Q2 2023 Valens Semiconductor Ltd Earnings Call
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[noise], ladies and gentlemen, thank you for standing by the call will begin shortly.
Speaker 2: Ladies and gentlemen, thank you for standing by. The call will begin shortly.
Speaker 1: The.
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Good morning, My name is yelling and I will be your conference operator today.
Speaker 2: Good morning. My name is Yoning and I will be your conference operator today. At this time, I would like to welcome everyone to Valenz, Semiconductor's second quarter, 2023, Earnings Conference Call and Webcast. All participant lines have been placed in the Listen Only mode. Opening remarks by Valenz, Semiconductor, Management will be followed by a question and answer session.
This time I would like to welcome everyone to Valens semiconductors second quarter 2023 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.
Speaker 2: I will now turn the call over to Daphne Golden, vice president of investor relations for Valenz semiconductor. Please go ahead.
I will now turn the call over to adopt the Golden Vice President of Investor Relations for model N. Semiconductor. Please go ahead.
Speaker 3: Thank you and welcome everyone to Valencia Me Conductor's second quarter, 223 earnings.
Thank you and welcome everyone to the lunch Semiconductor's second quarter 2023 earnings call with me today are Gideon Bensley, Chief Executive Officer, and Paul has embarked chief financial Officer.
Speaker 3: We meet today, our Gideon rents, the type executive officer, and the role has been brought to finance.
Speaker 3: Earlier today, we should oppressorly set as available on the Investor Relations section of our website under investors.valence.com.
Earlier today, we issued a press release that is available on the Investor Relations section of our website under investors that Valletta Dot com.
As a reminder, today's earnings call May include forward, looking statements and projections, which do not guarantee future events or performance.
Speaker 3: As a reminder, today's earnings call may include forward-looking statements and projections which do not guarantee future events will perform.
Speaker 3: These segments are subject to the safe harbor language in today's press.
These statements are subject to the Safe Harbor language in today's press release.
Speaker 3: Please refer through our annual report on Form 20F, rather than SEC on March 1, 2023, for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.
Please refer to our annual report on form 20-F filed with the SEC on March 1st 2023 for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.
Speaker 3: We do not undertake any duty to advise or update such statements to select new information for secret events or changes in strategy.
We do not undertake any duty to revise or update such statements to reflect new information subsequent events or changes in strategy.
Speaker 3: 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 define reconciliation of these metrics within our earnings.
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.
Speaker 3: In the cutting weeks, we will be conducting investor conferences in meeting virtually and in Chicago and to the
In the coming weeks, we will be conducting investor conferences, and meeting virtually and in Chicago and could it be.
Speaker 3: If you're interested in meeting with us, please email me at investurantadvalence.com. With that, I will now turn the call over to do them. Thanks, stop stop and thank you all for joining our Q22023 poll.
If you're interested in meeting with US please email.
Email me at investments at Valencia Dot Com.
That I will now turn the call over to do dumb things.
And thank you all for joining our Q2 2023 quarters.
Speaker 4: In Q2 2023, the Latin Conductor Revenue reached a record of $24.2 million.
In Q2, 'twenty two 'twenty three.
Conductor revenue reached a record $44 $2 million.
Speaker 4: We've also achieved better than anticipated for sustainability metrics on our journey towards adjusted and data driven by the end of this year.
We also want cheap it doesn't like to see.
Okay.
On our journey towards adjusted EBITDA breakeven by the end of this year.
Speaker 4: It continued to make progress, executing again our long-term growth opportunities as well.
We continue to make progress.
Our long term growth opportunities as well.
Speaker 5: As we saw in the poll, the boundaries of connectivity we saw advanced operating in the Navy over customers to bring to market new, destructive products to existing and untapped small.
As we send a push the boundaries of productivity. We saw robust operate and then maybe all of our customers to bring to market new construction.
So it's an untapped market.
Speaker 4: We continue to track the current backward control.
We continue to address the current macroeconomics.
Speaker 4: deriving inflation, interest rates, and it's lower than anticipated even toward the justice.
