Good morning. My name is Yoni [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to Valens Semiconductor’s Third Quarter 2024 Earnings Conference Call and Webcast. All participant lines have been placed in a listen-only mode.

Opening remarks by Valens Semiconductor management will be followed by a question-and-answer session. I will now turn the call over to Michal Ben Ari, Investor Relations for Valens Semiconductor. Please go ahead..

Thank you, and welcome, everyone, to the Valens Semiconductor’s third quarter 2024 earnings call. With me today are Gideon Ben-Zvi, Chief Executive Officer; and Guy Nathanzon, Chief Financial Officer. Earlier today, we issued a press release that is available on the Investor Relations sections of our website under investors.valens.com.

As a reminder, today’s earnings call may include forward-looking statements and projections, which do not guarantee future events or performance. These statements are subject to the Safe Harbor language in today’s press release.

Please refer to our Annual Report on Form 20-F filed with the SEC on February 28, 2024, for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy.

We will be discussing certain non-GAAP measures on this call, which we believe are relevant in assessing the financial performance of the business and you can find reconciliations of these metrics within our earnings release. With that, I’ll now turn the call over to Gideon..

Thank you, Michal. Hello, everyone, and thank you for joining Valens Semiconductor’s third quarter 2024 earnings call. We are pleased to report solid results and strong execution in the third quarter. We are proud to be an industry leader in audio video and automotive markets.

Demand for our high performance connectivity solutions grew as customers adopted our technology to create cutting edge products. With this momentum, we exceeded the top end of our revenue guidance. We advanced our long-term growth strategy with some key accomplishments.

These included the three new automotive design wins with leading European OEMs and a successful entry into the industrial machine vision market. We pushed the boundaries of connectivity. Our advanced chipsets empower customers to bring destructive products to both established and emerging markets.

We are very encouraged to see an enthusiastic customer response and rapid adoption of our VS6320 chipset in audio video applications. Inventory digestion continues to impact our industry. However, we believe we are emerging from the bottom of the cycle.

As such, we are seeing increasing interest in our solutions that will be embedded into product and expected to hit the market in the next few years. We are proactively introducing our new chipsets to existing and new customers where there is strong interest in audio video, industrial and machine vision verticals.

We expect more design wins over the near and mid-term. Moving on to a quick overview of our third quarter financial performance. We reported revenues of $16 million which exceeded the top end of our guidance. We are pleased that Acroname, the recent acquisitions we made in May 2024 contributed $1.6 million of revenue.

This was also above the guidance we provided last quarter. GAAP gross margin for the third quarter came in at 56.4% and adjusted EBITDA loss was $5.1 million, both beating our guided ranges. Importantly, we have a very strong balance sheet with $133.1 million of cash and cash equivalents.

We are well-positioned to continue investing in innovation and exploring strategic M&A that will support long-term growth. Now, I will discuss the trends and opportunities we see in our markets. Starting with professional audio video, which includes applications such as entertainment, video conferencing, education and digital signage.

Since its introduction late Last year, the VS6320 has attracted over 50 customers that are developing and launching products for audio video applications. This is an extremely high adoption rate and is expected to contribute to a record number of customers products that should be launched in the next 9 months to 12 months.

This validates the chipset’s groundbreaking technology and reflects the market need for reliable, streamlined and affordable connectivity. We expect initial sales before the end of the year with further ramp up towards the end of 2025. One exciting new video conferencing product, the Logitech Extend is based on our HDBaseT technology.

Extend allows meeting room users to connect using a single USB C cable and launch a meeting from a laptop or mobile device utilizing the room’s peripherals. We expect this high performing, easy to use extension solution to fuel demand for advanced meeting room solutions.

Moving on to the machine vision and industrial verticals, based on markets research, the broader machine vision market is expected to reach $7.8 billion by 2029. Factory and warehouse automation combined with more demanding inspection regulations will drive this growth.

We anticipate that the term for the segment in which we compete can reach $460 million by 2029 and believe we are well-positioned to capture a significant market share. Last month, we showcased our innovative solutions for the industrial machine vision market at the VISION trade show in Stuttgart, Germany.

VISION is the leading international trade fair for machine vision. The show attracts thousands of visitors from a wide range of industries. I am pleased to report that Valens received outstanding feedback from prospective customers for two of our latest products, our VA7000-CSI2 extension as well as the VS6320 USB3 extension solution.

