Q3 2024 Valens Semiconductor Ltd Earnings Call
All participant lines have been placed in a listen-only mode. Opening remarks by Valence Semiconductor Management will be followed by a question and answer session.
I will now turn the call over to Michal Ben-Ari, Investor Relations, for Valence Semiconductor. Please go ahead.
Michal Ben-Ari: Thank you and welcome everyone to Volaine Semiconductor's 3rd Quarter 2024 Earnings Call. With me today are Gideon Bensley, Chief Executive Officer, and Guy Nathanzon, Chief Financial Officer.
Michal Ben-Ari: Earlier today, we issued a press release that is available on the investor relations sections of our website under investor.lent.com.
Michal Ben-Ari: 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-X filed with the SEC on February 28, 2024 for a discussion of the taxes 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.
Michal Ben-Ari: We will be discussing certain non-GAAP measures on this call, which we believe are relevant in assessing the financial performance of the business, and you can find reconciliations of these metrics within our earnings release. With that, I will now turn the call over to Gideon.
Gideon Bensley: We are pleased to report solid results and strong execution in the third quarter. We are proud to be an industry leader in audio-video and automotive markets.
Demand for our high-performance connectivity solutions grew as customers adopted our technology to create cutting-edge products. With this momentum, we exceeded the top end of our revenue guidance.
We advanced our long-term growth strategy with some key accomplishments. These included three new automotive design wins with leading European OEMs and a successful entry into the industrial machine vision markets.
Gideon Bensley: We push the boundaries of connectivity. Our advanced chipsets empower customers to bring destructive products to both established and emerging markets. We are very encouraged to see an enthusiastic customer response and rapid adoption of our VIS-S6320 chipset in audio-video applications.
Inventory digestion continues to impact our industry. However, we believe we are emerging from the bottom of the cycle. As such, we are seeing increasing interest in our solutions that will be embedded into products and expected to hit the market in the next few years.
and Guy Nathanzon.
Michal Ben-Ari: Moving on to a quick overview of our third quarter financial performance, we reported revenues of $16 million, which exceeded the top end of our guidance.
Gideon Bensley: We are pleased that Acroname, the recent acquisitions we made in May 2024, contributed $1.6 million of revenue. This was also above the guidance we provided last quarter.
Gideon Bensley: Gas gross margin for the third quarter came in at 56.4% and adjusted EBITDA loss was $5.1 million, both beating our guided ranges.
Gideon Bensley: Importantly, we have a very strong balance sheet, with $133.1 million of cash-on-cash equivalents, we are well positioned to continue investing in innovation and exploring strategic M&A that will support long-term growth. Now I will discuss the trends and opportunities we see in our markets.
Gideon Bensley: starting with professional audio-video which includes applications such as entertainment, video conferencing, education, and digital signage.
Gideon Bensley: Since its introduction late last year, the VST6320 has attracted over 50 customers that are developing and launching products for audio-video applications.
Gideon Bensley: This is an extremely high adoption rate and is expected to contribute to a record number of Fortuna products that should be launched in the next 9-12 months.
Gideon Bensley: This validates the chipset's groundbreaking technology and reflects the market need for reliable, streamlined and affordable connectivity. We expect initial sales before the end of the year with further ramp-up towards the end of 2025.
Gideon Bensley: One exciting new video conferencing product, the Logitech Xtend, is based on our HDBaseT technology.
Gideon Bensley: for Advanced Meeting Rooms and Offices.
Gideon Bensley: Moving on to the Machine Vision and Industrial Verticals.
Gideon Bensley: Based on market research, the broader machine vision market is expected to reach $7.8 billion by 2029.
Gideon Bensley: can reach $460 million by 2029 and believe we are well positioned to capture a significant market share.
Gideon Bensley: Last month, we showcased our innovative solutions for the industrial machine vision market at the Vision Trade Show in Stuttgart, Germany.
Gideon Bensley: Vision is the leading international trade fair for machine vision. This show attracts thousands of visitors from a wide range of industries.
Gideon Bensley: I am pleased to report that Valence received outstanding feedback from prospective customers for two of our latest products, our VH-7000 CSI2 extension solution as well as the VH-6320 USB3 extension solution.
Gideon Bensley: Our solution enables the capability and flexibility that Machine Vision for Industrial Installation is eager for.
Gideon Bensley: We also announced the release of our USB 3.0 Industrial Grade Extender product.
Gideon Bensley: Based on the BS6320 chipset, this product allows vendors to extend their existing portfolio of USB 3.0 cameras.
Gideon Bensley: This is done without any product redesign, providing a ready-to-use solution and significantly decreasing time to market.
Gideon Bensley: Currently, we are engaged with leading camera module manufacturers in industrial machine vision.
Gideon Bensley: These OEMs include Teledyne E2V, a global innovator of imaging solutions, FRAMOS, an embedded vision system leader, and Leopold Imaging, a machine vision camera supplier, among others.
