Ladies and gentlemen, thank you for standing by. Welcome to the Silicom fourth quarter 2022 results conference call. All participants are at present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Silicom's investor relations team at GK Global Investor Relations at 1-212-378-8040, or view it in the news section of the company's website, www.silicom-usa.com. I would now like to hand over the call to Mr. Kenny Green of GK Global Investor Relations. Mr. Green, would you like to begin?
Thank you, operator. I would like to welcome all of you to Silicom's fourth quarter and full year 2002 results conference call. Before we start, I would like to draw your attention to the following safe harbor statements. This conference call contains projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and may change as time passes. Silicom does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of our increasing dependence of substantial revenue growth on a limited number of customers in the evolving cloud-based SD-WAN, SFC, and Edge market. The speed and extent to which solutions are adopted by these markets.
The likelihood that we will rely increasingly on customers which provide solutions in these evolving markets, resulting in an increasing dependence on a smaller number of larger customers. Difficulty in commercializing or marketing Silicom's products and services. Maintaining protecting brand recognition, protection of intellectual property, competition, disruptions to our manufacturing and development, along with general disruptions to the entire world's economy related to the spread of the novel coronavirus COVID-19, and the other factors identified in the documents filed by the company with the SEC. Following the company's disclosure of certain non-GAAP financial measures in today's earnings release, such non-GAAP financial measures will be discussed during this call. Such non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance.
Management believes that the presentation of these non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless otherwise stated, it should be assumed that financials discussed during this conference call will be on a non-GAAP basis. Non-GAAP financial measures are disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not in accordance with or a substitute for GAAP. A full reconciliation of non-GAAP to GAAP financial measures are included in today's earnings release, which you can all find on Silicom's website. With us on the line today are Mr. Liron Eizenman, President and CEO, and Mr. Eran Gilad, CFO.
Liron will begin with an overview of the results, followed by Eran, who will provide the analysis of the financials. We will turn over the call to the question and answer session. With that, I would now like to hand the call over to Liron. Liron, please go ahead.
Thank you, Kenny. I would like to welcome all of you to our financial results conference call discussing our fourth quarter and full year 2022 results. We are very pleased to report another solid quarter, capping a strong year of revenues, margins, and EPS growth for Silicom. In particular, this is all the more impressive against the background of what has been a continued challenging and complex environment with significant component shortages and a lot of supply chain issues. We are very happy with our performance, growing our fourth quarter revenue to $45.2 million, which is up 24% over last year. For the full year of 2022, our growth was 17% year-over-year to $151 million in revenue, a record year for Silicom.
Furthermore, the strong operating leverage within our business model allowed the revenue growth to translate into accelerated profit growth. This is demonstrated by our operating margin expanding to 15.6% for 2022 versus 12.4% last year. Our net margin growing to 14.1% for 2022 versus 10.9% last year. The continued success led to our 72nd quarter of uninterrupted profitability, and we reported 2022 earnings per share up 55% year-over-year to $3.12 per diluted share, double that from only two years ago. It all highlights the strong and broad demand for our end markets, especially the Edge products, and the market's understanding of our unique value proposition that we have built over the years, including high performance products, reliable delivery, quick customization, and unmatched support capabilities.
Our success demonstrates the market's clear need for our groundbreaking product while underscoring the benefit of the leverage inherent in our business model. 2022 has taken a step towards meeting our long-term target financial model that we shared with you a few years ago. Back in 2020, our target was 18% operating margin and 15% net margin when we reach full year revenue of approximately $250 million. At that time, our respective operating and net margins were about 10%, and this was an aggressive target. The results in 2022 demonstrate that in only two years we are well on the way thanks to the impressive leverage we demonstrated in our business model. Our cash position currently stands at $50 million, up by approximately $7 million since last quarters.