The rising inflation interest rates and slower than anticipated inventory.
So we think gesture.
Speaker 4: While these trains are driving some near-term uncertainty, long-term trains for the same environment scheme.
While these trends are driving some near term uncertainty long term choice for the semiconductor industry.
We've made.
Speaker 5: I will start our second course of business discussion with our audio video bit.
Always thought our second corporate business discussion, so obviously good business.
Speaker 4: It all the major markets is highly correlated to macroeconomic trends.
And also we can market is highly correlated to macroeconomic right.
Speaker 4: We can now see the occasion for a recovery of the MAPAQ, which we believe would stop through a relatively slow pace toward the end of 2023 and through the first stop of 2024 and gain momentum into the second half of 2024.
We can now see indication for a recovery of the market, which we believe would stop eating food.
No.
We used 23 and through the first half.
T sport in Gainesville make two into the second half of 'twenty 'twenty four.
Speaker 4: We have identified that one of the main contributors for the expected improvements is the increasing demand for hyper-former USB-3 Pro. It's such a lengthening conductor is driving the adoption of the USB 3.2 stand-up, locally across the country.
We are very busy private swap their main contributors.
Okay.
Leasing demand for hyper focused UHD peripheral is such a new cervical.
Semiconductor driving adoption.
Okay.
Across both groups.
Speaker 4: The Latin conductors' long-term vision is to accelerate the transformation of their digital processing market through some expensive products for all of you.
But listen conduct a long term vision for formation, Okay, you can bring to the market.
<unk> expenses for the fourth.
Yes.
Speaker 5: Our latest chipset, the ZS62320, is the same thing we're shooting the market for extension of high-performance USB. The tablet is growing market and can extend USB 3.2 per repose at up to 100 meters or 320.
Our leases.
Can you just square.
The first thing to keep in the market or extension of high performance.
Yeah.
Market.
You see people you Deepa, we wrote off 200 meters or 320.
Yeah.
Speaker 4: We recently received the sales fountain of the DSF320 from the successful paper, Executive 2021-2023, and will remain on track to ship the first engineering sample to selected customers that you bought of this year. We believe the revenues from the new product will start dropping us during the second half of 2024 as our customers will introduce the new products and then you will be.
So sponsors.
From the successful people executing 123.
We remain on track.
Can you hear me properly with selected customers for Q4.
We believe this represents one of the new product we stopped dropping.
The second half of FY 'twenty four.
Customers, we introduced a new product.
Yeah.
Speaker 5: The V-axis 320 feature is ideal for connecting the many remote to SB3.2 per repress required in digital conferencing in that state and medical applications. Intervisifications present a large mark.
Yes.
Okay.
Thanks for connecting and maybe it was mostly a Q3 two peripheral require E videoconferencing.
Reputation.
The application presented a lot of markets.
Speaker 5: Multi-cover of video quality is one of the fastest growing areas for all your video equipment in the coming years.
Chicago is one of the fastest growing areas for me.
Coming years, it's mobile and video conferencing applications increasingly require unified Goldman area, which are flexible and high performance connectivity solutions.
Speaker 4: As modern video conference in applications is increasingly required, a unified meeting room experience, with flexible institutions and high performance for the public solution.
Speaker 5: Many leading all your video and piece of manufacturing are investing in the development of advanced solutions for small medium and large medium medium.
Maybe I'll just give you a brief.
Ladies picture and are investing in the development.
And also for small medium and large meeting this.
Speaker 4: The video conference in market is projected to essentially double from about $7 billion in 2022 to more than $14 billion in 2029 or 11% to 20% figure according to research there for the business inside.
The video conferencing market is projected to essentially doubled from about.
One place to the more than $14 billion in 2029.
Never perspective.
CAGR According to research the airports and business insights.
Speaker 4: We recently demonstrated how another one of our products, the NEA 7000 chips at the end of the year, it was originally designed for automobiles can be leveraged from multi-camera video conferencing application.
We recently demonstrated how we love the Waterpark.
Thousands cheap systemically.
