Silvaco Group Inc.
03/12/2026 | Press release | Distributed by Public on 03/12/2026 15:29
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion and other parts of this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks, uncertainties and assumptions. 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 under Part I, Item 1A. Risk Factorsof this Annual Report on Form 10-K. 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.
Overview
We are a provider of technology computer aided design software ("TCAD"), electronic data automation software ("EDA"), and semiconductor intellectual property ("SIP"). Our solutions are used by engineers to optimize semiconductor manufacturing processes and efficiently bring semiconductor products to market. Our differentiated solutions enable our customers to increase productivity, accelerate time-to-market and reduce development and manufacturing costs. Our customers include semiconductor manufacturers and systems companies that design and manufacture products containing semiconductors. Semiconductors are at the heart of innovation in many industries, including AI, display, power devices, automotive, memory, hyperscale and cloud computing, Internet of Things ("IoT"), telecommunications and many more.
Our TCAD solutions are used in the semiconductor industry to model and optimize manufacturing processes and device performance. This includes foundational TCAD software and more advanced artificial intelligence ("AI") machine learning ("ML") for process development, called Fab Technology Co-Optimization ("FTCOTM"). We are a pioneer in the leverage of AI to redefine manufacturing process development in partnership with customers.
Our EDA software is used by semiconductor companies to design, simulate, and verify semiconductors. Our EDA products include SPICE modelling and simulation, parasitic extraction and reduction, standard cell generation and optical proximity correction.
Our SIP portfolio includes a range of products, including foundation technology, such as standard cells and memory compilers, as well as a suite of interface technologies. Our SIP portfolio benefited from recent acquisitions, most notably Mixel Group, Inc. ("Mixel"), which is positioned for growth as we roll out Mixel's quality processes to the rest of the organization.
Our customers include foundries, integrated device manufacturers ("IDMs") and fabless semiconductor companies. Our go-to-market strategy centers on selling software solutions and associated maintenance and services. Our software solutions accounted for 68% and 74% of our revenue for the years ended December 31, 2025 and 2024, respectively, and associated maintenance and services accounted for 32% and 26% of our revenue for the years ended December 31, 2025 and 2024, respectively.
Recent Acquisitions
On March 4, 2025, we consummated an asset purchase agreement with Cadence Design Systems, Inc. ("Cadence"), pursuant to which, among other things, we agreed to acquire certain assets and assume certain liabilities comprising Cadence's Process Proximity Compensation product line, an optical proximity correction suite of tools (the "OPC Business"), in exchange for $11.5 million in cash.
On April 29, 2025, we consummated a stock purchase agreement with the shareholders of Tech-X Corporation ("Tech-X"), pursuant to which we acquired all of the outstanding shares of Tech-X for an aggregate purchase price of $8.2 million. The purchase consideration consisted of (i) $4.1 million in cash, (ii) 457,666 shares of the Company's common stock with a fair value of $2.4 million on the closing date, and (iii) contingent consideration, with a maximum payout of $2.0 million, and with an estimated fair value of $1.7 million, payable in cash upon the achievement of specified technical milestones through December 2026. In February 2026, the Company amended the form of payment of the contingent consideration and post-closing net working capital adjustments to be payable in shares of the Company's common stock. The Company also extended the date through which contingent consideration can be earned to July 2027.
On August 1, 2025, we consummated a stock purchase agreement with the shareholders of Mixel Group, Inc. ("Mixel"), pursuant to which we agreed to acquire all of the outstanding shares of Mixel for an aggregate purchase price of $22.5 million, which includes (i) $19.7 million in cash and (ii) 643,617 shares of the Company's common stock with a fair value of $2.8 million on the closing date.
Key Factors Affecting our Results of Operations and Future Performance
Current Economic Conditions
Because of our global operations, our business is subject to economic downturns in the countries in which we do business, volatility in exchange rates, changes in interest rates, evolving trade control regulations and geopolitical conflicts.
We have been impacted by the expansion of trade control laws and regulations, including the broadening of the list of Chinese technology companies on the U.S. Department of Commerce Bureau of Industry and Security "entity list." We expect the impact of these expanded trade controls on our business to be limited.
We also monitor geopolitical conflicts around the world, including the conflict in Ukraine and conflicts in the Middle East. To date, these conflicts have not materially impacted our business.
