Q4 2022 Valens Semiconductor Ltd Earnings Call
[noise] BBB and BBB to BBB.
Yeah.
We will be there.
[music].
Okay.
We may make today.
[music].
No.
Thank you.
Thank you.
[music].
Good morning, My name is <unk> and I will be a conference operator today.
This time I would like to welcome everyone to <unk> Semiconductor's fourth quarter and full year 2022 earnings conference call and webcast all participant lines have been placed in a listen only mode.
Opening remarks by by one semiconductor management will be followed by a question and answer session.
I will now turn the call over to adopt in the Golden Vice President of Investor Relations for buy lunch semiconductor. Please go ahead.
Thank you and welcome everyone to Valletta, Semiconductor's fourth quarter and full year 2022 earnings call with.
With me today are Gideon best mates, Chief Executive Officer, and all housing Bartram Chief Financial Officer.
Earlier today, we issued a press release that is available on the Investor Relations section of our website under investors that Villa dotcom.
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 today with the SEC for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.
And we do not undertake any duty to revise or update such statements to reflect more 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.
In the coming weeks, we will be in California, and in Europe for Investor conferences and meetings.
If you're interested in meeting with US. Please email me at Investor at <unk> Dot Com.
With that I will now turn the call over to get done.
First off and Oscar Thank you everyone for joining our call.
We do once a year.
So he can go through each one just wanted to alert semiconductor continues to strengthen.
Sure.
Your markers and focus on increasing share or the automotive space.
Yeah, Rick called my mom.
Uh huh.
She says were sold for use in the Brushy.
Like you would do.
Big Boom baby.
We are called reached record revenue of smart people in certain regions.
Driven mainly by greater than expected revenues.
And we doubled over in Europe automotive sales.
We also want you.
If you can break at the gross margin and adjusted EBITDA.
Our work underway to achieve an important milestone of adjusted EBITDA breakeven.
All these years 'twenty to 'twenty three.
Looking at the most recent quarter Q4, 'twenty to 'twenty two.
Growth continued in our revenues reached a record of $23 5 million installed.
7% from Q4, 2021.
We also.
Took them off your biggest profitability mix.
We believe.
Semiconductor is worth positions to address near and long silviculture refuse user market. So for four reasons first we benefit from being the industry's startup user.
We don't.
We try to lock in growing markets.
Second we make originally constructed connectivity offerings across all over it.
You can expect it to creep up to enrich our product offering and accelerates the rois on new programs.
We are expecting to put.
Toward mass production of our ultimate B 7003 compliance to Q.
For our computer vision backwards, new programs to augment our disruptive offering for both markets.
Very good.
We're stopping with audio video, it's worth pointing to we continue to expand our footprint in the audio video market into new applications and vertical such as the new picture corporate making coke in industrial.
Depreciation we're very thrilled with the largest project Colleges School district in Florida, which is the fourth largest in the United States.
Obviously your program for modern Rfps classrooms District district has over 330000 students.
Fossil friends of Walden, and the Missouri Secondary school emergency relief no banker initiative very selective when it used to be empowered stretching products together with logistics meet up with you.
It's worked for us in Colorado for their hybrid influx is gonna be most educational experience.
One of the main goals is to prepare for avoiding future known her for schools to enable continuous growing any Bronx excuse me.
We saw a video conferencing extension solutions teachers and students cannot efficiently feature regardless of their physical location opening up possibilities.
Thinking longer term returns you energy rents.
All locations.
The first phase of installation has been completed and we look forward to implementing the ex fix.
Corporate Puma, they're well known sports brand and now in Q4, it's kirshner Tony.
As one company and one of the longest serving audio video customers.
Please go to be Felicia over presentations discussing the new North American headquarters in Boston.
Easter, which incorporates the latest semi conductors chipsets.
The core maker for seamless communication between employees like Frank why do you need for your meeting room experience replicating a consistent experience.
The conference rooms that are using Microsoft's doing her neighbors room.
These two examples demonstrate how remote or in a hybrid world.
Patient model, which our ear for state required we think basically the appropriate audio and video distribution solution to pulse or it could be increased efficiency.