Really designed for what the market can be leverage almost become a video conferencing applications.
Speaker 5: As in Pokemon International in June , we announced our collaboration with ICH Technology, and it is AI image processing that's farthest than we conduct to the entire company.
Are we going to mention that in June we announced a record operation with ICT.
E E AI image processing Fokker semiconductor design.
Speaker 5: The two companies are working together to develop a flexible, efficient, and high performance multi-camera video conferencing solution that leverages our VA7000 HPSET family and iTouch Technologies AI imaging system on chip known as ESCOS.
The two companies are working together.
Fishing is paper.
Would it be Congress videoconferencing solution.
Richard RMB 87000.
And I teach technology AI imaging Tuesday on cheap node at East Coast.
Those deploy the solution.
Speaker 4: level of disclowing the solution will benefit from their ability to properly entire room and enhance the in-room and remote of independence.
Yeah.
So copper based firewall.
You can go to multiple things.
Okay.
Speaker 4: Another benefit of the tools to look at is ability to use more cameras that consume less power, it reduced cost.
Another benefit.
Yes.
Do you want to cover outlets consume less power it reduced school.
Speaker 4: During the many discussions held with customers about the VES, 5320, and the VA7000 chipset, it was clear that was using innovative solutions, but let it be that the conductor is once again at the forefront of the...
There are many discussions with customers about that.
Tracy.
7000 people.
Music using a baking solution, but less semi conductor is once again at the forefront of industry.
So at least towards the market.
Speaker 4: turning to automotive. First, our symmetrical automotive chips family, the V86 valve.
So our domestic automotive chips.
<unk>.
Speaker 5: 2023 is the first year in which our V86 thousand ships have been broadly deployed in Mercedes Benz at C and E-Class models, including the electric vehicle and the model, the ECU series.
What are you supposed to be.
You're in which over it.
Yes.
Please be broadly deployed in the service business.
The model.
Including electric vehicles, you can model.
Speaker 5: As such, our annual 7th 2023 expected to increase is in that of being deployed in more models in prior year.
As such our annual.
A sudden twenty-twenty suite.
The increase is there.
That will be more.
More and more business.
Yes.
Speaker 4: We expect to stay the same car model as going forward. And such, beyond this year, the expected growth rate for our VH6000 chipsets should be correlated to the second-spot and your call growth rate.
Do you expect to stay the same car models going forward is such deals this year.
The growth rates for our Dubuque thousands cheesecakes.
Correlated to passenger.
Passenger called brokerage.
Speaker 4: In Q2, we recorded initial sales of the tracks of trailer, relative safety to the truck, we jointly developed with storage for the fleet operator customers. These customers are in the process of conducting free production expensive live-on-run evaluation. We expect this will result in ramping sales during their second half of 2024.
In Q2, we recorded initial standard truck turns out Rugby's basically said, okay. We jointly developed with strong week for us.
Fleet operator customers. These customers are in the process of conducting pre production expenses life on relative valuation. We expect this will result in revenue.
And the second half of 'twenty 'twenty four.
Maybe you could get 7000 or eight.
Finally, most of Mexico for multi family for safety applications known as Adas.
There is a growing demand from automotive Oems for Asia, including vision based systems, which are key enablers for Asia.
Excuse me brief perspective, so for applications, such as the wrong view popping diffused and reserve.
Yes.
Perfect for.
And over the past quarter, we grew.
The market is considerably larger.
<unk> thousand in mass production.
The ongoing discussion with the Oems looking at potentially selecting debuted 7000.
Just a coincidence.
Right on track for our Frac design wins this year.
As a reminder.
Thanks.
Here is what do we got the marquee design win or getting everything ready.
To close out my opening remarks, I want to spend a moment discussing the plan we announced in June we prove that he should be our operations.
In light of her focus on reaching profitability, while maintaining our ability to reach all lucky cooking business goes we have raised over RMB and development infrastructure, even more efficient manner and streamlined our development platform.
Recently says that to operate a stronger and leaner organization.
Many people believe that those stakeholders.
Bill will provide more detail.
Prepared remarks.