For additional information on the potential impact of macroeconomic conditions on our business, see Part I, Item 1A, "Risk Factors."
Cost Reduction Initiatives
In October 2025, we began implementing targeted cost-savings initiatives intended to streamline our organizational structure, improve execution, and enhance stockholder value (the "Restructuring Plan"). The Restructuring Plan includes a voluntary early retirement program, a voluntary exit program, an involuntary reduction in force, and certain planned site closures. During the year ended December 31, 2025, we incurred pre-tax charges of $1.3 million for severance, termination benefits, and site closures. The majority of impacted employees were affected in the year ended December 31, 2025. We anticipate these initiatives will result in significant annualized operating expense reductions.
Relationships with Our Existing Customers
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 that also advises fabrication facility managers and the next generation of chip designers on the 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.
When we renew 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. 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.
We enter into standard software licensing agreements with our customers. Pursuant to these agreements, we grant our customers a non-exclusive, non-transferable, limited license, without the right to sublicense, to execute, use and operate certain software. Each party has the right to terminate the software license agreement under certain circumstances, in which event the customer will be required to remove, delete and return all software, related documentation and confidential information furnished under the license agreement.
Our Ability to Expand Our Product Offerings
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 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 AI-based solution named Fab Technology Co-Optimization or FTCOTMfor 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.
Our Ability to Expand into New Markets and Applications and Expansion of our Existing Markets
We believe that trends in the global EDA software market, including 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, 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 expenses were 47% and 35% of revenue for the years ended December 31, 2025 and 2024, 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.
The drive to increase performance and diversification of applications is further accelerated by a broad-scale transition to cloud-based software applications and computing on mobile platforms. The development of semiconductors that are optimized for specific applications, including AI, 5G/6G communications and IoT, has continued to fuel demand for TCAD and EDA software tools, which in turn fuels demand to develop solutions to meet our markets' evolving needs. Our ability to successfully generate customer demand amongst new customers and in new markets is dependent on our ability to educate these customers and markets about our software solutions and our ability to generate sufficient new solutions that solve problems for these potential customers. Our ability to continue to expand our product offerings into new markets also requires that we direct our research and development efforts toward value-generating new and existing initiatives. Our future revenues and results of operations will be directly impacted by our ability to produce and provide new software solutions in new and expanding markets.
Our Ability to Successfully Identify, Complete and Integrate Acquisitions
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.
Our Ability to Calibrate Our Product Mix to Enhance Margin Expansion
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.
Our Ability to Scale While Mitigating Increases in Expenses
If we can execute on our growth strategy and grow our revenue through a combination of new customer growth, upgrades and increased usage of our products by existing customers, as well as accretive acquisitions, our results will be impacted by our ability to reduce the rate at which our expenses increase in proportion with a rise in revenue. We believe this is possible in a number of expense line items, which may provide for additional gross margin and operating margin expansion. For example, we anticipate as our existing customers choose to upgrade to newer software solutions, our costs related to the support of legacy software decreases, outpacing any increases in cost related to supporting the upgraded software. Additionally, we have incurred increased general and administrative expenses in connection with preparing to become a public company, including increased staff costs and professional services fees, including legal and accounting fees. We have also incurred a significant increase in stock-based compensation expense. While we anticipate the increased level of costs to remain, we do not anticipate those costs scaling proportionally with our revenue. Finally, we may be able to gain sales efficiencies as our revenue grows, such that our sales and marketing expenses will decrease as a percentage of revenue. In the aggregate, our ability to keep these expenses from growing proportionally with our revenue may provide for meaningful gross margin and operating margin expansion.
Components of Results of Operations
Revenue
Our revenue is derived principally from software licensing, customization and related maintenance and services, which are generally accounted for as separate performance obligations with differing revenue recognition patterns. Arrangements with both software licenses and customization services are accounted for as a combined performance obligation.
Software License Revenue
Revenue from software licenses is classified as software license revenue. Software license revenue is recognized upfront upon delivery of the licensed software. Revenue associated with the license of the Company's SIP is classified as software license revenue and recognized as revenue (i) upfront upon delivery of the standard SIP license, or (ii) over time, when customization services are combined with the SIP license, as specific contractual milestones are met and incremental functionality is delivered to the customer.