As I explained last quarter, our working assumption is that the component shortages will continue to improve during 2023. Thus, we have decided to actively and gradually reduce our inventory levels. Peak inventory levels are therefore now behind us and as inventory has decreased during the past two quarters and is expected to continue to gradually decrease in the quarters ahead, it is and will directly translate to an increase in the cash level. Our continued strong cash position remains a key strategic asset and significant competitive advantage, especially in today's market. It allows us to serve our existing customers better, maintain a high level of critical inventory, allowing us to deliver products which are not readily available. This, in turn, enables us to attract new customers and new businesses, which have difficulty finding product elsewhere.
Furthermore, it enables us to capitalize quickly as opportunities present themselves. I would like to discuss our recent Edge networking design win from a Fortune 500 SD-WAN vendor. This networking leader serves customers across the Americas, APAC, and EMEA, and is a new important Edge customer for us. The win was for a customized version of one of our 5G integrated High Runner Edge networking products, and the win was due to our unique feature set, flexible connectivity options, and offering differentiation in the market. We expect orders to ramp up through 2023, with deployment levels reaching a steady state beginning in 2024. This win is another clear demonstration of the depth and quality of the potential opportunities in our pipeline, as well as the compelling value proposition that we offer for next-generation Edge networking use cases.
We can now point to a record pipeline of opportunities for our Edge product in multiple varied markets, as well as significant interest from potential new customers for our product. Wins such as those have established us as an industry Edge platform provider of choice with the product rapid customization capabilities, delivery capabilities, and ongoing support that many customers need. We expect to continue benefiting strongly as the market transitions to the Edge platform paradigm, driving multi-year growth for our company. Telcos, service providers, enterprises, network vendors, cyber vendors, as well as cloud players all are seeing the need for Edge products for various applications such as SD-WAN, virtual CPE, telco-dedicated routing, and SaaS, and more.
As our Edge products, which are initially targeted to the SD-WAN market, became a clear growth driver for us, we realized that those same products are highly attractive for significant broader applications and varied markets, thus making our total addressable market potential even bigger than what we had initially thought. Finally, in terms of our guidance ahead, while we move into 2023 with an all-time record year-start backlog, our visibility is limited due to a challenging mixed signal environment that is impacted both by the global economic slowdown and the expected loosening of the supply chain after a long period of component shortages. We therefore project that our revenue for the first quarter of 2023 will range between $37 million-$38 million. The midpoint of this range represents 17% year-over-year revenue growth over the first quarter of 2022.
In summary, we remain very pleased with our performance throughout 2022, with strong year-over-year growth in revenue and a significant acceleration in our profit growth, proving the operation leverage inherent in our business. We have strong tailwind in the form of our highest ever level of year-start backlog and a strong roster of leading customers and design wins, many of which are in the early ramp-up stage. We maintain a healthy and quality pipeline of future design wins. We see that the component shortage is easing up, and over the coming year, we expect to put this issue behind us. On the other end, there are headwinds emerging in the form of global economic slowdown, which is starting to impact our visibility.
We are being cautious as there is increased potential for longer decision-making processes and delayed ramp-ups by customers, as well as the potential for cancellations or pushouts of the high level of orders that were issued during the very long component shortage period. All in all, looking at the coming years, we remain optimistic that our double-digit compound annual revenue growth will continue. As we enter into 2023 with a total addressable market larger than ever, our highest ever year-start backlog, and a healthy quality pipeline, we have never been better positioned. With that, I will now hand over the call to Eran for a detailed review of the quarter results. Eran, please go ahead.
Thank you, Liron, and hello, everyone. Revenues for the fourth quarter of 2022 were $45.2 million, up 24% compared with revenues of $36.3 million as reported in the fourth quarter of last year. Our geographical revenue breakdown over the last 12 months were as follows: North America 72%, Europe and Israel 23%, Far East and rest of the world 5%. During the last 12 months, we had only one over 10% customer, and our top thre e customers together accounted for about 27% of our. Presenting the rest of the financial results on a non-GAAP basis, which excludes the non-cash compensation expenses in respect of options and RSUs granted to directors, officers, and employees, acquisition-related adjustments, as well as lease liabilities financial expenses.
