Valens Semiconductor Ltd. Q1 2023 Earnings Call
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Ladies and gentlemen, thank you for starting standing by the call will begin shortly.
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Good morning, My name is the only and I will be your conference operator today at this time I would like to welcome everyone to have a lunch semiconductor's first quarter 2020 earnings conference call and webcast.
All participant lines have been placed in a listen only mode opening remarks by violence semiconductor management will be followed by a question and answer session. I will now turn the call over to adopt the Golden Vice President of Investor Relations for advanced semiconductor. Please go ahead.
Thank you and welcome everyone couple on Semiconductor's first quarter 2020 to be earnings call with me today are good investments Chief Executive Officer, and I'll have Ed Garden, Chief Financial Officer.
Earlier today, we issued a press release that is available on the Investor Relations section of our website under investors got Villa Dotcom.
As a reminder, today's earnings call May include forward, looking statements and projections, which do not guarantee future events or performance they.
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 March one 2023 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.
In the coming weeks, we will be in Tel Aviv and in London for Investor conferences and meetings. If you are interested in meeting with US. Please email me at investors at Valletta Dot com.
With that I will now turn the call over to Don.
We also achieved because I know if you can break into profitability metrics. We believe politically conductor is well positioned for long term growth in the market.
For similar reasons, we benefit from being your English, we started up either both audio visual and automotive and leverage over from Q4 excuse me people free across both our business segments.
Our continued investment in new product.
Most recently in Q1, 'twenty 'twenty suite, we taped out.
Because we tend to be cheaper.
Key milestone for market readiness of this.
Product.
There's language expansion of U S B three points too.
Demand for higher bandwidth for USB peripherals.
Adoption of the U S B three.
Ross vet.
Because in Poland.
Two to 320.
Connecting the mini revolt used to be 3.2 peripheral as required.
The conference theme.
That's right and maybe you put applications.
Does he asked it twice.
He is extremely differentiated compared to other activities.
Are you integrated zynga cheap, hence dramatically smaller less than half the power consumption.
The better of course.
And corporate video corporate he's brought to you all.
Social sneaking roles ranging from Hagen homes to small and large conference rooms.
To date the terms, we do meet me rooms, let's see do you need the high speed all you'll be doing quick math to support the hybrid working world.
And drive productivity within organizations.
The local video conferencing equipment market is projected to essentially doubled from the bulk segment.
2022 to more than 14 billion.
In 2029, or 10, 11, 12% trigger according to research firm Fortunately insights the industrial market represents another important vertical Portland ethnical industrial in addition, today's continuously growing need to compute units with display.
We're also seeing an increase in demand to connect people to various types of potential such as camaraderie hung.
Congress of infection with faulty pumps and industrial application.
Machine vision, one example, but shouldn't be James industrial application.
You need becoming Dolby Miscued quality assurance work connected cameras, replacing humans to visually inspecting identified 40 product.
And it's going to keep it you can do your industrial environment challenging demand from distribution off market and multiple data in a secure and efficient manner over a lot of resources required everyone.
You can see the technology.
The industrial camera leveraging.
Three points to interface.
Effectively delivered the highest peaks and dips of lost sight imaging.
This is where our three six to 322.
To play.
Perfect. He designed to connect multiple extended used to be 3.2 peripherals like high resolution Coverups.
The global industrial cover all market was soft in the billions of dollars in 2021 and use it to make it to grow at a CAGR of 5% to cross the $20 billion Mark but when he says he won high residual she used to be $3 do come along are also being used in medical.
Yeah.
320 customers will be able to extend content overseas.
The low close to people he says up to 100 meters or 328 feet.
One example is robotics assisted surgery with training services before the procedure and recall because it all still holds down without breaking the steroid field is the positive trend of securely and accurately be done from a distance industrial and medical machine vision bows.
Leever trusted and precise operations, where she still has more data to be transferred Hollywood Studios and increased bandwidth.
At the same time fossil communication interfaces must provide the highest dose of reliability safety and electromagnetic compatibility known as <unk>.
Didn't you.
The three 'twenty like our other offerings provide just that.
Conversation with prospective customers and support the V F.
What do you what do you need to progress and we expect relatively quick adoption by them.
Anticipate first engineering samples to be shipped by the fourth quarter of this year and we believe our customers will introduce the new products and bedding.
During the second half 'twenty 'twenty four.
We also continued to gain traction in audio video will become her videoporn Frisking application, which we believe would be one of the fastest growth area for audio video equipment defeat a 70000, our chips are suddenly originally designed for automotive and the new Essex has reached Wednesday position us to benefit.