Maintenance and Service Revenue
Maintenance and service revenue, which consists of both post-contract support ("PCS") for software licenses and support services for SIP licenses, is recognized ratably over the term of the contract period. Professional services revenue, which is classified as maintenance and service revenue, is recognized based on when the Company delivers the related service pursuant to the terms of the arrangement.
We also recognized an immaterial portion of our revenue from device characterization and modeling services for the years ended December 31, 2025 and 2024. 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.
Cost of Revenue and Gross Profit
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, amortization of acquired intangible assets, and royalties. Historically, we have not recognized stock-based compensation expense, but after the consummation of the IPO during the year ended December 31, 2024, we recognized $3.0 million of stock-based compensation expense in cost of revenue. We recognized $1.3 million of stock-based compensation expense in cost of revenue during the year ended December 31, 2025. We also recognized $1.0 million and $0.7 million of amortization associated with our acquired intangible assets in cost of revenue during the years ended December 31, 2025 and 2024, respectively. See Note 13and Note 8of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion. Gross profit represents revenue less cost of revenue.
Operating Expenses
Our operating expenses consist of research and development, selling and marketing, general and administrative, and litigation settlement. 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 during the year ended December 31, 2024, we recognized an aggregate of $23.9 million of stock-based compensation expense in operating expenses. During the year ended December 31, 2025, we recognized $9.5 million in total stock-based compensation expense. The year over year decrease was primarily due to stock-based compensation expense recorded during 2024 in connection with our IPO. See Note 13of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion.
The following table summarizes stock-based compensation expense:
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Research and development | $ | 2,708 | $ | 5,091 | ||||||||||
| Selling and marketing | 1,722 | 4,319 | ||||||||||||
| General and administrative | 5,066 | 14,531 | ||||||||||||
| $ | 9,496 | $ | 23,941 | |||||||||||
Research and Development
Our research and development expense consists primarily of personnel 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 anddevelopment 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.
Selling and Marketing
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.
General and Administrative
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 expenses 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.
Litigation Settlement
In May 2025, Silvaco and two of our principal stockholders and members of our board of directors (the "Co-Defendants") agreed to a settlement (the "Settlement Agreement") in connection with litigation brought by the former shareholders of Nangate, Inc. ("Nangate") and a third cross-complainant (together, the "Nangate Parties"). The $32.5 million settlement (the "Settlement Payment") consists of $16.0 million payable on June 18, 2025, $4.1 million payable on August 15, 2025, $4.1 million payable on November 14, 2025 and a final payment of $8.3 million payable on February 13, 2026. Following the execution of the Settlement Agreement, Silvaco and the Co-Defendants also executed an apportionment agreement pursuant to which the Co-Defendants agreed to bear 25% of the Settlement Payment, with Silvaco bearing the remaining 75%. During the year ended December 31, 2025, we made the payments of $24.3 million on behalf of Silvaco and the Co-Defendants, which included $8.1 million contributed by the Co-Defendants in accordance with the apportionment agreement. We recorded a litigation settlement expense of $13.1 million and $11.3 million during the years ended December 31, 2025 and 2024, respectively, related to the Settlement Agreement. As of December 31, 2025, our remaining liability under the Settlement Agreement was $8.3 million, which is included in accrued expenses and other current liabilities on the consolidated balance sheet. See Note 10and Note 16of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion.
Restructuring Expense
Restructuring expense consists of severance and other personnel costs, including stock-based compensation expense, facility closures and other costs associated with exit and disposal activities.
Loss on Debt Extinguishment
Loss on debt extinguishment includes losses incurred related to the extinguishment of our note purchase agreement with Micron Technology Inc. (the "Micron Note") and our loan facility with East West Bank (the "East West Bank Loan"). See Note 12of ourconsolidated financial statements for further discussion.
Interest Income
Interest income includes interest income earned on our cash and cash equivalents and marketable securities balances and accretion of the purchase discounts on our marketable securities balances.
Interest Expense and Other Income (Expense), Net
Interest expense and other income (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.
Income Tax (Benefit) Provision
Income tax (benefit) provision is our estimate of current tax benefit or expense incurred from the consolidated results of operations globally.
