance date.

On May 13, 2024, the Micron Note was converted into 294,217 shares of the Company’s common stock in connection with the consummation of the IPO. The shares issued pursuant to the Micron Note were registered for resale under the Securities Act. Upon the settlement of the Micron Note, the derivative liability was settled and the Company remeasured it to its fair value and recorded a loss on derivative remeasurement of $28,000 during the three and six months ended June 30, 2024, which was recorded in interest and other expense, net on the Company’s condensed consolidated statements of operations. As a result, the fair value of the shares issued of $5.6 million was recognized in additional paid-in capital and the Company settled the debt, inclusive of the derivative liability, and recognized a loss on debt extinguishment of $0.7 million during the three and six months ended June 30, 2024.

8. Stock-Based Compensation

Stock-Based Compensation Plans

On March 18, 2024, the number of shares of common stock reserved for issuance under the Company’s 2014 Stock Incentive Plan (the “2014 Plan”) was increased to 4.6 million and the term of the 2014 Plan was extended to March 18, 2034. On April 26, 2024, in connection with the consummation of the Company’s IPO, the Company’s board of directors approved and adopted the 2024 Stock Incentive Plan (“2024 Plan”), subject to stockholder approval, and the Company’s stockholders approved the 2024 Plan on April 29, 2024. The 2024 Plan became effective on May 8, 2024, and supersedes the 2014 Plan. All forfeited shares underlying RSUs granted under the 2014 Plan and shares reserved for future issuance under the 2014 Plan are included in the share reserve under the 2024 Plan. As of June 30, 2025, the number of shares of common stock reserved for future issuance under the 2024 Plan was 2,414,426.

The following table summarizes the Company's RSU activity pursuant to the 2014 Plan and the 2024 Plan for the six months ended June 30, 2025:

Employee Stock Purchase Plan

The Company’s 2024 Employee Stock Purchase Plan (the “2024 ESPP”) allows employees to designate up to 15% of their base compensation, subject to legal restrictions and limitations, to purchase shares of common stock at 85% of the lesser of the fair market value at the beginning of the offering period or the purchase date. Under the 2024 ESPP, the first offering began on August 1, 2024, and ended on the purchase date of November 30, 2024. The second offering began on December 1, 2024, and ended on the purchase date of May 31, 2025. The third offering began on June 1, 2025, and ends on the purchase date of November 30, 2025. The Company’s Compensation Committee shall have the discretion to provide for the automatic termination of an Offering following any Purchase Date on which the Fair Market Value of a Share is equal to or less than the Fair Market Value of a Share on the Offering Date, and for the Participants in the terminated Offering to be automatically re-enrolled in a new Offering that commences immediately after such Purchase Date.

Pursuant to the second offering,91,632 were shares purchased, at a weighted average purchase price of $3.94, resulting in $0.4 million in cash proceeds during the six months ended June 30, 2025. As of June 30, 2025, unrecognized stock-based compensation cost related to awards granted under the 2024 ESPP totaled $0.1 million, which is expected to be recognized over a remaining period offive months.

Stock-based Compensation Expense

The Company issues RSUs to its employees, directors and service providers. The RSUs awarded under the 2014 Plan generally hadtwo vesting requirements, a Time-Based Requirement and a Liquidity Event Requirement. The Liquidity Event Requirement would be satisfied as to any then-outstanding RSUs on the first to occur of: (1) a change in control event (as defined in the award agreement); or (2) the first sale of common stock pursuant to an underwritten IPO, in either case, within 10 years of the grant date. The Liquidity Event Requirement was satisfied upon the consummation of the IPO on May 13, 2024. The Time-Based Requirement generally requires four years for full vesting of the grants, with 25% vesting afterone year and quarterly vesting over the subsequent three years. Certain grants have had modified time-based vesting requirements, including certain grants that have been issued with the Time-Based Requirement satisfied on the grant date. The Company recognizes its stock-based compensation expense ratably over the requisite service period, which is generally four years.