From this growing need and the videoconferencing markets.
Turning to automotive.
Our 6000 chips used in a wide range opex at this baseball business being sold to debate, but citizens stated recently is they are fully focused on battery electric mobility for the future as it works towards three sustainable mobility and we are proud to be part of this initiative is our <unk>.
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Also in their EV Malden.
It's always going to need to promote the truckload.
He states in solution full fleets and driver and has expanded their collaboration with partners to do so in Q2, we expect to report initial sales of distributions to stoneridge for the fleet's operational customers, who we'd be doing fleetwide evaluations.
We expect revenues to ramp up in 'twenty 'twenty four.
Turning to the middle.
Probably not see Mexico automotive chips Assembly, our V. Eight seven thousands which enabled software defined to be killed by providing the required from us against high performance connectivity for advanced driver assistance Houston known as Adas.
Our teams continue to promote over offerings for automotive.
Conversely, if the ultrasonics trade show in Detroit, where we are showcasing the benefits of the V. H 7000 product suites.
I don't think companies supporting breaking need be eighth April Houston.
The speeds, we're participating with several automotive Oems.
Along with some degree of 7000 to provide services to compute unique high performance connectivity are moving along well and we remain on track to announce our first design wins this year as a reminder.
It typically takes a few more years following automotive design wins before generating initial revenues.
Well this will contribute directly to current macroeconomic headwinds.
Rising inflation and interest rates present, a new era unknown for decades, and the world is learning to adjust to this new reality.
One of the implications is the slower than expected inventory digestion and purchasing of material across the semiconductor supply chain. These gateways are driving some near term uncertainty in the market as far as the new career.
Really three.
As we keep following into the trends in the semiconductor industry that may impact our business, we remain stuck with what you've seen.
In our controller technology breakthrough innovation, our go to market strategy and execution, including our goal of reaching adjusted EBITDA breakeven towards the end of 2023.
I will now turn it over to Gurgle, Jim Burke, our CFO , who will review our Q1 'twenty two 'twenty three financial results and provide our financial outlook.
Starting with our first quarter 2023 results, we achieved record quarterly revenues of $23 $9 million.
An increase of $2 $3 million or pinpoint 5% from the third quarter of 2022, and an increase of one 7% from Q4 2022.
Product mix drove an overall I own unexpected gross profit and gross margin.
First quarter 2023 gross profit was $15 $8 million slightly up from $15 4 million in Q1 2022.
First quarter 2023, gross margin exceeded our expectations and reached 66, 1% compared to 71, 4% in Q1 2022, non-GAAP gross margin reached 67, 2% compared to 72, 1% in Q1, 2022 didn't change compared to Q1.
Last year reflects a higher share of revenue coming from our automotive business, which incurred a lower gross margin than our audio video business.
R&D expenses in Q1, 2023 totaled $22 9 million.
Compared to $222 6 million in Q1 2022.
Research and development accounted for 61% of the Q1 2023, opex coming in at $14 million similar to the $14 1 billion in Q1 2022.
Q1, 'twenty, three and 2022 R&D investments included expenses attributed to tape outs of new video products last year. It was the tape out of the 3000 and this year. It is the tape out of our new chipset. The V. S 6300, 20 SG&A expenses.
Were $8 9 million compared to $8 $5 million in Q1 2022.
Turning to net loss and adjusted EBITDA.
Q1, 2023 GAAP net loss was $5 $4 million versus the $5 1 million net loss recorded in Q1 2022.
And adjusted EBITDA in Q1, 2023 was a loss of $2 9 million.
Then the $4 1 million loss in Q1, 2022.
This substantially better than guided adjusted EBITDA loss in Q1, 'twenty three was mainly due to a combination of several factors.
The better than anticipated gross margin.
The next six months, mainly during Q3.
GAAP loss per share for Q1, 'twenty three was five times similar to Q1 'twenty two.
non-GAAP loss per share in Q1, 'twenty three or three cents. This isn't the first the non-GAAP loss per share in Q1 last year.
Removing the stock based compensation of $3 $8 million from the non-GAAP loss offsetting it by the $1 5 million change in fair value of the full feature should lead the main reason for the delta between GAAP and non-GAAP loss per share.
Turning to our balance sheet, we ended up Q1 to 123 with a strong balance sheet, which especially in today's macro environment is a highly important taxes cash cash equivalents and short term deposits totaled $139 $7 million and we had no debt. This compares to $148.
$4 million at the end of Q4 2022.