Efficiency in the communities they serve.
All of them experience for both small and large groups. Our comments were also recently deployed but health care organization upgrading the Army's fly Fi.
Which feature a teaching.
In the operating room, the classroom in the recovery room.
I decided to Chevron for example.
That was very helpful in semiconductor and its customers, who make the world a better place.
Or at least even in an election with Cherokee working to make <unk> available everywhere for everyone. So no one has to experience.
Once a quarter of our voices blindness.
Its mission is to use a network of partner support or maybe Chris concentration at all.
That's always been geared towards empower local communities.
Yes.
Sure.
The oldest Florida, I suppose because of stuff dropping worldwide to share their knowledge and expertise with slow for Cherokee.
They require.
Any solution to provide the best training opportunities to Arthur professionals around the world. So it'll be communicated you need very very limited.
Services.
We are proud to be part of the squeaky cognition.
We continue to invest in expanding our offerings in audio video for us because we believe they.
The need for accretion lower costs higher productivity bedroom.
We will increase there will be new opportunities to expand our business and customer base.
For example, in 2020, one we introduce them.
3000, Houston family, which enables our customers to innovate and design programs across the industries.
3000, which experienced uncompressed full grade 60 frames per second resolution video is one of the most advanced integrated acute offering.
Offering no bridge harvest barely connectivity solution.
Successful adoption of the VX 3000 product family by industry, leading customer or so corporate butane in 'twenty 'twenty due to the increase of our entrepreneurial revenue in various applications lots.
Last month.
If I take 2023 in Buffalo now more than 25, leaving or you want me to pick Jones jokey over 83.
Thousands of base products. This was four times the number of exhibitors I.
2022.
We also demonstrated new capabilities of the 3000 cheap trick there can experience treating those for most people and we just sold the displays and other accessory categories.
We already see traction by a customer who intend to develop the next generation. If he gets one craftsman program using our <unk> 3000 in Q2.
These new capabilities are busier 3000, it can also be applied.
We took title justification for coastal station repairs, both store and digital out of home markets.
In 2022, we made progress in the development of a new low cost U S. B three two and you always have to be 2.0, finishing solutions Davita 63, 'twenty, which is ideal for the distribution of video conferencing, a read for us as well as for industrial.
Maybe Phil applications, we expect first engineering samples to be shipped to select prospective cross a month towards the ample easier.
Our ability to leverage all of disruptive offerings across both our business segments.
Illustrated by RMB 6000, and it'd be a 70000 sheets released were originally designed for automotive which are now targeting audio video.
In 2020, do we grow the sales of pardon me the 6000 for U S. B empower inspection application.
You'll be just statement pretty disparity for video conferencing application and leaky roof and classrooms.
Expect it to also expand into industrial applications.
We also continued to promote the V. Eight 7000 for audio video applications meeting rooms are increasing.
With multiple displays them cameras, we believe the recycling thousands.
For expenses.
I mean did you put pricing in industrial and medical imaging vivat, because neither uncompressed high resolution low reach afforded us some.
[noise] solution for video or flexible wiring with electromagnetic immunity.
This new approach will enable us to drastically reduce the size and scope of the Colorado go crazy on the pesos or on the wall to achieve 360 degree Longview.
So that is total market is down.
So for automotive revenues in 2022 from 'twenty to 'twenty, one was rebuilt by the spirit of RMB 8000, chipset, which provides in Mexico with Covid became a nasal data flow for infotainment and telematics you can find the orange.
You know Mercedes Benz C.
C E class molder, including electric vehicles, known as even more than that.
These partners being 7000 to meet the eight five compliant keeps it provides nonsymmetric high speed connectivity solution for advanced driver assistance systems known as <unk>.
And for sulfur define vehicles.
At the end of 'twenty to 'twenty two.
Now this is Japanese lies just part Bobby stated for its network of owned and they feel like they need me eight weeks specification.
Just Bob networks, including Toyota, Nissan Honda Mazda and installed base.
This period after Onvia 7000, keepsake box their rigorous testing for electromagnetic compatibility known as EMC, which is required by automotive Oems.