For the full reconciliations from GAAP to non-GAAP numbers, please refer to the press release we issued earlier today. Gross profit for the fourth quarter of 2022 was $15.1 million, representing a gross margin of 33.5% within the range of our gross margin guidance of 22%-26%, and compared to the gross profit of $12.7 million or gross margin of 34.9% in the fourth quarter of 2021. The variance in the gross margin is a function of the specific product mix sold in the quarter. Operating expenses in the fourth quarter of 2022 were $7.2 million, below the $7.5 million reported in the fourth quarter of 2021.
Operating income for the fourth quarter of 2022 was $7.9 million, an increase of 55% compared to operating income of $5.1 million as reported in the fourth quarter of 2021. Before moving to the net income data, I would like to mention the relatively high effective tax rate we had in the quarter. The higher than normal tax rate is mainly due to one-time effects in the fourth quarter. Please note that our full-year tax rate is 15.2%, in line with our 15% expected tax rate. Net income for the quarter was $6.6 million, an increase of 48% compared to $4.5 million in the first quarter of 2021. Earning per diluted share in the quarter were $0.98.
This is a year-over-year increase of 51% compared with EPS of $0.65 as reported in the fourth quarter of last year. Turning to the balance sheet. As of December 31st, 2022, the company's cash equivalents, and marketable securities totaled $49.9 million with no debt, or $7.41 per outstanding share. That ends my summary. I would like to hand back over to the operator for question and answer session. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question- and- answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Alex Henderson of Needham & Company. Please go ahead.
Great. Thanks so much, and super job against a challenging environment on the print as well as the conservative guide. The obvious first question here is, you cautioned on concerns about the macro environment, potentially resulting in some of the backlog, potentially being either pushed out or diminished as a result of macro conditions. You also have a significant number of new projects that are in the early phases of ramp, which obviously they could ramp a little slower given the environment. Have you actually seen any of the backlog, you know, be committed to? Second, how do we balance those two as we're thinking about the progress through the year?
First of all, thank you, Alex. First of all, we did not see any significant cancellations or push-outs yet. It's definitely something we're monitoring and wanting and requires us to speak with our customers every day to understand their plans and how they see 2023. As we look into 2023, as we said, we have limited visibility. That's the big question. I mean, how really those new designs or will ramp up? Will there be significant push-outs? Will customers ask to cancel orders? Those are the big questions, it's hard for us to give a definitive answer because our visibility is limited for 2023.
If we look at the supply chain side of the equation, you said in the December quarter that you're starting to see some improvement in it, in availability. Can you talk to to what degree that is factoring into your thinking at this point? How much further do you expect that to improve over the course of the year?
right now we see the improvement-
Things are improving. More vendors are able to support shorter lead time and have better availability, but not all of them. In some cases, a certain vendor will have certain parts more available and other parts less available. The work that we are continuing to do with finding alternatives and finding solutions, it continues all the time, but the number of parts that we need to focus on is decreasing all the time. Our assumption is that during 2023, it will at some point, I don't know exactly when in 2023, it will be almost back to normal. Hard for us to say exactly when. We do not expect it to be Q1 for sure, but later in the year, we think it will become better and better.
Then looking at the OpEx side of your equation here, obviously, you know, the shekel's bounced around a little bit, but it's still pretty low relative to historical ranges. You've managed to do a fabulous job of, you know, essentially flat costs at the OpEx level in 2022. Should we be thinking about 2023, you know, OpEx in investment mode, in containment mode? How do we think about it and how should we be modeling it?
I think we should definitely maintain it. I mean, assuming no significant exchanges for changes, we expect to be the same.
Great. That's good news. Then on the interest line, the cash balance is going up.
Alex, just to clarify, we expect it to be around $33 million. Not the same, sorry. I was thinking about the model, not about 2022.
Right. I see. Then on the interest line, given your cash balance is going up and the benefit of higher interest rates on cash balances, should we be seeing an increase from the $524K that you posted in the December quarter each quarter? Is that below watermark for the year?