Both chipset enhance commonly used interfaces in the industrial market and eliminate the constraints of choosing between expensive long cable connectivity or compromising on short cables with no flexibility to modify the length. Our solution enables the capability and flexibility that machine vision for industrial installation is eager for.

We also announced the release of our USB3 industrial grade extender product, based on the VS6320 chipset, this product allows vendors to extend their existing portfolio of USB cameras. This is done without any product redesign, providing a ready to use solution and significantly decreasing time to market.

Currently, we are engaged with leading camera module manufacturers in industrial machine vision. These OEMs include Teledyne e2v, a global innovator of imaging solutions, FRAMOS an embedded vision system leader and Leopard Imaging and machine vision camera supplier among others.

We’re also excited about Acroname potential to expand our position in the industrial market. We are very pleased with our progress in the audio video sector. We are confident about our growth potential and are acting to leverage significant opportunities across vertical with focus on industrial machine vision.

To this end, Valens is conducting strategic organizational changes with the audio video business unit. Audio Video Business is transitioning to Cross Industry Business encompassing verticals including audio video, industrial, machine vision and medical.

To facilitate our growth strategy, the Cross Industry Business unit will also include a transition in leadership. We are confident that these changes will enable us to achieve our goals in these new high growth markets. As part of this change and after over a decade, Gabi Shriki will be stepping down as Head of Audio Video Business.

Gabi has been instrumental in establishing and growing the Audio Video Business from the ground up and has played a pivotal role in positioning Valens as the unrivaled leader in professional audio video connectivity. On behalf of the Valens team, I would like to thank Gabi for his outstanding dedication and vast contributions to the company.

The new Head of Cross Industry Business, whose name will be disclosed at a later date will join Valens starting February 16, 2025. Gabi will remain at Valens for a period of time to facilitate a smooth transition. Next, I’ll talk about automotive. We are thrilled to have achieved three design wins with leading European OEMs this quarter.

The OEMs are expected to begin integrating our VA7000 chipsets into certain vehicle models starting in 2026 with further acceleration in 2027 and 2028. Automotive OEMs take a measured approach when introducing new safety critical ADAS features. They often integrate them into limited vehicle models first before deploying across broader vehicle lineups.

We believe these wins show that our superior technology is advancing the MIPI A-PHY global standard for high performance connectivity. Importantly, we believe they position us for future design wins with other OEMs looking to adopt extend app.

Furthermore, we believe these design wins should strengthen our partnership with leading Tier 1 suppliers who have more evidence of our superior technology. We remain confident that additional Tier 1 will promote our solution as the preferred connectivity standard for the other OEM customers.

Since the announcement, we will receive many questions as to why we can’t disclose the names of the OEMs. It is common practice in the automotive industry for OEMs to avoid revealing the technology inside their cars, at least until the start of production.

This is also true for Tier 2 suppliers like us who need to protect the OEM customers’ development of new technologies, which is an important competitive advantage to them. Our goal over the next 12 months to 24 months is to support the recent design wins and to receive new wins.

We currently have several evaluation processes with multiple OEMs in various stages. I would like to take this opportunity to thank Gideon Kedem, Head of our Automotive Business for his instrumental role in securing these three pivotal design wins.

As he prepare to retire at the end of 2024, we would like to recognize his dedication and success in positioning Valens as a key player in automotive connectivity. Gideon Kedem’s tenure at Valens has been marked by exceptional leadership, dedication and an unwavering focus on advancing our automotive business.

I would like to thank Gideon Kedem for waiting with his personal retirement plans until achieving his goal of securing new design wins for Valens. After laying the foundation for future success, he’s now ready to pass on the leadership of the automotive business.

Effective January 1, 2025, Adar Segal will assume the role as Head of Automotive Business. Adar joins Valens with over 20 years of expertise in technology driven sales, complex deal structures and partnerships across multiple high-tech industries. We are confident in his ability to drive our automotive strategic growth.

Gideon Kedem will remain at Valens for a period of time to facilitate a smooth transition. Turning to our first generation automotive chipset, the VA6000 business with our legacy automotive customer Mercedes-Benz remains on track. In the trucking segment, we are making progress in field trials with Stoneridge.