Results of Operations
The following table sets forth our results of operations:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Revenue: | |||||||||||
| Software license revenue | $ | 42,885 | $ | 43,991 | |||||||
| Maintenance and service | 20,179 | 15,689 | |||||||||
| Total revenue | 63,064 | 59,680 | |||||||||
| Cost of revenue | 13,694 | 12,042 | |||||||||
| Gross profit | 49,370 | 47,638 | |||||||||
| Operating expenses: | |||||||||||
| Research and development | 29,858 | 20,740 | |||||||||
| Selling and marketing | 18,310 | 18,300 | |||||||||
| General and administrative | 34,028 | 37,571 | |||||||||
|
Litigation settlement
|
13,069 | 11,306 | |||||||||
| Total operating expenses | 95,265 | 87,917 | |||||||||
|
Operating loss
|
(45,895) | (40,279) | |||||||||
| Loss on debt extinguishment | - | (718) | |||||||||
| Interest income | 1,947 | 2,976 | |||||||||
|
Interest expense and other income (expense), net
|
(697) | (899) | |||||||||
|
Loss before income tax provision
|
(44,645) | (38,920) | |||||||||
|
Income tax (benefit) provision
|
(3,439) | 484 | |||||||||
| Net loss | $ | (41,206) | $ | (39,404) | |||||||
The following table summarizes our results of operations as a percentage of total revenue:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Revenue: | |||||||||||
| Software license revenue | 68 | % | 74 | % | |||||||
| Maintenance and service | 32 | % | 26 | % | |||||||
| Total revenue | 100 | % | 100 | % | |||||||
| Cost of revenue | 22 | % | 20 | % | |||||||
|
Gross margin
|
78 | % | 80 | % | |||||||
| Operating expenses: | |||||||||||
| Research and development | 47 | % | 35 | % | |||||||
| Selling and marketing | 29 | % | 31 | % | |||||||
| General and administrative | 54 | % | 63 | % | |||||||
|
Litigation settlement
|
21 | % | 19 | % | |||||||
| Total operating expenses | 151 | % | 147 | % | |||||||
|
Operating loss
|
(73) | % | (67) | % | |||||||
| Loss on debt extinguishment | - | % | (1) | % | |||||||
| Interest income | 3 | % | 5 | % | |||||||
|
Interest expense and other income (expense), net
|
(1) | % | (2) | % | |||||||
|
Loss before income tax provision
|
(71) | % | (65) | % | |||||||
|
Income tax (benefit) provision
|
(5) | % | 1 | % | |||||||
| Net loss | (65) | % | (66) | % | |||||||
Comparison of the Years Ended December 31, 2025 and 2024
In March, April, and August 2025, we acquired the OPC Business, Tech-X, and Mixel, respectively. Accordingly, the results of operations of the OPC Business, Tech-X, and Mixel have been included in our consolidated financial statements since their respective acquisition dates.
Revenue
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Revenue: | |||||||||||
| Software license revenue | $ | 42,885 | $ | 43,991 | |||||||
| Maintenance and service | 20,179 | 15,689 | |||||||||
| Total revenue | $ | 63,064 | $ | 59,680 | |||||||
Total revenue increased by $3.4 million, or 6%, to $63.1 million for the year ended December 31, 2025 from $59.7 million for the year ended December 31, 2024. Revenue associated with our EDA tools and IP sales increased by $8.8 million and $4.8 million, respectively. This increase was partially offset by revenue associated with our TCAD tools which decreased by $10.2 million. Software license revenue decreased by $1.1 million, or 3%, to $42.9 million for the year ended December 31, 2025 from $44.0 million for the year ended December 31, 2024. Maintenance and service revenue increased by $4.5 million, or 29%, to $20.2 million for the year ended December, 2025 from $15.7 million for the year ended December 31, 2024.
Gross Profit and Cost of Revenue
|
Year Ended December 31,
|
|||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Total revenue | $ | 63,064 | $ | 59,680 | |||||||
| Cost of revenue | 13,694 | 12,042 | |||||||||
| Gross profit | $ | 49,370 | $ | 47,638 | |||||||
| Gross profit margin | 78 | % | 80 | % | |||||||
The increase in gross profit of $1.7 million, or 4%, for the year ended December 31, 2025 compared to the year ended December 31,2024, was primarily due to a $3.4 million increase in revenue, partially offset by a $1.7 million increase in cost of revenue. Cost of revenue during the year ended December 31, 2025 reflects a $2.7 million increase in employee compensation and benefits resulting from increased headcount and a $0.2 million increase in amortization expense associated with our license agreement to sell SIP developed in partnership with NXP Semiconductors Netherlands B.V. ("NXP"), partially offset by a $1.7 million decrease in stock-based compensation expense. Gross profit margin decreased to 78% for the year ended December 31, 2025 from 80% for the year ended December 31, 2024 primarily due to an increase in employee compensation and benefits resulting from increased headcount and an increase in amortization expense.
