Q3 2023 Valens Semiconductor Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by.
The call will begin shortly.
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Good morning, My name is yellow and I will be your conference operator today at this time I would like to welcome everyone to Valens semiconductors third quarter 2023 earnings conference call and webcast.
All participant lines have been placed in a listen only mode opening remarks by balance 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 <unk> semiconductor. Please go ahead.
Thank you and welcome everyone to the lung Semiconductor's third quarter 2023 earnings call.
With me today are you going to best meet Chief Executive Officer, Andy I don't know if you've done kind of interim Chief financial Officer earlier today, we issued a press release that is available on the Investor Relations section of our website under investors got polo Dot com.
As a reminder, today's earnings call May include forward, looking statements and projections, which do not guarantee future events or performance. These.
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.
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.
I invite you to read our recent ESG report issued in September to learn an awful lot of semiconductor constantly strive for excellence and innovate to daily to ensure our products and solutions to meet the highest standards of our customers and provide society. The connectivity it requires an ever evolving environment.
In the coming weeks, we will attempt to watch M panel Technology Conference in New York, The UBS Global Technology Conference in Phoenix, and the Goldman Sachs Global Automotive conference in London, 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 Gisela.
First off thank you all for joining our Q3 FY2023 coal.
I'm joined today by the end Rosenberg, calling man hours.
Hello.
John Pollok semiconductor over 10 years ago, and you can imagine our client partners.
Previously she was the conductor company Roth Conference, probably James with your partners and industry knowledge, we're fortunate to wherever he took the royalties or any CFO.
I'll begin with the review of the markets, we operate in or quarterly performance and longer term vision.
I guess the last call our world has changed dramatically it wants to go to the Doctor Montgomery. It's the breakup on October 7th in the face of Big Sorel and tragedy, we spent shoulder new market with our federal reserve and the soldier.
Every single country.
In Israel, we have developed a culture of flexibility and strength as a nation as individuals and as a company.
Given our country's history and the global pandemic.
And if you draw them abroad.
I was gonna working seamlessly and efficiently on their unusual conditions.
Well, then conduct the work and the focus business model and never manufacturing is outsourced to third party manufacturer in Asia and Europe.
Oh My God.
The semiconductor industry is still working through recycling blah blah blah.
Certainty because of macro environment interest rates ongoing inflation and inventory adjustments at our core.
Customers remained where they can't be kosher.
So to conduct our Q3 revenues.
Hi, Eric.
It's 14 point storm against all reflecting.
So far our customers inventory digestion in line with global trends.
It's just we were successful in achieving gross margin and adjusted EBITDA in our guidance.
Looking ahead, we're cautious there.
A long term opportunity of alert semiconductors reached.
You said no to them is very strong in both Oregon who's been in your targeted markets.
Elaborate more in my prepared remarks, I'll start with our audio video business.
Or do we just weren't excuse me cause solutions are at the forefront of the industry and our deployment with long reach high performance because systems are required the applications for our solutions cover many industry, such as corporate medical education, industrial and transportation all of it.
This exciting news is the launch of the metrics to 320 Cheesecake.
For La which HEICO homeless expression of U S b three points to peripheral.
200 meters or 328 feet.
We began shipping engineering sampling to select customers during Q4, and some of them has begun and bringing our unique low power.
Three point towards finishing into their programs for videoconferencing, Iot industrial and medical applications.
As such we expect to start ramping revenues from these new ships during the second half of 'twenty 'twenty four we expect to capture a substantial share also in this new <unk> box market for these high performance section.
Traditional audio video market is also constantly evolving presenting new opportunities for example, more and more corporations are implementing or we come to all of these policies.
So promoting office presence and then short effective interaction with the bridging the physical and virtual device corporations will need to invest in their video conferencing platforms. Another project a growth area is the multi camera and video conferencing is modern video conferencing application increasingly require.
And unified meeting room experience with a flexible efficient and high performance connectivity solution.
Our offerings are increasingly relevant for all types of sleeping rooms from large corporate boardrooms for small has enrolled into multiple people.
Known as so.
We are well positioned to continue to advance our company's vision to drive the transformation of peoples did you start experiencing in our targeted markets.
Turning towards the market.
We are excited about the use of opportunities is growing multi billion market presents.
Our technology is designed to provide seamless connectivity for the increasing number of painful or infotainment system into its future parts.
Is an unstoppable trend.
At least there's regulatory and safety requirements are increasingly adopted primarily for advanced driver assist systems known as Adas and other safety related solutions.
The fourth quarter of <unk>.
Key metrics continued to contribute to our automotive revenues in infotainment and telematics system in Mercedes Benz cars, including you'd be molded now for an update.
It's on all remaining 7000 or <unk>.