Now turning to Augusta, Georgia.
Yeah.
To review, our Q2, FY 'twenty financial results and provide our financial outlook.
Thank you Peter.
Start with the second quarter results and then provide our outlook for the third quarter and the previously mentioned.
Starting with our second quarter results, we achieved record quarterly revenues of $44 2 million, an increase of $1 7 million or <unk>.
Seven 5% from the second quarter of 2022, and an increase of one 2% from Q1.
Second quarter 2023, gross profit was $14 9 million with a gross margin of 61, 8% compared to $15 8 million or 72% gross margin in Q2 2022.
non-GAAP gross margin reached 63, 1% compared to 71% in Q2.
The change compared to Q2 last year was mainly driven by a substantially I was sure to move to as we doubled the portion of its revenue coming from this business, which incurs more gross margin than our ODP business Bill.
Before turning to Opex as Deno stated during the second quarter, we have internally all the time.
To improve efficiency.
Annual savings of this plan is expected to be $90 million as previously announced.
The additional charge into Q2, specifically was $250000 coming mainly from R&D.
Operating expenses in Q2, two and 'twenty three totaled $20 1 billion below down from $23 7 million in Q2 2022.
Research and development accounted for approximately 60% of Q2, 2023 opex I mean, it was $2 million NOLA and $49 million in Q2, 2022, mainly due to purchases of IP in the amount of $2 million in Q2, 2022.
We also benefited from the strong he was doing all of this it is really shifting.
SG&A expenses were $8 million down from $88 million in Q2, 'twenty, two mainly due to $6 million reduction in D&O insurance premiums as windows attitudes Forex related books.
Turning to net loss and adjusted EBITDA.
Q2, 'twenty plenty sweet GAAP net loss was $4 6 million.
Substantially better than the $10 million net loss recorded in Q2 42, and adjusted EBITDA in Q2 complete suite was a loss of $8 million also significantly better than the $4 5 million to a loss in Q2 2022.
That's what they've guided adjusted EBITDA loss in Q2, 'twenty suite was mainly due to two factors.
Rescheduling of certain IP purchases for our new products, we are developing which is no plans for Cuba with one thing to sweep.
The strength was borne out in Q2 and 23 compares with the company's estimates these as positive impact on expenses paid in Israeli shekels made meaningful compensation to employees based in Israel.
GAAP loss per share for Q2, 2003, five cents compared to <unk> 10 in Q2 2022.
non-GAAP earnings per share reached breakeven in Q2, 2023, compared with a loss per share of <unk> <unk> in Q2 last year.
Excluding the stock based compensation of $4 million with the main reason for the delta between GAAP loss per share.
non-GAAP earnings per share breakeven in Q2 2003.
Turning to our balance sheet.
We ended Q2, 'twenty suite with a strong balance sheet, which is a clear indication for the current and future strength of the company.
We expect to reach adjusted EBITDA breakeven towards the end of <unk>.
<unk> cash position provides us with operational flexibility to grow our business cash cash equivalents and short term deposits totaled 138 million and we had notebook.
This compares to $139 7 million.
The end of Q1 'twenty three.
Q2, we generated $4 million from operating activities compared to $4 $3 million cash use in Q2 2022.
Q2, 'twenty thing it was the first quarter in which the company's cash from operating activities was positive.
Thanks.
While in the short term, we might face some quarters with negative cash flow from operating activities. All in all we expect that the improvements in output at the beauty, which support the positive trend of cash generation on an annual basis.
Our working capital as we ended the quarter was $168 million compared to 161 told me rollout at the end of Q1 continues to meet.
This difference is mainly triggered by the purchase of fixed assets during Q2 basically.
As expected our inventory balance as of June 32000 suite will substantially longer than at the end of smartphones in history, reaching $19 million down from $23 6 million bottles.
This approximately 20% reduction reflects the fact that the company is returning to a more balanced supply demand inventory management.
Out of our inventory planning, we assume shorter lead times from old windows, yet, we have not yet seen them formally announced a change in the lead times policies.