Operating Expenses
|
Year Ending December 31,
|
|||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Operating expenses | |||||||||||
| Research and development | $ | 29,858 | $ | 20,740 | |||||||
| Selling and marketing | 18,310 | 18,300 | |||||||||
| General and administrative | 34,028 | 37,571 | |||||||||
|
Litigation settlement
|
13,069 | $ | 11,306 | ||||||||
|
Total operating expenses
|
$ | 95,265 | $ | 87,917 | |||||||
Research and Development Expenses
The increase in research and development expenses of $9.1 million, or 44%, for the year ended December 31, 2025 compared to the year ended December 31,2024, was primarily due to a $7.5 million increase in employee compensation and benefits driven by increased headcount, merit increases, and the related payroll taxes, a $1.1 million increase in software maintenance, a $1.5 million increase in professional services, a $0.5 million increase in facility expenses due to recent acquisitions and a $0.2 million increase in amortization expense of acquired intangible assets, which was partially offset by a decrease in stock-based compensation expense of $2.4 million.
Selling and Marketing Expenses
Selling and marketing expenses remained flat for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to a $2.7 million increase in employee compensation and benefits in the current year, resulting from increased headcount, merit increases, and the related payroll taxes, offset by a $2.6 million decrease in stock-based compensation expense and a $0.1 million decrease in travel and marketing expense.
General and Administrative Expenses
The decrease in general and administrative expenses of $3.5 million, or 9% for the year ended December 31, 2025 compared to the year ended December 31, 2024, was primarily due to a decrease in stock-based compensation expense of $9.5 million, partially offset by a $1.7 million increase in employee compensation from increased headcount, merit increases, severance and the related payroll taxes, a $1.6 million increase in amortization expense of acquired intangible assets, a $1.0 million increase in legal and professional fees, $0.6 million of executive severance costs, a $0.5 million increase in software maintenance expense, and a $0.1 million increase in facility expenses.
Litigation Settlement
Litigation settlement was $13.1 million and $11.3 million for the years ended December 31, 2025 and 2024, respectively. See Note 10and Note 16of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion.
Restructuring expense
Restructuring expense was $1.3 million for the year ended December 31, 2025, of which $0.7 million, $0.4 million and $0.2 million were recognized in research and development, selling and marketing, and general and administrative expenses, respectively. We did not have restructuring expenses for the year ended December 31, 2024. See Note 5and Note 13of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion.
Loss on debt extinguishment
On May 13, 2024, the senior subordinated convertible promissory note (the "Micron Note") between us and Micron Technology, Inc. ("Micron") 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 year ended December 31, 2024. We also recognized a loss on debt extinguishment of $0.1 million associated with the settlement of our loan facility with East West Bank during the year ended December 31, 2024. See Note 12of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion.
Interest Income
Interest income reflects interest earned and accretion on our cash and cash equivalents and marketable securities.The decrease in interest income for the year ended December 31, 2025 compared to year ended December 31, 2024 was due to lower average balances of marketable securities.
Interest Expense and Other Income (Expense), Net
Interest expense and other income (expense), net, was expense of $0.7 million and $0.9 million for the years ended December 31, 2025 and 2024, respectively. The decrease in interest expense and other income (expense), net, for the year ended December 31, 2025 was primarily due to an decrease in foreign exchange losses and lower average debt and financing obligation balances.
Income Tax (Benefit) Provision
Income tax (benefit) provision was a benefit of $3.4 million and provision of $0.5 million for the years ended December 31, 2025 and 2024, respectively. See Note 14of our consolidated financial statements in Item 8 in this Annual Report on Form 10-K for further discussion.
Liquidity and Capital Resources
Since inception, we have financed operations primarily through proceeds received from payments from our customers, borrowings from a principal stockholder 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 December 31, 2025, we had $10.0 million in cash, cash equivalents and short-term marketable securities, of which $5.5 million was held by our foreign subsidiaries.
