Silicom Ltd 20-F for FY2022

Silicom Ltd. (SILC)

20-F 2023-04-27 For: 2022-12-31

Added on April 06, 2026

About this 20-F

Silicom Ltd filed this 20-F on April 27, 2023, covering the fiscal year ended December 31, 2022 (FY2022).

Headline figures

Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $150.58M; up 17.2% from $128.46M a year earlier
Net income: $18.31M; up 73.7% from net income of $10.54M a year earlier
Diluted EPS: $2.69; up 78.1% from $1.51 a year earlier

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None		None
Title of each class		Name of each exchange on which registered
Ordinary Shares, NIS 0.01 nominal value per share		NASDAQ GLOBAL SELECT MARKET

Part I.		6
Item 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS	6
Item 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	6
Item 3.	KEY INFORMATION	6
A.	[Reserved]	6
B.	Capitalization and indebtedness	6
C.	Reason for the offer and use of proceeds	6
D.	Risk Factors	6
Item 4.	INFORMATION ON THE COMPANY.	32
A.	History and Development of the Company	32
B.	Business Overview	33
Principal Markets		36
Manufacturing and Suppliers		36
Marketing Channels		38
Patents and Licenses		40
Competition		41
Governmental Regulation Affecting the Company		42
C.	Organizational Structure	43
D.	Property, Plant and Equipment	43
Item 4A.	UNRESOLVED STAFF COMMENTS	44
Item 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	44
A.	Operating Results	45
B.	Liquidity and Capital Resources	49
C.	Research and development, patents and licenses, etc.	51
D.	Trend Information	53
E.	Critical Accounting Estimates	54
Item 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	56
A.	Directors and Senior Management	56
B.	Compensation	58
Board of Directors		63
External Directors		64
Audit Committee		68
Compensation Committee		70
D.	Employees	75
E.	Share Ownership	77
Item 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	78
A.	Major Shareholders	78
B.	Related Party Transactions	79
ITEM 8.	FINANCIAL INFORMATION	81
A.	Consolidated Statements and Other Financial Information	81
B.	Significant Changes	81
Item 9.	THE OFFER AND LISTING	82
A.	Offer and Listing Details	82
Markets and Share Price History		82

ITEM 10.	ADDITIONAL INFORMATION	83
A.	Share Capital	83
B.	Memorandum and Articles of Association	83
C.	Material Contracts	93
D.	Exchange Controls	93
E.	Taxation	94
F.	Dividends and Paying Agents	104
G.	Statement by Experts	104
H.	Documents on Display	104
I.	Subsidiary Information	105

Item 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	105
Interest Rate Risk		105
Foreign Currency Exchange Risk		106
Item 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	108
PART II.		108
Item 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	108
Item 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	108
Item 15.	CONTROLS AND PROCEDURES	108
Disclosure Controls and Procedures		108
Management's Annual Report on Internal Control over Financial Reporting		108
Inherent Limitations on Effectiveness of Controls		109
Changes in Internal Control over Financial Reporting		109
Item 15A.	CONTROLS AND PROCEDURES	109
Item 16.	Reserved	109
Item 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	109
Item 16B.	CODE OF ETHICS	109
Item 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	110
Audit committee's pre-approval policies and procedures		110
Item 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	111
Item 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	111
Item 16F.	CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT	112
Item 16G.	CORPORATE GOVERNANCE	112
Item 16H.	MINE SAFETY DISCLOSURE	115
Item 16I.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	115
PART III.		115
Item 17.	FINANCIAL STATEMENTS	115
Item 18.	FINANCIAL STATEMENTS	115
Item 19.	EXHIBITS	116

Year Ended December 31,	2020	2021	2022
Sales	100%	100%	100%
Cost of sales	68.6	65.4	65.5
Gross profit	31.4	34.6	34.5
Research and development expenses	16.1	15.6	13.7
Sales and marketing expenses	5.8	5.1	4.6
General and administrative expenses	3.7	3.6	3.0
Operating Income	5.8	10.2	13.2
Financial income, net	1.0	(0.1)	1.6
Income before income taxes	6.8	10	14.9
Income tax expenses	1.4	1.8	2.7
Net Income	5.4	8.2	12.2

Name	Age	Position with Company

Avi Eizenman⁽¹⁾	65	Active Chairman of the Board

Shaike Orbach⁽²⁾	71	Executive Vice Chairman of the Board

Ayelet Aya Hayak⁽³⁾	53	Director

Ilan Erez⁽³⁾	55	Director

Eli Doron⁽⁴⁾	70	Director

Liron Eizenman⁽⁵⁾	37	President, Chief Executive Officer

Eran Gilad	55	Chief Financial Officer and Company Secretary

As of December 31,	2020		2021		2022
Total Employees		289		315		306
Marketing, Sales, Customer Services		24		25		27
Research & Development		123		135		134
Manufacturing		124		138		127
Corporate Operations and Administration		18		17		18