While we expect a continuous improvement in our inventory bounds, we are still seeing our inventory better.
By a few factors that have been evident in the past couple of quarters through today.
The macro environment is still negatively impacting our customer demand and sales mix.
Leading to inventory digestion is taking longer than many of our originally anticipated.
The recovery to continue.
With the N type of flu.
Which implies a modest pace of recovery in the short term settings.
Interest rates are driving the cost of inventories up which means that customers are more cautious in placing orders and stocking up their warehouses.
So some of these points, we expect someone is going to lead to continuing to go down in Q3 with industry.
Our pace.
Now I would like to provide a little guidance.
Third quarter recent history, we reaffirm our expectation for revenues in the range of 14 to $14 2 million bottles.
As we have shared with you previously we anticipate that the third quarter will be the lowest quarter of the year.
We expect Q3 gross margins to be in the range of 87, 6% to 58%, reflecting on one hand, you projected product mix with a higher portion of your video revenues, which you took higher gross margins and on the auto and the negative impact of fixed operation expenses.
On the lower Q3 <unk> revenues.
Adjusted EBITDA loss in the third quarter is expected to be in the range of plus two to $11 9 million.
As of June 32003 shares outstanding totaled $101 8 million excluding of course, approximately 1 million shares subject to full feature.
So the full year when phase III, we are reaffirming but revenues are expected to range between $83 eight and $84 $2 million with most of revenues are expected to approximate 30%.
Thanks.
Full year gross margins are now expected to be in the range of 62, 2% to 62, 5%.
We are improving our adjusted EBITDA guidance for the full year and it is now expected to be a loss in the range of $62 million to $66 million, we reiterate our expectation to reach adjusted EBITDA breakeven by the end of 'twenty, three which means that in 2024 do you expect to be.
Cash flow positive.
I'll turn the call back to Jim for his closing remarks before opening the call Q&A.
Thank you Dror in face of the ongoing macro economy and semiconductor sector specific headwinds continued to impact most of our end markets. We remain focused on elements in our control and our progress towards profitability.
The main targets in the second half of the year are fast to secure design wins from automotive Oems for our 7000 keeps us firmly.
Is a major milestone we all have been marching towards second to further enhance our profitability.
Business in southern Europe .
Our strong balance sheet provides the foundation for us to execute our long term growth strategy and pursue promising opportunities that will deliver value for all our stakeholders.
I would like to close by thanking our employees for their commitment and ongoing dedication to the company's success and for the support of all our stakeholders 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.
Wish to cancel your request. Please press star two if you are using speaker equipment timing with the handset before pressing the numbers. Please ask your question in a loud and clear voice no questions will be pulled in the order. They are a seat. Please standby while we poll for your questions.
The first question is from Rick Schafer of Oppenheimer. Please go ahead.
Okay.
Good morning, good afternoon.
Nice job managing through a pretty tough macro.
I had two questions if I could the first is just a little more color on channel inventory, particularly it sounds like it's all pretty much in pro AP drove I think I heard I heard your comment correctly.
How much do you think you're under shipping consumption.
And when do you expect the channel to normal lives.
But I think you did mention something about it on the call, but I think I missed it.
Yeah.
Eric which area again and thanks for the question. So yes, I think that your observation is correct I think that we.
We see most of the impact of the slower than anticipated inventory digestion.
Figure business and in a way I think that the disappointing time, we see I'll call. It three phases.
First one is the one the.
The culture that we're now in the middle of the quarter AR I believe that's all going.
Going to bottom in this quarter.
Oh, you know according to the guidance. We just provided we expect to see on a normal what have you done anything about your revenue was 11 of 14, because all this quarter.
Second.
The lizards, we're starting to see some improvement in the fourth quarter, we are starting to see better demand from our customers we see.
More inventory digestion from all our customers along would be the channels.
And so I believe that we are according to what we are hearing from our customers are in all the discussions that we have with them that we expect to see saw free bump into the close off hopefully 'twenty School and then as we mentioned in our prepared remarks, we believe that things.
We're going to see that this momentum will continue.