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 $3.2 million as of December 31, 2025. 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.
On April 16, 2024, we entered into a note purchase agreement with Micron, a customer of the Company, pursuant to which we issued 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 completion of the IPO.
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.
We believe our cash and cash equivalents, restricted cash and marketable securities balances 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 committed sources of capital.
If our cash and cash equivalents and marketable securities including cash generated from operating activities are not sufficient to satisfy our liquidity requirements, we may be required to seek additional financing. If we raise additional funds by issuing equity securities or convertible debt securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all. See "Risk Factors-Risks Related to Our Business and Industry-Our ability to raise additional capital in the future may be limited and could prevent us from executing our growth strategy" in Item 1A in Part 1 in this Annual Report on Form 10-K for further discussion
As of December 31, 2025, $11.0 million, or 64%, of our cash and cash equivalents and restricted 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 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.
Cash Flows
The following table summarizes changes in our cash flows for the periods indicated.
| Year Ended December 31, | |||||||||||
|
2025
|
2024
|
||||||||||
| (in thousands) | |||||||||||
| Cash provided by (used in): | |||||||||||
|
Net cash used in operating activities
|
$ | (33,906) | $ | (19,774) | |||||||
|
Net cash provided by (used in) investing activities
|
33,723 | (66,535) | |||||||||
|
Net cash (used in) provided by financing activities
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(2,214) | 101,301 | |||||||||
| Effect of exchange rate changes | 49 | 193 | |||||||||
|
Net (decrease) increase in cash
|
$ | (2,348) | $ | 15,185 | |||||||
Operating Activities
Cash flows from operating activities may vary significantly from period to period depending on a variety of factors including the timing of our collections and payments. Our ongoing cash outflows from operating activities primarily relate to personnel related costs, payments for professional services, office leases and related facilities costs, and software supporting our company infrastructure, among others. Our primary source of cash inflows is collections of our accounts receivable. The timing of invoices to our customers and subsequent collection is based on executed agreements and payment terms that can vary by customer.
Net cash used in operating activities for the year ended December 31, 2025, was $33.9 million compared to $19.8 million of net cash used in operating activities for the year ended December 31, 2024. The $14.1 million increase in net cash used in operating activities reflects a $1.8 million increase in net loss, $16.1 million paid for the litigation settlement, and a decrease of $11.9 million in the non-cash effects of stock-based compensation expense, provision for credit losses, litigation settlement, loss on debt extinguishment, change in fair value of contingent consideration, depreciation and amortization, loss on fixed asset disposal, and the accretion of discount on marketable securities. The use of cash was partially offset by a $15.7 million increase in net working capital, primarily due to changes in accrued expenses and other current liabilities, accounts receivable and contract assets.
Investing Activities
Net cash provided by investing activities for the year ended December 31, 2025 was $33.7 million compared to use of $66.5 million for the year ended December 31, 2024. Cash provided by investing activities during the year ended December 31, 2025 includes $34.9 million from maturities in marketable securities and $32.3 million from sales of marketable securities, partially offset by use of $32.9 million in business acquisitions. Net cash used in investing activities for the year ended December 31, 2024 includes $99.6 million in purchases of marketable securities, partially offset by $33.6 million provided by maturities in marketable securities.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2025, was $2.2 million, compared to net cash provided by financing activities of $101.3 million for the year ended December 31, 2024. Net cash used during the year ended December 31, 2025 includes payroll taxes related to shares withheld from employees of $1.8 million and payments on our vendor financing obligation of $1.3 million, which was partially offset by $0.9 million in proceeds from issuance of common stock for share-based awards. During the year ended December 31, 2024, we received $106.0 million in net proceeds from our IPO, $4.9 million in net proceeds from the Micron Note, and $4.3 million from our drawdown on the East West Bank Loan, which were partially offset by the $4.3 million repayment of the East West Bank Loan, payment of $2.6 million related to deferred transaction costs incurred in connection with our IPO, the $2.0 million repayment of the line of credit with a principle shareholder, and $0.6 million of payments for our vendor financing obligation.
Effects of Exchange Rate Fluctuations on Cash
The effects of exchange rate fluctuations on cash were $49 thousand and $0.2 million for the years ended December 31, 2025 and 2024, respectively.