<unk>, mostly Mexico multi chipset thing really for safety applications, we continued to gain traction in the third quarter. This one spare parts up for virtually the mass production of the 7000 students their families.
In August we shared the electronic vehicle component solution selected our 87000 for each active safety next generation Commerce Houston project.
They were especially intrigued by the VA 7000 teachers that extra electromagnetic compatibility known as DMC after having examine different productivity solution on the market. The automotive industry continues to evolve towards the central fusion, which literally just a combination of different things. So.
Lidar and radar to deliver data and functionality required by safety applications.
This is coupled with continued efforts to transition to a software defined vehicle, which rely more and more on software.
It's also a search process in September together with our partner small regional solution is.
We showcased how our me 7000 chipsets are transforming high speed central productivity for Adas applications and building. Our me 7000 into its own centralized purchasing rebel optimizes central radar processing, and social fusion and the more efficient and extra.
Its weight than what conventional processing time believer.
We are also making progress on the voice we are participating in for the 7001, because you need to move forward. The decision process may take longer than originally anticipated and design awards could be extended into 2024.
Watch customers chose to embed our chips into car, we would expect to have a long term revenue opportunity and the efficiencies of scale that the tariffs are expected to generate a loss and recurring revenue stream.
To close out my opening remarks.
Semiconductor, we keep the focus on managing those elements within our control as we aim to reach our revenue and profitability goals.
We are developing relationships with long term partner they see the value in our differentiated high performance connectivity solutions.
Our customers need to stay ahead of the technology care and we are ready to meet their needs with our innovative solutions as we continue to develop the right product.
Six industry startups in our targeted markets I will now turn it over to Gary.
To review, our Q3 2023 financial results and provide our financial outlook.
Thank you Gisela.
Hello, I'm pleased to present, Alex I know to performance and outlook.
Jump right in starting with our quarterly results.
Q3, 2023 revenues reached the top end of our guidance.
And we exceeded both our gross margin and adjusted EBITDA guidance.
First quarter 2023 revenues were $14 2 million.
Revenues of $23 1 billion in Q3 2022.
Reflecting inventory they just sent back to them.
Q3, 22 at these played golf ball.
Was $8 3 million Doyle and gross margin reached 58, 9% compared to $16 1 million Doyle or gross margin of 69, 7% in Q3 2022.
You know what I'm guessing for smelting reached 61% compared to 74, 5% in Q3 2022.
The difference in gross.
Gross margins.
Mainly due to a higher mix of automotive revenue comparable to our own arguably your business generates a much higher gross margin.
Operating expenses in Q3 2023.
$21 3 million sort of female.
Similar to the same quarter last year.
Research and development totaled $15 4 million.
Do it up well.
<unk> to $12 7 million umbrella in Q3 2022.
Third quarter R&D included an investment of approximately $3 million rollout and silicon IP purchases.
It was offset by lower payroll expenses.
It is mostly to streamlining our development platform and two a positive impact associated with exchange rates.
SG&A expenses were $7 9 million in Philadelphia.
From $8 6 million in Q3 2022.
This was mainly due to a zero point $6 million or whatever action and D&O insurance premiums and lower payroll and related expenses.
Moving onto net loss and adjusted EBITDA.
Q3, 'twenty 'twenty sleep GAAP net loss was $12 $5 million compared to the $5 3 million net loss recorded in Q3 2022.
Adjusted EBITDA loss in Q3, 'twenty 'twenty slate was better than guided coming in at $8 8 million.
The $1 7 million dollar loss in Q3 2022.
The better than guided adjusted EBITDA loss in Q3, 2020 free was mostly due to lower operating expenses associated with the strong U S soil.
GAAP loss per share for Q3 2023 was.
It was 12 cents compared to a loss of five cents in Q fleet, what it wanted them.
non-GAAP loss per share was eight then thank you Felipe when things went to sleep.
Paired with the local sheriff two cents in Q3 last year.
Turning to the balance sheet.
Maintaining the strong balance sheet allows us to execute our strategy and our future growth and drive profitability.
Cash cash equivalents and short term deposit.
$142 7 million at the end of September 2023.
$12 $7 million.
$158 million at the end of June.
We do not have any outstanding debt.
In Q3, 2023, we generated $6 $1 million from operating activities.
The $3 6 million.
In Q3, 2022.
Our working capital as we ended the quarter with 152 $6 million compared with $160 8 million at the end of Q2 2023.
This difference of $8 2 million is mainly related to the Q3 2023, adjusted EBITDA, which was offset by the 1.3 million dollar gain from stock option exercises.
As of the end of September our inventory balance was 16 point not in media.
Down from $19 million.
End of June 2023.