Maybe gain momentum into the second half of a point 24.
Okay. Thanks for that color and maybe just for my second question I'm too.
You mentioned that you're on track.
Instead of them.
Like you announce at least one new customer in auto.
Oh I'm sorry.
Any other color you can give around that and as part of your answer either get them or dor.
I mean, our customers.
Looking a little longer to Washington products, I mean, we've heard that from a couple of years your auto peers your component peers are.
Have you seen shifts and so on.
Our order patterns order velocity.
In in vehicle.
Any change there E coupons.
No.
Okay. So you know like in the past we cannot be more specific on the and mentioned the names of the opportunities that we have right now we just basically to notice.
I can mention here that we see growing demand for our connectivity with the VA 7000 based solutions for various types of strategic based solutions for example, the surround view systems.
With respect to the second part of your question, if we see some slowdown.
Takes more time for you to move too quickly is to reach a decision.
It's a it's a market that I was clear that takes their time I don't think that it's.
It's a surprise if you remember we said that we expect to see the initiatives. He's done before the end of each year at this point in time, we're confident that we're going between the stomach.
Okay. Thanks.
Okay.
The next question is from.
Fuji they feel about us.
Needham. Please go ahead.
Prior to the silver brought them to am I getting for them. So maybe to follow up on Rick's question.
The pipeline closure for auto.
What are the drivers for your other customers in the timeframe of those closures that gets cause.
See one by the end of the year in more than 24, what's what's driving their time frame at this point or are they sampling and testing it or what other factors are there. Thanks.
Hi, Hi, switching to should be Don and thank you for your question B.
The process with the automotive and player to Oems is actually there there is.
We are shifting from.
The old system that they used to new systems and they have their own learning curve and Baltimore is needed to understand the need for in your bandwidth spurring a newer and for Merck and for more.
Information in order to predict an accident in order to predict it's something going to happen and this is what they are.
Process, that's actually theyre doing their own shift of understanding you'll need in the market and some of them, it's not predictable for us to.
To know how long it takes but we see that it's actually the learning curve and most of them happens and we see and hear more and more a pipeline of companies that understand that for the next generation of Adas and the next generation of.
And the spending what happens on the road they would need to cope with the higher resolution higher bandwidths and solutions exist today, we have a superiority and yes. It takes the time.
And some of the time they are their own learning curve of the new world or the new demand.
The months, but we see that that should be and most of them that the.
One of them and all of them that they understand and that's D M. They come to vary.
A similar conclusion and we hope that this will lead to a to a design win it.
That's what we'd be able to work to have this year.
Yeah.
Okay. That's good in and then drops to follow up there I think compare your solution to perhaps can pop up a point or offerings that you've had and so forth. What are the one or two key factors. You think are standing out that we're bringing a customer toward.
Our balanced solutions.
The explanation as to co logically and B B.
There's been two weeks.
More exposure to electromagnetic influence do you have any.
This is not a linear thing like if you were if you havent comer of eight figure of eight megabit. That's just four megabit, it's not dumping exposure, it's far far more than that and this is the reason that they.
They and their need for a for them and the M. C becomes such a serious thing this is the.
The first thing and the second is a total cost of ownership in our AR technology.
Technology, we allow them to use.
I'm sure that the cables and the I'm sure. The cable is the is actually having a total cost of ownership, which.
The whole system costs less because we enable.
He was a cheaper carrier cable and cheaper.
Connectors and cheaper LIBOR because honestly.
The same can be done automatically.
There's also a lot less depreciation overdue over the years.
What's called aging cable. So these the artist skew back towards the EMC electromagnetic the total system cost and and the bandwidth that's the that's the three.
Key parameters.
Thank you Jamie.
Yeah.
The next question is from the back Yeah of Bank of America. Please go ahead.
Hi, This is Blake Friedman on for Vivek. Thanks for taking my question.
Just wanted to focus on kind of the full year guide, specifically Q4, and I know you only guide one quarter out and already discussing our Q4, specifically, but just taking the full year guide kind of implies you know a pretty steep sequential growth in December . So I'm, just curious what you're seeing maybe from a customer perspective, that's giving you confidence in that strong ramp up.