Prior to the consummation of the IPO, the Company did not record stock-based compensation expense for the RSUs, as the Liquidity Event Requirement was not deemed probable. Upon the consummation of the IPO, the Liquidity Event Requirement was met, and the Company incurred stock-based compensation expense associated with (i) RSUs granted to active employees and service providers, (ii) RSUs granted to certain former employees and service providers whose RSUs vested in connection with the Liquidity Event, and (iii) the acceleration of the Time Based Requirement for certain awards to executive officers, senior management and directors as a result of the Liquidity Event.

In November 2023, the Company issued 30,000 RSUs with certain performance-based conditions, in addition to the Time-Based Requirement, and 75,000 RSUs with certain market-based conditions, in addition to the Time Based Requirement and the Liquidity Event Requirement. Due to the departure of the grantee from the Company in April 2025, the RSUs were forfeited and the Company reversed the stock-based compensation expense that was previously recognized for the unvested RSUs. The reversal was immaterial for the three and six months ended June 30, 2025.

The Company recorded total stock-based compensation expense of $2.1 million and $4.4 million during the three and six months ended June 30, 2025, respectively, and $21.8 million during the three and six months ended June 30, 2024, respectively, for the service periods through such dates using the straight-line attribution method, net of actual forfeitures, based on the grant-date fair value of the RSU awards. The following table summarizes stock-based compensation expense by function for the three and six months ended June 30, 2025 and 2024:

As of June 30, 2025, the Company had unrecognized stock-based compensation expense of $18.4 million which is expected to be recognized over a weighted average period of 2.6 years.

9. Income Taxes

During the three and six months ended June 30, 2025, the Company recorded an income tax (benefit) provision of $(0.5) million and $(0.3) million, respectively, as compared to $0.2 million and $1.0 million during the three and six months ended June 30, 2024, respectively. The effective tax rate for the three and six months ended June 30, 2025 was 5% and 1%, respectively, as compared to (1)% and (3)% during the three and six months ended June 30, 2024, respectively.

The Company determines its income tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items occurring during the periods presented. The primary difference between its effective tax rate and the federal statutory rate is primarily attributable to state income taxes, foreign income taxes, the effect of certain permanent differences, and full valuation allowance against net deferred tax assets.

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

On July 4, 2025, the U.S. enacted H.R. 1 "A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14", commonly referred to as the One Big Beautiful Bill (“H.R. 1”). The enactment of H.R. 1 is not expected to have a material impact on the Company’s tax position or consolidated financial statements.

10. Segment Reporting

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

The following table presents a summary of revenue, payroll expenses, which the CODM reviews in assessing Company performance and deciding how to allocate resources, and total other expenses as a reconciliation to consolidated net loss for the three and six months ended June 30, 2025 and 2024.

11. Commitments and Contingencies

Warranties

The Company typically provides its customers a warranty on its software licenses for a period of no more than 90 days and on its other tools for a period of no more thanone year. Such warranties are accounted for in accordance with the authoritative guidance issued by the FASB on contingencies. For the three and six months ended June 30, 2025, and 2024, the Company has not incurred any costs related to warranty obligations.

Indemnification

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

Contingencies

In December 2020, the Company sought declaratory relief in the California Superior Court to clarify its obligations regarding the earnout payments due to the former stockholders of Nangate following its acquisition by the Company in 2018. The Nangate Parties subsequently filed a cross-complaint against the Company and the Co-Defendants seeking $20.0 million in damages for breach of contract, fraud, and unfair business practices, as well as punitive damages.

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 and court and litigation related costs and expenses to be determined by the court (the “Contract Damages”). As a result, during the year ended December 31, 2024, the Company recorded a charge to litigation settlement and accrued expenses and other current liabilities of $11.3 million for the Contract Damages awarded to the Nangate Parties.

The jury also found the Company and the Co-Defendants liable for certain of the misrepresentation claims and awarded the Nangate Parties $6.6 million in compensatory damages, for which the Company and the Co-Defendants were joint and severally liable. Incremental punitive damages relating to these claims, including $17.0 million payable by the Company and a total of $16.0 million to be paid by the Co-Defendants, were awarded following a hearing on August 16, 2024 (collectively, the “Fraud Damages”). Under California law, the Nangate Parties were entitled to elect either the Contract Damages or the Fraud Damages but could not receive both.