An important milestone for the integration of these chipsets into safety critical either.
So those are the most pressing them on May two the 87000 is gaining in Japan, We recently announced the torpedo Corporation, a Japanese local provider of a multiple electronic equipment component complete the civilization opex connectors and cables or was there would be a 7000 keeps it.
If you see if we showcased the benefits of our automotive IC.
Product suite and alongside a comprehensive.
Okay demonstrations from companies in the expanding ecosystem for the 7000 students and families.
Even though a lot of supplier they won't keeps Nielsen alert 60 degrees cutting products, which uses RMB 87000 disc lidar and split it for use in automotive and nonautomotive markets.
But let me come back Bowls V. Eight 7000 ships. It was the only hotel that is able to get the performance that we're looking for a.
From there, we'll facing part of the lighter through or you got down to the processing of copper the entirety or we are participating in several of the market always M. B for the use of our D. C 7006 <unk>.
We believe we will be announcing our first design win this year it.
It typically takes a few more years following automotive design wins before generating initial revenue.
Asia is projected to rise towards acute.
$8 billion in the coming years.
Given the growing number of central square card, which will require a greater number of high speed connectivity cheap like ours.
We recently completed the development of the phasing solution developed in partnership with Stoneridge, leading designer and manufacturer of highly engineered electrical and electronic medical system for the trucking industry. The next step is to promote the safety solution in the market.
Generating revenues.
Continue to monitor the current turbulent Joan political and economic environments.
Macro changes such as the increase in inflation rates. This trigger the rise of interest rates globally.
Our customer base.
Customers.
Why does it keep following the trends in the semiconductor industry may have seen.
And all of our business, we remain focused on what is in our control innovation, our go to market strategy and execution.
I'll now turn it over to the door Hogan and bring our CFO to review, our Q4 and full year 2022 financial results and provide our financial outlook.
Thank you.
Let's go through the fourth quarter and full year results and then provide our outlook for the first quarter and full year 2023.
Starting with old water 2022 results, we achieved record quarterly revenues of $23 $5 million, an increase of $2 $7 billion or.
13, 2% from the fourth quarter of 2021, and one 4% from Q Street Twenty-twenty too.
The other than anticipated revenues led by phone or video also contributed to an overall expected gross profit and gross margin.
Fourth quarter of 2022 gross profit was $16 million.
Up from $46 million in Q4, 2021.
Fourth quarter of 2022 gross margin exceeded our expectations and reached 68, 3% compared to last year's 71, 2% non-GAAP gross margin reached 69, 2% compared to 71, 5% in tearful 2021.
The change compared to Q4 last year reflects the auto show revenue coming from our automotive business, which incurred a lower gross margin than Gogo vision.
Operating expenses totaled $24 1 million compared.
Compared to $23 $4 million in Q4 2021.
Research and development accounted for approximately two thirds Q4, 2022 opex coming in at $16 5 million and included expenses attributed to the successful completion of all.
Our automotive degree 87000, swimming in Houston tape outs, as we prepare for mass production, but with potential customers.
G&A expenses was $7 7 million or nine 8% no listen the $8 $5 million in Q4, 2021 in Q4 2022 we benefited from renewal of the D&O insurance at the significantly reduced premiums.
Turning to net loss and adjusted EBITDA.
Q4, 2022 GAAP net loss was $7 $3 million.
Better than the $8 million loss recorded in Q4, 2021, and adjusted EBITDA. In Q4, 2022 was a loss of $4 $6 million better than the $7 million loss in Q4 2021.
Substantially this isn't guidance adjusted EBITDA loss in Q4 of 2022 was due to a combination of selling cycles.
The strength of the U S dollar, which positively impacted expenses paid in Israeli shekels made me full compensation to employees based in Israel.
The unexpected closure video revenues, which positively impacted our gross profit.
And our laser focus on in terms of efficiency and savings applause in opex.
GAAP loss per share for Q4, 42 was seven <unk> compared to an eight cents loss per share in Q4, 2021.
non-GAAP loss per share in Q4 dollars 22 was <unk> <unk> better than the six cents loss per share in Q4 last year.