Turning to a brief update on the MIPI A-PHY standard. We are pleased that A-PHY is gaining wider adoption beyond OEMs, for example, Continental a leading global automotive supplier introduced an 8-megapixel camera that deploys MIPI A-PHY connectivity, further expanding the A-PHY ecosystem within the automotive industry.

Also, companies in test and measurement systems are using Valens chipsets in their connectivity solutions. Recently, the MIPI alliance highlighted the large and rapidly growing ecosystem supporting A-PHY technology. Currently, 32 companies are developing products based on the standard, according to public announcements.

We’re excited to see meaningful progress in our automotive business. This is a vast long-term opportunity with an expected term of $4.5 billion per year by 2029. With that, I will turn the call to Guy to discuss our financial performance in more detail..

Thank you, Gideon. I’ll start with our third quarter 2024 results and then provide our outlook for the fourth quarter and full year of 2024. We achieved quarterly revenue of $16 million, exceeding our guidance of between $14.7 million to $15.4 million, of which Acroname contributed $1.6 million, exceeding our guidance of $1.2 million to $1.4 million.

This compares to revenues of $13.6 million in the second quarter of 2024 and $14.2 million in the third quarter of 2023. The Audio-Video segment including Acroname contributed $9.4 million, or approximately 60% of total revenue, and Automotive contributed $6.6 million, or approximately 40% of total revenue this quarter.

This compares to audio-video revenue of $8.1 million and automotive revenue of $5.5 million, representing 60% and 40% of total revenue respectively in the second quarter of 2024 and $9.7 million of audio-video and automotive revenue of $4.5 million, representing 70% and 30% of total revenue respectively in the third quarter of 2023.

Third quarter 2024 gross profit was $9 million compared to $8.3 million in the second quarter of 2024 and compared to $8.3 million in the third quarter of 2023. Third quarter 2024 gross margin was 56.4% compared to our guidance of range between 52% and 53%.

This compared to 61.4% in the second quarter of 2024 and compared to 58.9% in the third quarter of 2023. On a segment basis, our audio-video gross margin was 70.2% and automotive gross margin was 37% compared to 75.4% and 40.9% respectively in the second quarter of 2024 and 75.8% and 21.6% respectively in the third quarter of 2023.

The increase in the automotive gross margin compared to the third quarter of 2023 was due to improvement in our chip cost. The decrease in audio-video gross margin was due to product mix shift and lower fixed cost absorption.

Non-GAAP gross margin was 60.7% compared to 64.5% in the second quarter of 2024 and compared to 61.1% in the third quarter of 2023. Operating expenses in the third quarter of 2024 totaled $21.3 million compared to $17.8 million at the end of the second quarter of 2024 and compared to $21.3 million in the third quarter of 2023.

Research and development expenses totaled $10.3 million compared to $10 million in the second quarter of 2024 and compared of $13.4 million in the third quarter of 2033. SG&A expenses were $10.7 million compared to $7.8 million in the second quarter of 2024 and compared to $7.9 million in the third quarter of 2023.

The increase was mainly driven by $2.2 million expenses due to certain batch production incident. The third quarter of 2024 GAAP net loss was $10.4 million versus a net loss of $8.9 million recorded in the second quarter of 2024 and versus a net loss of $12.5 million recorded in the third quarter of 2023.

Adjusted EBITDA in the third quarter of 2024 was a loss of $5.1 million compared to a guidance range of a loss between $6.8 million and $6.3 million. This compared to adjusted EBITDA loss of $5.2 million in the second quarter of 2024 and $8.8 million in the third quarter of 2023.

GAAP loss per share for the third quarter of 2024 was $0.10 compared to GAAP loss per share of $0.08 for the second quarter of 2024 and compared to $0.12 for the third quarter of 2023.

Non-GAAP loss per share in the third quarter of 2024 was $0.03 compared to a loss per share of $0.04 in the second quarter of 2024 and compared to $0.08 in the third quarter of 2023.

The main difference between GAAP and non-GAAP loss per share was due to stock-based compensation, depreciation and amortization and to a certain batch production incident expenses. We ended the third quarter of 2024 with strong balance sheet with cash, cash equivalent and short-term deposits totaling $133.1 million and no debt.