Contractual Obligations
Our financial commitments for contractual obligations as of December 31, 2025, include operating leases, vendor financing obligation, contingent consideration, and litigation settlement.See Note 10, Note 12, Note 16and Note 18of our consolidated financial statements for further discussion.
Litigation Settlement
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 September 2025, the U.S. Court of Appeals for the Ninth Circuit reversed the fraud and breach of contract verdicts, and the parties dismissed all claims. In connection with the litigation, the Company recorded a litigation settlement expense of $13.1 million and $11.3 million during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, the Company's remaining liability under the Settlement Agreement was $8.3 million, which is included in accrued expenses and other current liabilities on the consolidated balance sheet. See Note 10and Note 16of our consolidated financial statements for further discussion.
Off-Balance Sheet Arrangements
As of December 31, 2025, we maintained an irrevocable standby letter of credit issued in connection with the Settlement Agreement. The letter of credit, secured with East West Bank on May 17, 2025, is scheduled to expire on June 30, 2026, unless drawn upon or renewed. As of December 31, 2025, no amounts had been drawn under the letter of credit. See Note 10and Note 16of our consolidated financial statements for further discussion.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below. See Note 2of our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for a description of our other significant accounting policies.
Revenue Recognition
Our revenue is derived principally from software licensing, customization and related maintenance and service, which are generally accounted for as separate performance obligations with differing revenue recognition patterns. Arrangements with both software licenses and customization services are accounted for as a combined performance obligation.
We recognize revenue pursuant to Accounting Standard Codification Topic 606, Revenue from Contracts with Customers. Revenue is recognized upon transfer of control of the promised good or service to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for such software or service. To achieve this objective we apply a five-step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.
Revenue from software licenses is classified as software license revenue. Software license revenue is recognized upfront upon delivery of the licensed software. Typically, our software solution is licensed with post-contract support ("PCS"), which includes unspecified technical enhancements and customer support. The PCS is classified as maintenance and service revenue and is recognized ratably over the term of the contract period, as we satisfy the PCS performance obligation over time.
We also offer standard SIP licenses, which provide customers with access to SoC design intellectual property ("IP") that meet established industry standards. Standard SIP licenses offered by us are ready to use upon delivery. No modification is required in order for the customer to receive value for use in their integrated circuit designs. We also offer SIP licenses that require customization in accordance with the customer's specifications. Revenue associated with the license of our SIP is classified as software license revenue and recognized as revenue (i) upfront upon delivery of the standard SIP license, or (ii) over time, when customization services are combined with the SIP license, as specific contractual milestones are met and incremental functionality is delivered to the customer. We do not offer SIP licenses without support. The support service for SIP licenses is classified as maintenance and service revenue and is recognized ratably over the term of the support period.
Under certain SIP license agreements, we also derive revenue through royalties from customers who agree to pay usage-based fees to embed our SIP into their own SoCs. Royalties are generally recognized as revenue during the period in which the customer sells its solutions which incorporate our SIP license.
In connection with our SIP license that was developed in partnership with a third party vendor, we have entered into various renewable license agreements under which we have the right to sell the technology we license from the third party vendor. When we license this particular SIP to a customer, we generally act as a principal to the transaction because we control the promised SIP that we deliver to the customer. Consistent with our role as a principal, we recognize SIP revenue on a gross basis. Royalty costs are reported in cost of revenue upon delivery pursuant to the terms and conditions of our contractual obligations with the licensors.
We also recognized an immaterial portion of our revenue from device characterization and modeling services for the years ended December 31, 2025 and 2024. Revenue is recognized upon the completion of the requested services and, as applicable, satisfaction of customer acceptance terms. Revenue from these services is classified as maintenance and service revenue.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. Invoicing may vary from timing of revenue recognition. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component.
Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheets as accounts receivable and accrued expenses. The collection and payment of these amounts are reported on a net basis in the consolidated statements of loss.
We do not offer a right of return. We warrant to our customers that our software will perform substantially as specified in our current user manuals. We have not experienced significant claims related to software warranties beyond the scope of maintenance support, which we are already obligated to provide. The warranty is not sold, and cannot be purchased, separately. The warranty does not provide any type of additional service to the customer or performance obligation for us.
Our agreements with customers generally require us to indemnify the customer against claims that our software infringes third-party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including by affirming our right to replace an infringing product.