Stock based compensation from the manga Frost was the main reason for the Delta between GAAP and non-GAAP loss per share.
Looking at it as soon as 2022.
Our total revenues exceeded the on and off our guidance increasing to a record of $97 million up.
$20 million or 28, 3% from 121.
Most business units or your video into technologies reached Nirvana, which were driven by a number of chips sold in Iowa.
Well your video revenues reached a record $74 $5 million up multiple 18, 7% from $62 8 million daus in 2021.
One way to all the customers demand was known to be on meaningful implications in the corporate education and medical verticals, India adjudication space, we are especially proud of the slowing down of public School district in wound, which <unk> discussed in his prepared remarks.
But it's the most revenues reached a record $16 2 million up 105% from $7 $9 million in 2021.
Primarily the expansion of our product into additional bench Cauldrons group.
Gross profit in 2022 reached $63 $4 million.
25, 3% from 2021, Dr. Vorst property. It was mainly driven by the increase in the number of chips sold and always be in Switzerland compared to 2021.
2022 gross margin was 69, 9% compared to 71, 6% last year 2022, non-GAAP gross margin was 77% compared to 71, 8% last year. The difference in the gross margin was mainly due to our product.
Mix as detailed earlier.
Looking at our gross margin by business segments Ultra video carries on margins.
Turning to gross margin you can build your video was 78, 4% up from 77, 9% in 2021.
But you're mostly gross margin increased to 37% up from 21, 2% in 2021, reflecting the margin improvement as volume ramps up.
Full year operating expenses were 91 $8 million compared to $77 6 million in 2021.
The increase was primarily due to an increase of $11 $3 million in research and development expenses as we invested in enhancing our product offering to address the opportunities. We see ahead in video and that's annuities. This included investment team that developed.
Most of the V. Six discrete 20 of a new U S B, Sweden, two extension products toward your opinion.
Most of these we invested in the richest feature set of the V. Eight seven thousands and in its preparation for mass production.
It also stopped at the development of the new <unk> 871, I'm going to choose to terminate this will further enhance the capabilities of the 87000.
Another reason for the change in Opex would be ours to salary and related expenses recorded due to the highly competitive employment market, we faced in 2022.
These studies were policy offset by the revaluation of the U S dollar compared to the new Israeli Shekel U S.
SG&A expenses increased in 2022, mainly due to the expansion of the sales and marketing teams to support the promotion of our new products suitable we recorded an increase in truckload and exhibition expenses as restrictions were lifted and the global market began to re.
Cover.
Finally, <unk> expenses for the full year of 220 to $1 8 million compared.
Compared to an income of $1 $1 billion for the full year 2021, and a decrease of $2 $9 million.
And over a period of change was primarily due to a 2022 four points for me in total financial expenses related to Forex. This will offset by interest income of $2 3 million. This compares to a 2021 Forex income of $1 3 billion total.
And then interest income of <unk> 3 million total.
Moving to net loss and adjusted EBITDA.
GAAP net loss for the full year 2022 was $27 7 million.
Compared to $26 $5 million in 2021, adjusted EBITDA for the 40 in 2022 was a loss of $14 9 million.
The $16 $1 million in 2021.
The improvement was mainly due to the revenue growth and gross profit, which was partially offset by the increase in 2022, Opex GAAP loss per share for 2022 was 28% compared to a loss per share for the June 2021 of 116 Doyle.
Khartoum basis as the net loss divided by 97 8 million shares and 53 million shares respectively.
non-GAAP loss per share for 2022 was 17% compared to 47 cents last year. This improvement reflects a combination of improved non-GAAP loss in 2022 and the increase in the number of all sure that I just mentioned.
Turning to 12 balance sheet, we ended 2022 with a strong balance sheet cash cash equivalents and short term deposits totaled $148 $4 million and we had no debt.
This compares to $152 9 million at the end of Q3 2022.
Working capital as we entered the year was 160 to $3 $7 million.
Compared to $166 $6 million at the end of Q3 2022.
The difference of $2 $9 billion is mainly due to the loss incurred during Q4.
Our inventory as of December 31st 2022, or 23 8 million an increase of one 9 million to a loss from the end of Q3 2022.