This compared to $130.6 million at the end of the second quarter of 2024 and $142 million at the end of 2023. Our working capital at the end of the quarter was $136.1 million compared to $142.3 million at the end of the second quarter of 2024 and $158.8 million at the end of 2023.

Our inventory as of September 30, 2024 was $11.7 million down versus $14.1 million on June 30, 2024 and $13.8 million on December 31, 2023. Now I would like to provide our guidance for the fourth quarter and full year of 2024. We expect fourth quarter revenue to be in the range of $16 million to $16.3 million.

We expect gross margin for the fourth quarter to be in the range of 58% to 62% and we expect adjusted EBITDA loss in the fourth quarter to be in the range of $4.9 million to $4 million. For the full year 2024, we expect revenue to be in the range of $57.2 million to $57.5 million.

Gross margins are expected to be in the range of 58% to 60% and adjusted EBITDA loss is expected to be in the range of $22.3 million to $21.4 million. I’ll now turn the call back to Gideon for his closing remarks before opening the call for Q&A..

Thank you, Guy. Valens Semiconductor is a strong position to grow across our target markets with our industry leading technology and fortress balance sheet. We look forward to executing our long-term strategy and restoring growth and profitability.

As a reminder, we are hosting our first ever Investor Day in Midtown, New York next week on Tuesday November 12 at noon.

At this event, we will discuss our enhanced strategic plan and long-term financial objectives, our expanded go-to-market strategy focused on high growth industries and applications, we will also be demonstrating our advanced technology and sharing video testimonials and leading customers and partners.

If you’re interest in attending, please email Michal at investors@valens.com. Before opening the call for questions, I want to express my gratitude to the entire Valens team for their ongoing commitment and dedication. With that, I will now open the call for your questions.

Operator?.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Suji Desilva of Roth Capital. Please go ahead..

Hello, Gideon. Hello, Guy and Gabi and Gideon, best of luck in the next stages. So the – Gideon, the visibility here or Guy, the visibility here with the inventories being worked down, do you feel you’re at a point now where you can shift to demand to consumption again starting in 2025 or certain pockets of inventory still remain to be worked down..

First, thank you Suji and I want to thank everyone that after such an interesting day you found the time and hearing us, I guess, we cannot compete the instance that you have in use and I do appreciate that you still decided to devote your time for this earning call.

And the answer is, yes, visibility is improving and I believe that it’s improving because of several reasons. One of them is the sales cycle is shrunk. The time to order chips is not as bad as we had in the past during the COVID that the supply chain went up until sometimes to 40 weeks and it’s not the case anymore.

On the other hand, we have no interest, so a lot of the purchaser have in consideration that zero interest is over. So there are pros and cons in the change of the mannerism of making an order. Yet, we feel that we have some visibility of recovering the market.

We don’t give yet the whole forecast for where it is but we invite everyone to come next week to our, I think, very interesting Investor Day, maybe better competition to the news that the one we can bring today. And I’d be happy to elaborate more then.

I hope it answered you Suji, is it?.

Yes, that’s very helpful, we’ll look forward to that. And then the Acroname acquisition, can you talk about how that integration is going and what the end market initial traction there and more interestingly the industrial machine vision.

What’s the design cycle there? How quickly can new programs be won and ramp?.

Yes. A lot of the sales of Acroname are ad hoc. A lot of them are like someone need and they simply go through the internet and makes an order, very, very different than the process that we have. And the main surprise that we have with Acroname is we have no surprises.

It looks like everything that we saw in the due diligence, seems to be very transparent. I think, I hope it’s both sides. I hope they’re not also – they feel the same with us, I think they are. And it looks as promised and they have some sales which are B2B and are more kind of, as you said, an order.

But the rest are simply they need, the customer makes an order of five or 10 or whatever, sometimes of more and press the button and get it after some days. This is the kind of the Acroname sales cycle. So it’s not typical. It’s very different than the semiconductor industry..

Okay, that’s helpful. And then on switching to auto on the OEM wins, just a clarification here. Are these programs, the three you’ve discussed, are they EV only programs or are these across a platform of EV, hybrid, traditional combustion, any color that would be helpful..