Our working capital as we ended the quarter was $161 4 million.
Compared to $163 7 million.
And a few for 2022.
The difference of $2 $3 million is mainly related to the adjusted EBITDA loss incurred during Q1, 'twenty, three which was offset by close to $1 million getting from stock option exercises as expected our inventory as of March 31st 2023.
Was $23 6 million.
Slightly lower than the $23 8 million at the end of Q4 2022, we expect our inventory to go down in Q2 2023.
This inventory level adjustment is affected by a few factors.
First the macro environment is negatively impacting customer demand and sales, especially dose imperative for initiation of new projects. This is leading to inventory digestion is taking longer than many anticipated second IRA interest rates are driving the cost of inventory.
Stories.
So customers are more cautious in placing orders and stocking up their warehouses with new inventory.
So lead times for materials appeared to be shortening in the semiconductor industry as a result companies, including ourselves are being more diligent about your inventory and utilization.
Now I would like to provide our guidance for the second quarter was 123, we expect revenues in the range of $23 nine to $24 $1 million we.
Q2, both small juice to be in the range of 61% to 62%, reflecting the projected product mix to include a higher portion of revenues from our automotive business.
Adjusted EBITDA loss in the second quarter is expected to be in the range of 4.3 to $3 $7 million.
As of March 31st 2023 shares outstanding totaled $101 5 million, excluding the schools approximately 1 billion should that are subject to forfeiture.
For the full year 2023, our guidance remains unchanged, we keep following the trends in the semiconductor industry and are closely monitoring our bookings backlog and the pace of inventory digestion.
In addition, starting Q3, our business model assumes that during the second half of 2023, the Israeli shouldn't we be stronger versus the U S. Dollar all expected to impact our expenses paid in Israeli shekels.
We expect 2023 revenues to range between 97 and $100 million, while we're not currently providing specific guidance for Q3 revenue. We are now expecting them to be lower than Q2.
It was 123 gross margins are expected to be in a range of 62% to 62, 7%.
EBITDA for the full year is expected to be a loss in the range of $15 four to $13 $6 million, we remain on track to reach adjusted EBITDA breakeven by the end of 2023 which means that in 2020 full we expect the company will reach cash flow profitability.
Now I'll turn the call back to Gideon for his closing remarks before opening the call for Q&A.
Thank you Dror.
In Q1, 2023.
Again accomplished notable progress and we believe we will continue to progress into another successful quarter in Q2.
Looking at the remainder of 2023, we expect to secure new design wins, including a recognition awards for the say the 87000 by automotive Oems.
And the level of consistency that you're starting to tie up than what we have seen through the past couple of quarters. We remain focused on those and then that's in our control.
Semiconductor, we continue to innovate leverage our technology across all of our business segments in audio video and automotive and believer new disruptive products to address market needs. We will continue to focus on executing our long term growth strategy.
Driving financial discipline, and operational excellence and are emphasizing opportunities, which we believe will deliver value to all stakeholders.
Finally before opening the call for questions I want to thank all of our stakeholders, including government and collectibles and talented team of employees around the world for their dedication and execution towards continued success 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.
We'll 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 once the handset before pressing the numbers. Please ask your question in a loud and clear voice.
<unk> will be pulled in the order. They are received please standby while we poll for your questions.
The first question is from Rick Schafer of Oppenheimer. Please go ahead.
Thanks, you guys and congrats on a solid quarter.
Environment out there.
If I could.
You guys were very clearly.
He has held your 'twenty three outlook unchanged.
I guess my question is really just at a high level, how do you reconcile.
You guys are seeing and your ability to hold your <unk> your outlook for the full year.
You can see for instance in some of your peers talking about a weaker second half in auto.
Is it as simple as balanced you know olympus share and content gains or not at all that or are there. Some other moving parts in there.
Yeah.
Hi, Rick.
Thank you for the question you asked many questions in one question, but let's let's start with the fact that you know today, we provide our guidance for Q2 and for the full year 2023.
But since we assume that the Q3 revenues will be lower than the Q2 numbers. We shared just a projection today with you guys.
You know.
Today, we see the market dynamics and companies are more cautious with respect to their inventory levels.
And this is the reason why we mentioned again and again that we see slower than anticipated our inventory digestion.
We also see that and we recently received some request for push outs from Q3. That's the reason why we provide these indication to you today.
I think that are you asking about TSMC, it's it's really change between the different markets and we also indicated this in our prepared remarks, we mentioned that in automotive. We see is the resilience that the market is resilient and the numbers are strong as anticipated.