In May 2025, the parties entered into the Settlement Agreement pursuant to which the Company and the Co-Defendants agreed to pay the Nangate Parties’ an aggregate amount of $32.5 million in full resolution of all claims. In connection with the Settlement Agreement, the Company recorded an additional charge to litigation settlement and accrued expenses and other current liabilities of $13.1 million for the six months ended June 30, 2025. As of June 30, 2025, the Company’s remaining liability under the Settlement Payment was $14.4 million, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheet. In the event that the Co-Defendants do not satisfy their obligation under the Settlement Agreement, the Company will assume payment of the Co-Defendants litigation settlement obligation of $2.1 million to avoid a default under the Settlement Agreement. In such unlikely circumstance, the Company expects to seek remedies from the Co-Defendants under the apportionment agreement. Refer to Note 6,, Related Parties, for further information.

As of June 30, 2025, the Company held restricted cash of $16.5 million to secure an irrevocable standby letter of credit issued in connection the Settlement Agreement. Refer to Note 2, Summary of Significant Accounting and Reporting Policies, for additional details.

The Company is subject export control and import laws and regulations of the United States and other applicable jurisdictions, including the Export Administration Regulations. Between August 2019 and June 2022, the Company filed voluntary self-disclosures with U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) regarding potential violations of U.S. export control laws and regulations, specifically, the export of the Company’s licenses to certain parties designated on BIS’s Entity List and Unverified List, and the export of certain software modules without a license which was required at the time of the transaction. Such software modules were declassified by BIS in October 2020 to a lesser controlled export classification, meaning that such software generally no longer requires an export license. In April 2025, BIS issued a warning letter in response to the voluntary self-disclosures instead of pursuing criminal or administrative penalties or taking other enforcement action. However, as is common in these instances, BIS reserved the right to take future enforcement action should additional information warrant renewed attention.

The Company is party to various litigation matters and claims arising from time-to-time in the ordinary course of business. While the results of such matters cannot be predicted with certainty, unless disclosed above, the Company believes that the final outcome of such matters will not have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. However, each of these matters is subject to various uncertainties and it is possible that an unfavorable resolution of one or more of these proceedings could materially affect the Company.

12. Fair Value of Financial Instruments

Financial instruments measured at fair value on a recurring basis

The following tables present the Company's financial assets and liabilities that are measured at estimated fair value on a recurring basis as of June 30, 2025 and December 31, 2024:

The Company's level 1 financial assets were valued using quoted prices in active markets for identical assets as of June 30, 2025 and December 31, 2024. The Company’s level 2 financial assets were determined based on third-party inputs which are either directly or indirectly observable, such as reported trades and broker or dealer quotes. The Company's marketable securities have an amortized cost that approximates fair value as of June 30, 2025 and December 31, 2024.

Pursuant to the Company’s stock purchase agreements for the acquisition of Nangate in March of 2018, PolytEDA Cloud LLC in January of 2021 and Tech-X Corporation in April of 2025, the former shareholders are entitled to additional milestone and earn out consideration based on operating income generated by the business and technical achievements. The milestone consideration and earn-out liabilities are classified as contingent consideration as the obligations are due in cash. As such the obligations are recorded at their fair value and re-valued period to period with any changes recorded tointerest and other expense, net in the condensed consolidated statements of operations.

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

The following is a reconciliation of changes in the liability related to contingent consideration during the six months ended June 30, 2025 and 2024:

13. Subsequent Events

On August 1, 2025, the Company, Mixel Group, Inc., a California corporation (“Mixel”), the stockholders of Mixel, and the stockholders' representative consummated a Stock Purchase Agreement, dated July 29, 2025, pursuant to which the Company acquired all of the outstanding shares of common stock of Mixel for a preliminary aggregate purchase price of $22.0 million, payable in cash of $19.0 million and shares of the Company of $3.0 million. The Company’s initial accounting for this acquisition is in process.