Name	Number of Shares and Options Owned¹		Percent of Outstanding Shares
Avi Eizenman		344,916		4.96	%
Shaike Orbach		*		*
Eli Doron		*		*
Ayelet Aya Hayak		*		*
Ilan Erez		*		*
Liron Eizenman		*		*
Eran Gilad		*		*
All directors and office holders as a group		376,915		5.42	%

Name of Shareholder	Number of Shares and Options Owned⁽¹⁾	Percentage of Outstanding Shares
Wellington Management Group LLP⁽²⁾	618,848	9.16%
Systemic Financial Management, LP⁽³⁾	591,091	8.75%
First Wilshire Securities Management, Inc. ⁽⁴⁾	558,510	8.28%

PERIOD	LOW		HIGH
March 2023		35.25		39.25
February 2023		37.55		42.53
January 2023		40.81		50.00
December 2022		40.75		46.94
November 2022		41.91		46.00
October 2022		34.36		45.78
FINANCIAL QUARTERS DURING THE PAST TWO YEARS
First Quarter 2023		35.25		50.00
Fourth Quarter 2022		34.36		46.94
Third Quarter 2022		32.30		44.47
Second Quarter 2022		31.30		39.57
First Quarter 2022		35.79		51.66
Fourth Quarter 2021		36.02		52.75
Third Quarter 2021		40.25		46.11
Second Quarter 2021		38.97		47.51
FIVE MOST RECENT FULL FINANCIAL YEARS
2022		31.30		51.66
2021		36.02		59.27
2020		20.93		42.55
2019		28.59		40.36
2018		32.00		77.95

	2022				2021
	PWC		KPMG		PWC		KPMG
Audit Fees⁽¹⁾	$	120,000	$	20,000	$	120,000	$	20,000
Audit-Related Fees⁽²⁾	$	7,500	$	5,757		-		-
Tax Fees⁽³⁾	$	50,128	$	27,534	$	2,800	$	56,744

Period	Total Number of Shares Purchased		Average Price Paid per Share (US$)		Total Number of Shares Purchased as Part of Publicly Announced Plan		Approximate Dollar Value that May Yet Be Purchased Under the Plan (US$)
January 1, 2022 - January 31, 2022⁽¹⁾		25,767		46.797		1,104,003		4,754,032
February 1, 2022 - February 28, 2022		21,554		43.280		1,125,557		3,821,184
March 1, 2022 - March 31, 2022		30,499		39.330		1,156,056		2,621,661
April 1 2022 - April 30, 2022		2,300		39.154		1,158,356		2,531,605

	SILICOM LIMITED

	By:	/s/ Liron Eizenman
		Liron Eizenman
		Chief Executive Officer

		Page
Report of Independent Registered Public Accounting Firm (PCAOB id: 1309)		F-2
Report of Independent Registered Public Accounting Firm (PCAOB id: 1057)		F-4
Consolidated Balance Sheets		F-5
Consolidated Statements of Operations		F-7
Consolidated Statements of Changes in Shareholders’ Equity		F-8
Consolidated Statements of Cash Flows		F-9
Notes to the Consolidated Financial Statements		F-10

			2021		2022
	Note		US$ thousands		US$ thousands

Assets

Current assets
Cash and cash equivalents		3		29,285		30,734
Marketable securities		2F, 4		8,266		4,020
Accounts receivable:
Trade, net		2G		31,120		27,258
Other		5		4,693		3,620
Inventories		6		75,753		87,985

Total current assets				149,117		153,617

Marketable securities		2F, 4		23,773		15,163

Assets held for employees' severance benefits		11		1,882		1,715

Deferred tax assets		15G		1,616		502

Property, plant and equipment, net		7		4,576		4,488

Intangible assets, net		8		4,314		6,710

Operating leases right-of-use, net		10		8,765		8,441

Goodwill				25,561		25,561

Total assets				219,604		216,197

	Ordinary shares					Additional paid-in capital			Treasury shares⁽³⁾			Retained earnings			Total shareholders’ equity
	Number of shares⁽¹⁾			US$ thousands

Balance at January 1, 2020		7,351,317			22		57,130			(8,009	)		113,780			162,923

Exercise of options and RSUs⁽²⁾		51,357			*-		276			-			-			276
Purchase of treasury shares		(503,159	)		-		-			(16,798	)		-			(16,798	)
Share-based compensation		-			-		2,711			-			-			2,711
Net income		-			-		-			-			5,725			5,725

Balance at December 31, 2020		6,899,515			22		60,117			(24,807	)		119,505			154,837

Purchase of treasury shares		(322,689	)		-		-			(14,291	)		-			(14,291	)
Reissuance of treasury shares under share-based compensation plan		132,702			*-		411			4,103			-			4,514
Share-based compensation		-			-		2,862			-			-			2,862
Net income		-			-		-			-			10,541			10,541

Balance at December 31, 2021		6,709,528			22		63,390			(34,995	)		130,046			158,463

Purchase of treasury shares		(80,120	)		-		-			(3,428	)		-			(3,428	)
Reissuance of treasury shares under share-based compensation plan		109,298			-		(411	)		3,527			(739	)		2,377
Share-based compensation		-			-		3,577			-			-			3,577
Net income		-			-		-			-			18,306			18,306

Balance at December 31, 2022		6,738,706			22		66,556			(34,896	)		147,613			179,295

⁽¹⁾		Net of shares held by Silicom Inc. and Silicom Ltd.