Well, there is no difference in ADAS in EV and non-EV. And even the electromagnetic influence of EV car in our case is not so different. So it’s a – we are – for us, it doesn’t matter. And for instance, in what we do with Mercedes for many years, it goes both for the S and C and E series and the same as the EQ series and it’s the same.

So the EV is not any distinguished for us in the OEM, it’s the same, it’s ADAS. And ADAS is – people in gasoline and EV cars, they want to be protected in the same way and the OEMs want to protect them the same way..

Good. And then last question, I’ll switch off for Guy perhaps, the gross margin trend here. What is the expectation going into 2025? Is it mix driven or are there gross margin tailwinds? Any color that would be helpful, thanks..

Okay. Hi, Suji. Great to meet you again. So we do not provide specific guidance at this point for the gross margin for the future. What I can say that typically our gross margin are impacted by the ratio between the revenue coming from the audio-video and the automotive.

There is significant difference of the gross margin between these two business units as well as the level of the revenue due to the fixed costs. So this is the main principles that will be relevant for the future as well..

Okay, thanks everybody..

Thank you..

The next question is from Kevin Cassidy of Rosenblatt. Please go ahead..

Yes, thanks for taking my question. Congratulations on the strong results.

During the quarter, did you have any 10% plus customers? And maybe my follow on question is going to be with – all the new designs in your pipeline, do you see this changing or are you expecting this to be a broad based growth or is there going to be a few customers that will lead the way?.

Sorry, can you repeat the questions? It was heard this is quite rough, if you can repeat the questions please for me..

Sure.

Did you have any customers that were more than 10% of revenue during the quarter?.

Guy will take this one. So no, the simple answer is no..

Okay. And then my follow-on question is with your design pipeline that you have, do you see this changing or other certain customers that would be growing faster or expected this to be a broad-based growth [indiscernible].

Are you referring to the automotive customers or to the audio video customers?.

Both.

Your total revenue, is there going to be one customer that leads the way?.

Well, definitely no. The difference between the sales in audio video and automotive are the difference of climbing on a mountain and climbing on a reef. And it’s in automotive every deal is a huge deal, takes a long time. It’s a climb on a cliff and then it’s a big cliff and the mountain is step by step another account and another account.

So every time, we have an OEM, it is – it will influence in the future as a significant percentage like can be 5%, 7%, whatever percent of the revenues at once. It’s not a step by step. While in the audio video and the industrial, the customers are in a magnitude or of between whatever $1 million and $5 million.

So they’re never a big percentage as they can be in automotive. Its very much belongs to the characteristic of the customer whether it’s automotive or not. But as far as we see the long-term, there are no risk of being company dependent in a single customer in the coming years. I hope never..

Okay. Great. Thank you..

Thank you..

Thank you..

[Operator Instructions] The next question is from Dustin Fowler of Oppenheimer. Please go ahead..

Hey guys, this is Dustin on for Rick Schafer. I just had one quick question. On the call, I think you said Stoneridge is on track.

Can you just remind us on the timing and the opportunity size there?.

Thank you for the question and actually it’s an excellent question. You helped me by asking me this question and I’m thankful. This was a long shot with Stoneridge and it took a long time to do the – to start the pilot and to make the pilot and to generate forecasts and so forth.

But we’ve been patience and it seems like that the truck industry, it’s never been as big as the regular automotive industry, but the truck industry will reward us. And Stoneridge made a very successful pilot and the customers were very happy with the results and the feature.

It’s a very important feature for a truck driver and we believe that although it took time and we see in automotive world, the world, although it takes time is probably in initial of every sentence. But although it took time, it is going to be a fruitful market for us and I’m happy we stick to it and we see – and we’ll see results furthermore.

We have now achieved the 700R, which is suitable for further features specifically for the truck industry. And we consider it and we’ll speak about it next week in the investor event. We see the truck industry [indiscernible] segment. So please come and hear in a week from us, the details that I believe you will be find very interesting..

Thank you. That’s all I have..

There are no further questions at this time. Mr.

Ben-Zvi, would you like to make your concluding statement?.

Yes, I would. And I want to thank again all for continued interest in Valens and we hope you will be joining our Investor Day in New York next week. And I wish you have a great day and I guess, it’s going to be interesting day for all, so all the best and goodbye..

Thank you. This concludes the Valens Semiconductor results conference call. Thank you for your participation. You may go ahead and disconnect..