We expect inventory levels to be slightly lower at the end of Q4 2020.
Now, let's move to our outlook.
We are introducing guidance for Q4 and updating our full year 2023 guidance.
For Q4 2020 free we are introducing revenue in the range of $21 6 million to $22 million.
We expect Q4 gross margins to be in the range of 61, 6% to 52, 7%.
Our mostly expense adjusted EBITDA guidance was to reach breakeven by the end of 2023 when.
We now expect adjusted EBITDA in Q4 legs between breakeven to a profit of $6 million.
We ended the quarter with 102 6 million shares outstanding.
Excluding the approximately 1 million shares that are subject to forfeiture.
For the full year 2020 fleet, we are reaffirming revenues in the range of $83.8 million to $82 million.
Which automotive revenue is expected to reach about 30%.
We then introduced into full year 2020 free for smelting guidance.
Range of 62, 5% to 62, 8%.
Finally, we are also substantially improving our adjusted EBITDA guidance for the full year and is now expected to be a loss in the range of 12.5 to $11 9 million daus.
To conclude my comments.
Q4 is expected to be substantially stronger than Q3.
Bolstered by audio video or those that were pushed into the fourth quarter of the year.
As the industry, he's walking for a longer than typical second with inventories about normalized.
Yes, expecting some softness you know what I think he was doing at the first half of 2020 so.
Why do we typically provide guidance only one quarter out the current booking pace suggests it's Q1 'twenty 'twenty four revenue would be in the range of $11 million, so $50 million.
Having said that we plan to provide 2020, so related guidance on our next quarterly call.
Looking ahead, we are confident but less semiconductor F considerable opportunity ahead.
Once the industry recovers.
I need to continue executing our golf club, we then even if all of the portfolio.
Our extended portfolio is designed to penetrate the untapped market since I forget did get them discussed earlier.
And now I'll turn the call back to <unk> for his closing remarks before opening the call for Q&A.
Thank you Gary.
Semiconductor we remain focused on what's in our control that means continuing to develop and deliver cutting edge hyper homeland connected with your single genes.
Therefore, the literature, our expenses and.
Maintaining a strong balance sheet that supports our ability to execute our long term growth and profitability plans to pursue promising opportunities, which will deliver value for all our stakeholders.
Unfortunately, this was an industry stabilizes well that's it for me.
Conductor herds ingredients to grow its business and capture additional market share with some of our new innovative leading launch productivity solutions. We continue to focus what do we need additional awards in the automotive market, where we see significant market opportunity a long runway.
You'll be Geo markets, we believe our investments in new offerings will deliver meaningful results as we expand in both our traditional end markets and into new emerging verticals and segments.
On a personal note I'm grateful to all of our dedicated employees and I'm extremely proud of everyone who is involved in supporting our country in some ways. Many employees and their families are donating their time and that's always soldiers to aid those tradeoffs with users in a time of great needs.
Well, it's all of our colleagues are answering the call for reserves Yoki withdraws trades from their resilience unbreakable spirit is very thoroughly to safeguard our country and the people.
He has all the fundamentals that are part of our DNA and they're embedded in the properties from Poland semiconductor.
With that I'll now open the call for questions operator. Thank.
Thank you ladies and gentlemen at this time, we'll 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 kind of whats the handset before pressing the numbers. Please ask your question in a loud and clear voice questions will be pulled in the order they are seeing.
Please standby, while we poll for your questions.
Yeah.
The first question is from Rick Schafer of Oppenheimer. Please go ahead.
Hi, This is mark on a like for like.
Congrats on the results.
We also plan to roll it out more.
Our friends at Bell.
That's all of October seven.
My first question is on inventory and channel inventory it looks like inventory dollars or 70 million you talked about lower English in Q4, So how do you feel about level when do you expect them to formalize.
What do you do you have visibility.
Inventory.
Okay.
Highway and thank you for joining the call.
Hum.
As you know there is a lot of uncertainty currently in the market, we aren't hearing from all over the sector of the industry.
We are closing, we're working very closely with our customers to understand their inventory levels.
Like any other our festivals.
Really cautious and measuring those steps.
Yes, one day in the spring.
That's about 40% to serve their needs.
Great. Thank you my second question Don though.
7000.
It looks like the timeline.
I agree.
Things are understandably hard to predict.
Okay.
Got it and maybe been more interested in some of the reason for the pause.
So this is more of a more rigorous testing or anything but that.
Yes.
Thank you for the question and answer them.
It's two parts.
One path is our confidence in the technology as the time more of as we get more and more excitement about the solution that they viewed 7000 brings at the same time the timing in this industry. So I thought maybe to start.
There's more tricky and this is why it's pushed out.