Just because we've heard across the ecosystem, maybe some continued digestion for a couple of quarters, whether it be across industrial or.
Consumer and a variety of other markets just any clarity there would be helpful.
So first of all good to hear it again Blake.
The the guidance first of all we are not providing guidance today for Q4 basically only for Q3 to four years, but given the fact that we've already provided the first half and we get that.
Third quarter, it's not that complicated to calculate the Q4.
The confidence that we have in the Q4 numbers are based on the fact that we know our customer product and based on what they're telling us.
I think it's based on the backlog and we see that the level of bookings that are we already have.
With them.
I think that given that fact that we know what they're expecting and what they see in front of the end customers and the fact that we already received a backlog we see the backlog.
Is there a reason why we see this correction in terms of Q3 versus Q2.
Got it and then just to kind of follow up you know this is kind of more of just a broader question beyond Q3, but if I think about from a gross margin perspective, obviously with audio video down you know the gross margins are kind of coming down and into this you know below 60% level just as we move forward. If you can kind of give a high.
Level overview of how we should think about the gross margin recovery in the business that'd be great.
So.
In a way Q3 is kind of an exception, it's an exception because it's a kind of a perfect storm that we see.
You know we might we just mentioned that we see that audio video rich to button up which means that.
We do not enjoy.
The gross margin that we that we usually see in audio video.
In fact that we report the slower revenue with a level of about $40 million, we expect to supporting the underlying in Q3 also means that the impact of the fixed operating expenses or even just the traditional gross margin.
And it can be more dominant.
Our Q3, and a way to kind of an exception it's no pumps.
It's not a typical it's not a good reference going forward.
When we go back to the right proportion between what you've been doing it to notice I think that it's fair to say at this point in time that we should continue and expand gross margins that could be north of 60%.
Thank you.
Okay.
The next question is from Brian Dobson of Sheridan capital markets. Please go ahead.
Yeah.
Hi, Good morning, So just a quick follow up on your in your commentary you know you did a good job laying out the near term headwinds for the business for this sector.
And as you look at industries.
And excuse me.
If you look at the industries that you're bearish end users which are.
Okay.
Currently which are in the best position to recover.
Before.
Yes, hi, its keyed on and thank you for the question and nice to hear from you. They are I wouldn't describe it as follows we are a strong player clearing the audio video world the audio video.
We are traditionally working with I would say quite high end chips, a squire high end customers and we still are neutral the P 63 20.
We expect which is it used to be extension used to be three extension, we expect to go to broader market, which.
I would say is a shift from the very large and as we add them.
Conference room to meet you on smaller even a huddle room.
Each are bigger markets and are far far bigger market.
There's some new players as well. So this is actually why don't B and.
A growing engines over the AZ another growing engine as we see more and more demanding interests with what's called industry 4.0, which is the adjacent market. The audio video and audio video technology its ease of use not for contracts roll in Q4.
Application.
And these are some of the growing just mentioned also the education World games.
Again, if he can audio video technology, but not going for regular audio video conference for more video distribution.
It's a targeted more to the education market hybrid education.
And these are some of the growing angelus for from the a b b.
The automotive and those are all.
At the same where we are looking after the.
Adas and autonomous cars and this is where we're where our industry another market.
In the automobile we ship more and more we see interest in the surround view.
And so actually these are where we see growing interest in the industry, but from a cash point of view. It is the audio video because you know the automotive are any design. We know the time. It takes till you see it's in cash and revenue that takes some years.
Thanks very much.
Okay.
Yeah.
Right.
There are no further questions at this time Mr.
Mr. Bernstein would you like to make your concluding statement.
First I want to thank everyone I would like to wear thank you for joining us today for our Q2 2023 call and for your continued support and interest in Poland semiconductor and all have a great day, Thank you and goodbye.
Thank you. This concludes the Valens semiconductor first quarter 2023 results conference call.
Thank you for your participation you May go ahead and disconnect.
Okay.
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