Approximately 60% of the inventory at the end of 2022 was attributed to finished goods. There are three primary reasons for this change.
Fifth we live in an inflationary environment and the value of inventories on hand.
Second as we have discussed previously to secure production capacity with vendors in the prior constrained supply environment and to also address our customers' demands we placed longer term project soldiers goods from these purchases continued to arrive in the fourth quarter. Furthermore, it.
Approximately 40% of the inventory is attributed to work in process to streamline the production of all finished goods.
Should this level of inventory is needed to meet the demands from our customers that we see ahead of us in 2023.
We anticipate significant groups most of revenues from 'twenty to 'twenty two to 2023 and accordingly, most of the increase inventory is related towards the most acute.
<unk> been testing method firms in the first half of 'twenty 23.
And considering production lead times, we expect inventories to remain at approximately this level in the first quarter of winter in this room.
Now I would like to provide our guidance for the first quarter of 'twenty.
We expect revenues in the range of 23, 6% to $23 8 million Daus, we expect sunpower customers wouldn't crude inventory during the constrained supply and government to consume their inventory during the first half a big year.
We expect Q1 gross margin to be the range of 63% to 63, 4%, reflecting the projected product mix to include our portion of revenues from our automotive units at.
Adjusted EBITDA loss in the third quarter is expected to be in the range of $6 five to $5 $9 million.
As of December 31, 2022 shares outstanding totaled $98 9 million, excluding approximately 1 million shares that are subject to forfeiture.
For the full year 2023, we expect revenues to range between 97 and $100 million, we expect further growth be a little bit steeper in the second half of CEO .
And we anticipate substantially more to move to revenue in 2023 compared to <unk> 22 up from 18% of our total annual revenues to a range of 27% to 29%. We expect gross margin to be in the range of 62% to 62, 7%.
Adjusted EBITDA is expected to be a loss in the range of $15 four to 13, six new doors, we remain on track to reach adjusted EBITDA breakeven by the end of 2023 which means that in 2024 the company should reach.
Cash flow profitability.
Now ill turn the call back to get it on for his closing remarks before opening the call for Q&A.
Thank you Dror.
We are proud of our latest semiconductors for four months in the fourth quarter and full year 2022.
We once again achieved notable progress in both what you'll be doing in automotive.
Looking into 'twenty two 'twenty three the level of uncertainty is currently higher than what we have seen for the past couple of quarters and we remain focused on those elements in our control.
We're expecting to secure new design wins, the audio video and our initial wins.
<unk> thousand in automotive.
The latest semiconductor will continue to innovate and leverage our core technologies across both of our business segments and deliver new disruptive products to address market needs. We.
We will continue to focus on the best opportunities, which we believe will drive sustainable growth and profitability for the company finally before opening the call for questions I want to thank all of our stakeholders, including of course, our employees for their ongoing commitment to the company.
David.
Operator, I would now like to open the call for questions.
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, let the handset before pressing the numbers. Please ask your question and allow.
And clear voice questions will be pulled in the order. They are received please standby while we poll for your questions.
The first question is from Tsuji Silva of Roth Capital. Please go ahead.
Hi, Gideon Hydra, congratulations on a strong 22 and the strong finish criteria.
Looking ahead, you guided gross margin lower.
Automotive I guess, increasing in the mix, where did significantly increase and one Q versus <unk> 22, I know the full year it'll be up strong to the lower 62% gross margin, but is that going to start in the first quarter, I guess and related to that what's the timing of V. H 7000 design win announcements would it be more second half 'twenty, two or three or could we see them in the first.
As well.
So let's start with the first well thank you so let's.
Let's start with the gross margin you're absolutely correct.
In the third quarter of 2023, we're going to see higher revenue than 2020 Q4 dollars 22.
As we guided here and there.
Given the fact that automotive is growing the automotive contribution revenue contribution is going to be a bit higher and we're going to see that the gross margin is going to be a bit slower in the first quarter of 'twenty three.
Going forward as we anticipate Iowa portion of all your video probably in the second half of the year. We expect this gross margin to be again, a bit higher in the second part of the year. In total you know we just gave you the guidance for the gross margin between 23 years old.