They pushed it out and it's not that this is supposed to wait it is pushed out and we predict it will come and we hope that it will not take long before we can announce something.
Yeah.
Great and maybe it would be like if I can squeeze one last one and.
Oh, you just need to get the numbers look pretty good you guys or even raising.
At year end targets can you talk about some of the widening that allows you to use.
Or is this targeted at possibly be profitable by the end of the year.
Are you speaking about 2023.
About this quarter.
Yes, yes.
Adjusted EBITDA target it looks like it was.
Expected.
Breakeven in apartments.
One 6 million.
What we now estimate that.
Q4 revenue was actually we have quite a visibility on Q4 revenues and this is why.
We have to consider them.
Obviously, there is softness in the market, but in Q4, we.
I have the visibility and the confidence of course, nothing is 100% sure.
The confidence that we will make the numbers and this is why we raised the number.
Great.
[laughter].
But that's that's what are your month I'm, sorry, if that's what you asked.
Yes, yes, that's what I asked for thank you. Thank you.
The next question is from Brian Dobson of Sheridan capital markets. Please go ahead.
Yeah.
Thanks, very much for taking my questions certainly our thoughts are with you all during a challenging period for digital.
In terms of.
Inventory backlogs are those.
To normalize how would you characterize broader demand trends.
24.
Yeah.
Hey, Brian and thank you for your kind words.
And as I said before entering the widest question, there's a lot of the air.
Uncertainty in the market I assume you're seeing this all over again.
It's done well walking in.
Well.
We're in constant communication with our customers and we can't really predict at this stage, but ex out the cause that trend, but as I said before we are managing that supply chain very closely and once the industry recovers well 40 professionals with it either.
Great. Thanks very much.
And just as a follow up on automotive design contracts.
We'd be interested.
To be more next year.
More clarity on potential timing as the back half of the year of banks are not passenger event.
It's very it's not something we can predict.
It's very important to see several things here, it's a long runway like Oh.
Once we have a design win.
Of course, that's the.
Products are embedded in the cars themselves after at least.
Two years, but then that's it.
This and the longevity of the relationship is very long and that's the nature of the automotive industry. This is why companies are working so hard to get in and and and and this is why we're so confident and believe we're doing the right thing.
And then being so.
Eager and so keen to create this design win we see our advantages when the standards, we need patients here and when to sell that's the rewards in question of.
Quantity timing you don't get the feel of the relationship.
The words are for this for this airports and this is why we stick so so long.
Excellent. Thank you very much.
The next question is from Fujita Silva of Roth Capital. Please go ahead.
Well get in here and I Hope all my books for safety for you and your families. There.
So.
The LG.
But it should be up for the V. H 7000 does that target. The just the radar or it can be applied to a broader set of LTE plus or Adas applications, but.
Unless technology and the B 7000 technology.
Can support any delivery from Amy any of source to the U C U E.
It would be straight or lidar or a or a.
Camera, we will take this big catch we would capture the image and video and put it back in this particular case actually I am not sure we are able.
To give you exactly what the project is a bump which we announced.
But it's important to understand that this is one of the beauties of our technology that can take an image and and and and send it back and where.
We don't need it to be a particular, a particular source.
Okay. That's very helpful and then I think on the.
A V business I'm, sorry got started in this particular case for safety and hero cameras.
Is.
It could be other sources, as well and and and of course, everyone who worked with us.
In mind that this is.
The first project.
Can can can lead to other projects as well and this is part of what we offer.
Okay, Great and then my other question is on the E V business the.
You are 60 through 'twenty and then the USB three <unk> protocol, I'm wondering what kind of incremental applications.
Addressable market that may bring to you are above and beyond what you already shared in the AG market.
Okay. Thank you for this question and I apologize in advance and now I'm going to have a longer answer north of zero.
Problem.
Six or three 'twenty, we believe it is a very big thing.
We see the six or three 'twenty, not only give us the ability to grow in the same verticals to more segments not all the way down to the consumer but lower than the lucrative market, which we usually active.
And also give us the verticals, which were less active or or or active only in a very small.
Small quantities touches our industry and others.
And 63 20 <unk>.
One of the most sophisticated chips valenza everyday.
And we feel that it has.
A very high technological barrier, which therefore for many years as a unique solution and second.
It's very very bluntly.
And many of the are the reason that such a M. Best noted theres not because this is not because of the need.
Because it's so hard to make one and this is why we have so much confidence and believe that this is.
This is the cheapest we trust a lot.
I hope I answer to what you all just for you.
Yes, you did thank you.
If there are any additional questions. Please press star one if you wish to cancel your old class. Please press star two please standby, while we poll for more questions.
This concludes the Q&A session.
This concludes the Rad Com L. P D third quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.
I want to thank you everyone.
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