And the softness that we see today is more than the old your biggest side that is more correlated to the macro economics all in all at this point in time are we reiterate our twice in three or four year guidance.
And.
You know I think in that would be my last sentence I think that it's also fair to say that 2023 will not be or is not a representative of typical year and definitely not the just the behavior of a quarter to quarter our growth patterns between the quarters.
So.
Again, I think that if we look on the general trends that we've seen in Atlanta for the medium to longer term I think that the they remain intact and in the long run we will not be affected from what we see in the market today.
Yeah.
And if I could ask a follow up thanks for all that color just on the program.
Can you give any more specifics on.
How channel inventory compares with normal or maybe give you a sense.
And how much you're under shipping consumption at the moment do you have a sense of that thanks.
So it's it's a it's a question that we are trying to monitor it it's something that we're trying to monitor.
All the time and obviously the behavior of the inventory across the channels is something that is different from one geography to reorder a there are some geographies, where we see a much faster consumption and much faster inventory digestion in other geographies.
It's a bit more problematic or slower than anticipated.
I think that two days indication that we received from the market is that they're not going to see the same pace of consumption like we've.
We've seen in the past in 2022.
Are they they tell us that it's a temporary issue they see it in Q3, they used to leave that in Q4, then we'd be back to normal.
Okay. Thanks for all the color.
The next question is from <unk> Silva of Roth Capital. Please go ahead.
In hydro congratulations on the progress here in a tough environment.
Can you talk about what the revenues for the quarter were a V versus auto and if you can't provide that at all can you talk about the ATP revenue in particular, if that has is that mostly U S. B today or other standards and understand the opportunity for the U S. B three two is that perhaps.
Okay. So first thanks for the question. So just so the first thing is I think that you know that.
We provide detailed P&L by segments.
Once a year.
But to.
So to your question you know if you remember our March guidance for the full year 2023 at that point, we indicated that we expect automotive to contribute between 27% to 29% and if I look now on the rest of the year, you know Q1, and the rest of the year I think that we're on track to meet these targets.
So that's with respect to our focused because the question that you had with respect to the automotive revenues today. It's all based on the a V. A 6000, which is the symmetric solution or consideration protocol to merging the symmetric solution.
And as you'll probably remember most of the lion's share of the revenues that we have today from GS 6000 is coming from Vanessa Best project.
Okay, Great and then for the VA 7000 evaluations.
The oem's doubling that congrats on that are you seeing any impact to the customer's schedule and plans are tracking versus what you expected based on macro uncertainty at this point or are those unimpeded relative to you know its interesting with inventories and so forth.
Okay.
Oh I see.
Thanks for the question and we don't see a significant impact on new models and UAS developments of the company.
Yet of course the.
I'll go through in the market.
Is that the macro economy.
Hey, everyone.
But not in the sense of how eager they are to have new model, having new technology, and we don't see the impact on their R&D development at the moment.
Okay, great. Thanks, guys.
Yeah.
The next question is from Brian Dobson of Sheridan. Please go ahead.
Hi, good morning, Thanks for taking my question.
So what is your.
In your automotive OEM partners.
Tell me that they're seeing or call. It the back half of this year, and perhaps a little bit longer term and.
Terms of sensor adoption and putting new sensors on cars that outlook changed at all.
Uh huh.
So let's thanks for the question, let's distinguish between the business that we have to go with the 6000 and the.
And the business and the outlook for the VA 7000. This is the new device that Oh, we have for the Adas application. So when we talk about a 6000 as mentioned before today, we are deployed in most of those cars, including their EV cars.
And in a way.
Gross profit from the growth rate of the VA 6000 is driven by the growth rates of Mercedes Benz cars.
And you know I think that is.
Based on what we recently from this has been seen to earning calls they don't see any change between the first quarter and the rest of the year, so more or less is going to be flat sales, which means for us.
We understand that the pattern of consumption with respect to this product.
Talking about the SBA 7000, so I suddenly remembered that at this point in time, we are engaged in.
In silver beads by some Oems.
Today I can tell you that these beads are.
Yes, According to plan and we're on track to announce our initial design wins this year as we communicated in the past.
Okay. Thank you very much.
Okay.
If there are any additional questions. Please press star one.
You wish to cancel your request please press star two.
Standby, while we poll for more questions.
Okay.
There are no further questions at this time, Mr. Bernstein would you like to make your concluding statement yeah I wanted to say to everyone for joining today have a great day I hope you enjoyed it.
Have a good grasp of the day bye bye.
Thank you. This concludes the Valens semiconductor first quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.
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