⁽²⁾		Restricted share units (hereinafter - "RSUs")

⁽³⁾		Company shares held by the Company. Presented as a reduction of equity at their cost to the Company. The treasury shares have no rights.


*		Less than 1 thousand.

	%
Machinery and equipment	15 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

	Year ended December 31
	2020		2021		2022

Net income attributable to ordinary shares (US$ thousands)		5,725		10,541		18,306

Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation		7,118,244		6,825,630		6,696,671

Add of outstanding dilutive potential ordinary shares		38,519		143,172		99,748

Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation		7,156,763		6,968,802		6,796,419

Basic income per ordinary shares (US$)		0.804		1.544		2.733

Diluted income per ordinary shares (US$)		0.800		1.513		2.694

Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect		180,916		65,534		251,868

	December 31
	2021		2022
	US$ thousands

Cash		25,368		24,016
Cash equivalents *		3,917		6,718
		29,285		30,734

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Aggregate
	cost basis**		gains		(losses)			fair value*
	US$ thousands
At December 31, 2022
Held to maturity:
Corporate debt securities and government debt securities
Current		4,038		-		(111	)		3,927
Non-Current (1 to 3 years)		15,283		-		(1,214	)		14,069

		19,321		-		(1,325	)		17,996

At December 31, 2021
Held to maturity:
Corporate debt securities and government debt securities
Current		8,300		43		(19	)		8,324
Non-Current (1 to 4 years)		23,966		10		(512	)		23,464

		32,266		53		(531	)		31,788

*	Fair value is being determined using Level 2 inputs.
**	Including accrued interest in the amount of US$ 227 thousand and US$ 138 thousand as of December 31, 2021 and 2022, respectively.

	The accrued interest is presented as part of other receivables on the balance sheet.

Activity in marketable securities in 2022	US$ thousands

Balance at January 1, 2021		50,810

Purchases of marketable securities		19,927
Changes in marketable securities, net		(621	)
Proceeds from maturity of marketable securities		(37,850	)

Balance at January 1, 2022		32,266

Purchases of marketable securities		3,998
Changes in marketable securities, net		(914	)
Proceeds from maturity of marketable securities		(16,029	)

Balance at December 31, 2022		19,321

	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Held to maturity:

Corporate debt securities and government debt securities		(301	)		4,595		(1,024	)		13,401		(1,325	)		17,996

	Year ended December 31
	2020		2021		2022
	US$ thousands
Operating lease costs (mainly plant and offices)		1,623		1,921		1,872
Variable lease payments not included in the lease liability		3		8		62
Short-term lease cost		285		278		273
Total operating lease cost		1,911		2,207		2,207

	December 31, 2022
	US$ thousands

2023		1,793
2024		1,477
2025		1,057
2026		1,006
After 2026		3,416
Total operating lease payments		8,749
Less: imputed interest		(909	)
Present value of lease liabilities		7,840

	A.	On October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders.

	B.	Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.

		Capital gains on awards granted under the plans are subjected to tax of 25% to be paid by the employee, and the Company is not entitled to a tax deduction.

		Gains which are not capital gains on awards under the plans are subjected to regular tax rates on individuals, and the Company is entitled to a tax deduction for such gains.

	1.	The vesting period of the RSUs ranges between 2 to 3 years from the date of grant.

	2.	The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting.

	3.	The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	1.	The exercise price for the options (per ordinary share) was US$ 33.83 and the Option expiration date was the earlier to occur of: (a) January 31, 2027; and (b) the closing price of the shares falling below US$ 16.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

	2.	The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate ^(a)	2.55%
Expected dividend yield	0.0%
Average expected volatility ^(b)	44.62%
Termination rate	9%
Suboptimal factor ^(c)	3.18

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.

(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.

(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

Average Risk-free interest rate ^(a)	0.75%
Expected dividend yield	0.0%
Average expected volatility ^(b)	45.29%
Termination rate	9%
Suboptimal factor ^(c)	3.16

Average Risk-free interest rate ^(a)	1.41%
Expected dividend yield	0.0%
Average expected volatility ^(b)	45.28%
Termination rate	9%
Suboptimal factor ^(c)	3.14

Average Risk-free interest rate ^(a)	1.79%
Expected dividend yield	0.0%
Average expected volatility ^(b)	44.38%
Termination rate	9%
Suboptimal factor ^(c)	3.16

Average Risk-free interest rate ^(a)	3.01%
Expected dividend yield	0.0%
Average expected volatility ^(b)	43.93%
Termination rate	9%
Suboptimal factor ^(c)	3.14