Not necessarily. On top of the income from investing activities, with its higher yields, the financial income presented in our P&L is largely dependent or impacted by exchange rate differences. In other words, indeed, the yields right now are better than the yields a year ago. No question about it. However, exchange rate is a big factor in the financial income number, therefore it is hard to predict right now.
Assuming that the exchange rates stay flat, that would be, I think the assumption most people work off of. Would that then be the fair to say that the interest line ought to be higher over the course of the 23 timeframe?
That's correct. That's correct.
Okay. Great. One last question, then I'll cede the floor. The pipeline. These projects are longer term in nature. Most companies, even in a macro environment, are still going to be looking at, you know, the projects that they need, coming out of a recession, you know, in 18 months or whatever, the timeline is. How does your pipeline look in terms of, you know, larger contracts, what is the, you know, kind of the timing of the next contract wins? Do you expect to see meaningful wins in the first half of the year against this environment, or does that slow those down to the point where we shouldn't be anticipating them?
From a pipeline perspective, we have a very good pipeline. I think I said it a few minutes ago in our opening words is, yeah, we see a very good pipeline, very fit pipeline, especially for our Edge products. All the time, we see more and more need. I don't know exactly how those will ramp up eventually. That will definitely depends on the global economy. I think from companies pushing more and more network equipment towards the Edge or still needing our equipment in data centers or in enterprises, we still see that, and we still see a very fit pipeline, and our sales team is very, very busy in addressing all those opportunities.
I was really addressing new wins as opposed to existing pipeline of business that's, you know, how do I say it, you know, already in hand. You know, obviously, the timing of ramping specific projects that have already been won, can have a different curve to it. What about, you know, news flow of large, new wins?
Definitely working on that. I mean, we don't see a slowdown necessarily in closing the deals. We will see it, you know, each project has its own nature of how the company is working and how quickly or slowly they're moving. From the point of getting wins, I don't necessarily see that we'll see a slowdown. The actual ramp-up and deployment of those projects, that will be a big question. Getting the wins, I'm sure we will get more wins, and we'll see them. Deployment, that's the big question.
One last question, Way of your customers. Is there any difference in the behavior of customers that are located? Obviously, it doesn't translate into where the product's going, but located in different geographies or are they all behaving pretty similarly at this time?
I think it's mainly a function of culture, not more than that. I mean, we don't see, specific markets behaving economically, I would say, differently than other markets right now. Obviously, each geographic with its own culture and the way they're used to doing business, but nothing special beyond that.
Great. Thanks. I'll cede the floor.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. The next question is from Alex Henderson of Needham & Company. Please go ahead.
Well, I was hoping somebody else was gonna queue, but nobody else is queuing, then might as well continue. Given the improvement in cash flow, given the volatility in the stock market, do you anticipate utilizing the cash in terms of buybacks or any other activity? How should we think about use of cash in this environment?
Still right now, we feel that the best use for our cash, given the uncertainty, is still to be able to use it for inventory if we would need to do so and for components. We don't have any other plans at the moment for that.
All right. That was our last question. Thanks.
The next question is from Shawn Boyd of Next Mark Capital. Please go ahead.
Thank you. Taking the question. Can you hear me okay?
Yep, we can.
Cool. Just one from me. I want to go back to the gross margin and the slight dip this quarter. I think you called out product mix, but can you elaborate just a bit on that? Also, does that something that continues into the first half of this coming year, or do we kind of move back to that 35%-36% level that we saw in the previous two quarters? Thank you.
We still see that we're gonna be in the same range. We don't see any reason to change the range right now. We still believe we'll be in the 32-36. Sean, does that answer your question?
I got it. I got it. Yeah. Thank you.
Thank you.
There are no further questions at this time. Before I ask Mr. Eizenman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Silicom's website, www.silicom-usa.com. Mr. Eisezman, would you like to make your concluding statement?
Thank you, operator. Thank you everybody for joining the call and for your interest in Silicom. We look forward to hosting you on our next call in three months' time. Good day.
Thank you. This concludes Silicom's fourth quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.