Between 22% from 62, 7%.
With respect to the second question just remind me what was the question sure.
Sure. It does 7000, you said you're going to see announcements in 2020 in 2023 I'm wondering if we can expect something in the earlier part of 'twenty, three or whether those announcements.
Most likely come in the second half of 'twenty.
Sure so.
We continue to work in progress with the work that we are now.
I've been with potential automotive customers, obviously the focus at the moment is to achieve design win in 2023.
So you Didnt mentioned in his prepared remarks, we're already involved in several occasions.
Most of the Oems and we believe that we'll be able to secure our first design wins. This year, if it's going to be in the first half or the second half I've seen don't know but.
<unk> profitability.
We see today that we're going to achieve these design wins in 2033.
I would like to add the high school Jim. Thanks for the question that of course, we don't have a full control of their data on design win, but regardless, whether the design win would be and what we can.
Certain dates in 2023 hour ready for production, which is actually when the revenues start to step in and it is not related to win the design win gazes achieved because we are doing the preparation to do so so actually the.
Although the deal because that was a real celebration is as the variables are we.
We are even though we're so low a flexibility and readiness for RTP.
Okay, great two more questions first of all on V. H 7000 will that give you an ASP uplift from the current VA 6000 that you're ramping.
Understand the contribution to revenue.
Right.
So.
It's a it's an interesting question as is today, if you remember we mentioned that Jeff as a reference.
You remember, we mentioned that today's investor call as we deploy about three ships per car and the average revenue per car is a big nose to 25 stores and that's opposed to give you order of magnitude of the Asp's would it be 6000.
When we look at the $7000 SBA 7000 revenue contribution I would say.
That could shift the asp's are going to be a bit lower.
Because if you remember our analysis, we assume an AFP between four to $5 per side, which means that the E. S. P per link or the revenue per lead supposed to range between eight to $10 I think the nice thing about the B 7000 is the difference in volume.
Cause while in the case of the P. A 6000.
Content per car is something like three to four chips in the case of the P. 8000, we can reach easily 210, and even knows to 10 chips per car.
Thank you for that very detailed info and last question for me and I'll go audio video it sounds like the non traditional segments are coming up and they'd be a meaningful percent of the revenues in in 'twenty three I mean, the the medical the industrial education.
So again, thanks to our first I think that's what we're seeing now it's a nice mix of revenue coming from different verticals.
This is what we see already.
Uh huh.
During 2022, and especially towards the end of 2022, we started to see the new products the newer product.
The U S b.
Power Extender and of course, the V S recalls and getting in new verticals.
You know just to give you a few examples are we just announced the Florida.
<unk> made that we won this is based on the 6000 by the way that was originally designed for automotive and if we talk about the <unk> thousand So restaurant just announced that they have a list of thousands of different products powered with abuse retards, it and by the way John .
The recent exhibitions are the RUC 2023 we so almost 80 different products powered with the <unk> thousand. So it gives you the power of this device.
Said that there is a time gap between the design the design win or the selection of our customers in this device until we see the volume in the bulk as you ramp up there is this.
Time window, where they design and qualify their product and only then we start to see the volumes to ramp up so I believe that towards the end of 2023, we will see a more significant contribution from <unk> III tells it all the time in the longer term definitely be history tells me if he is going to take the lead.
From the first inject second generation of our product.
Okay. Thank you thanks guys.
Yes.
The next question is from feedback.
<unk> of Bank of America. Please go ahead.
Hi, this is something else about that thanks for taking my question.
We'll look more into the inventory correction I was curious if you can quantify the impact the Q1 guide and I assume it's mostly the audio video side I'm curious about that because I believe your visibility into that.
Okay. Thanks give you back and could you talk again.
Let's talk about the inventory correction.
So.
So that's probably the thing that towards the end of the year.
It was it became clear to everyone what the level of inventories that were in crude.
Accrued across a lot of the.
Supply chain of our customers supply chain.
And then we realized that probably our customers are going to consume this inventory and correct the level of inventory.
First quarter.