Significant Judgments
Our license agreements enable customers to use our software solutions and to receive certain services. Judgment is required to determine if the promises are separate performance obligations, and if so, to allocate the transaction price to each performance obligation. We use the estimated standalone selling price method to allocate the transaction price for each performance obligation. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs, historical pricing and the value relationship between our various product and service offerings. The corresponding revenues are recognized as the related performance obligations are satisfied.
Contract Assets and Liabilities
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables (billed), contract assets (unbilled), or contract liabilities (deferred revenue) on our consolidated balance sheets. We record a contract asset when revenue is recognized prior to the right to invoice, or deferred revenue when revenue is recognized subsequent to invoicing. For time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers are invoiced in single or annual amounts. We record an unbilled receivable when revenue is recognized and we have an unconditional right to invoice and receive payment.
Financing
We are required to adjust promised amounts of consideration for the effects of the time value of money if the timing of the payments provides the customer or us with a significant financing benefit. We consider various factors in assessing whether a financing component exists, including the duration of the contract, market interest rates and the timing of payments. Our contracts do not include a significant financing component requiring adjustment to the transaction price.
Business Combination
To determine whether transactions should be accounted for as acquisitions of assets or business combinations, we make certain judgments, which include assessment of the inputs, processes, and outputs associated with the acquired set of activities. If we determine that substantially all of the fair value of gross assets included in a transaction is concentrated in a single asset (or a group of similar assets), the assets will not represent a business. To be considered a business, the assets in a transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs.
We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The fair values of intangible assets are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, we typically obtain assistance from third-party valuation specialists for significant items. Any excess of the purchase price over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions that existed as of the acquisition date becomes available.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the fair value of consideration transferred over the fair value of net identifiable assets acquired. Other intangible assets consist of customer relationships, developed technology, noncompete agreements, and licensed IP which are amortized over their useful lives of five years. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate an asset's carrying value may not be recoverable.
Goodwill is not amortized but is tested annually for impairment and more often if there is an indicator of impairment that would more likely than not reduce the fair value of our single reporting unit below its carrying amount. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value.
No indicators of impairment or impairment charges were identified or recorded to goodwill or other intangible assets during the fiscal years ended December 31, 2025 and 2024.
Stock-Based Compensation
We account for stock-based compensation in accordance with Accounting Standard Codification Topic 718, Compensation - Stock Compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of actual forfeitures. For stock-based payment awards that contain performance criteria, stock-based compensation expense is recorded when the achievement of the performance condition is considered probable of achievement and is recorded on a straight-line basis over the requisite service period. If such performance criteria are not met, no compensation expense is recognized and any recognized compensation expense is reversed. For awards with market and service conditions, we recognize stock-based compensation on a straight-line basis for all awards for which the service conditions are met, regardless of whether the market condition is achieved.
Prior to the IPO, we had not recorded stock-based compensation expense, as the restricted stock units ("RSUs") granted under the 2014 Plan carry both a "time-based vesting requirement" and a "liquidity event vesting requirement," with the satisfaction of the "liquidity event vesting requirement", an improbable contingency until the consummation of our IPO on May 13, 2024. See Note 13to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for additional information.
Prior to January 1, 2024, we valued the awards granted using historical estimates of the fair value of our common stock. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Commencing January 1, 2024 and prior to the IPO, the grant date fair value of the awards was derived from an interpolation based on the contemplated listing price of our anticipated IPO. For RSUs granted after the IPO, we used the closing stock price as reported on Nasdaq on the grant date as the grant date fair value.
The assumptions underlying pre-IPO valuations represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
Emerging Growth Company Status and Extended Transition Period Election
We qualify as an "emerging growth company" pursuant to the provisions of the JOBS Act. For as long as we are an "emerging growth company," we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation, and stockholder advisory votes on golden parachute compensation.
The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to "opt-in" to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.
We are a "smaller reporting company" as defined under the federal securities laws, and will continue to be a smaller reporting company until such time as (i) the market value of our common stock held by non-affiliates is more than $250.0 million or (ii) our annual revenue is more than $100.0 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is more than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K, we are not required to comply with the auditor attestation requirements of Section 404 and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recently Adopted Accounting Pronouncements
See Note 2to our consolidated financial statements in Item 8 on this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.
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