Gideon Bensley: We are also excited about Acroname's potential to expand our position in the industrial markets.
Gideon Bensley: We are very pleased with our progress in the audio-video sector. We are confident about our growth potential and are acting to leverage significant opportunities across verticals with focus on industrial machine vision.
Gideon Bensley: To this end, Valens is conducting strategic organizational changes with the Audio-Video Business Unit.
Gideon Bensley: Audio video business is transitioning to cross-industry business encompassing verticals including audio video, industrial, machine vision, and medical to facilitate our growth strategy.
Gideon Bensley: The cross-industry business unit will also include a transition in leadership. We are confident that these changes will enable us to achieve our goals in these new high-growth markets.
Gideon Bensley: As part of this change, and after over a decade, Gabi Schricke
Gideon Bensley: will be stepping down as head of audio-video business. Gabi has been instrumental in establishing and growing the audio-video business.
Gideon Bensley: from the ground up and has played a pivotal role in positioning Valens as the unrivaled leader in professional audio-video connectivity.
Gideon Bensley: On behalf of the Valens team, I would like to thank Gabi for his outstanding dedication and vast contributions to the company. The new head of cross-industry business, whose name will be disclosed at a later date, will join Valens starting February 16, 2025. Gabi will remain at Valens.
Gideon Bensley: for a period of time to facilitate a smooth transition.
Gideon Bensley: Next, I'll talk about automotive.
Gideon Bensley: We are thrilled to have achieved three design wins with leading European OEMs this quarter.
Gideon Bensley: The OEMs are expected to begin integrating our V7000 chipsets into certain vehicle models starting in 2026, with further acceleration in 2027 and 2028.
Gideon Bensley: Automotive OEMs take a measured approach when introducing new safety-critical ADAS features. They often integrate them into limited vehicle models first before deploying across broader vehicle lineups.
Gideon Bensley: We believe.
Gideon Bensley: These wins show that our superior technology is advancing the MIPI A5 Global standard for high performance connectivity.
Gideon Bensley: Importantly, we believe they position us for future design wins with other OEMs looking to adopt this standard.
Gideon Bensley: Furthermore, we believe this is done with...
Gideon Bensley: should strengthen our partnership with leading Tier 1 suppliers who have more evidence of our superior technology. We remain confident that additional Tier 1 will promote our solution as the preferred connectivity standard for the other OEM customers.
Gideon Bensley: Since the announcement, we have received many questions as to why we can't disclose the names of the OEMs.
Gideon Bensley: It is common practice in the automotive industry for OEMs to avoid revealing the technology inside their cars.
Gideon Bensley: at least until the start of production. This is also true for Tier 2 suppliers, like us, who need to protect the OEM customers' development of new technologies, which is an important competitive advantage to them.
Gideon Bensley: I would like to take this opportunity to thank Gideon Hayden, Head of our Automotive Business, for his instrumental role in securing these three Pivotal Design Wings.
Gideon Bensley: As he prepares to retire at the end of 2024, we would like to recognize his dedication and success in positioning Valens as a key player in automotive connectivity.
Gideon Bensley: Gideon Kedem's tenure at Valenz has been marked by exceptional leadership, dedication and an unwavering focus on advancing our automotive business. I would like to thank Gideon Kedem for working with his personal retirement plan until achieving his goal of securing new design wings for Valenz.
Gideon Bensley: After laying the foundation for future success, he is now ready to pass on the leadership of the automotive business.
Gideon Bensley: Effective January 1st, 2025, Abdal Segal will assume the role as Head of Automotive Business.
Gideon Bensley: Adao joins Valence with over 20 years of expertise in technology-driven sales, comprehensive structures, and partnerships across multipolited industries.
Gideon Bensley: Turning to our first-generation automotive chipset, the V6000 business with our legacy automotive customer Mercedes-Benz remains on track. In the tracking segment, we are making progress in field trials with Stone Ridge.
Gideon Bensley: Turning to a brief update on the MIPI A5 standard.
Gideon Bensley: Also, companies in test and measurement systems are using Valens chipsets in their connectivity solutions.
Gideon Bensley: recently.
Gideon Bensley: The MEP Alliance highlighted the large and rapidly growing ecosystem supporting H5 technology. Currently, 32 companies are developing products based on the stand-off according to public announcements.
Gideon Bensley: We are excited to see meaningful progress in our automotive business. This is a vast long-term opportunity with an expected amount of $4.5 billion per year by 2029.
Speaker Change: With that, I will turn the call to Guy to discuss our financial performance in more detail.
Guy Nathanzon: Thank you, Gideon. I'll start with our third quarter 2024 results and then provide our outlook for the fourth quarter and full year of 2024.
Guy Nathanzon: We achieved quarterly revenue of $16 million, exceeding our guidance of between $14.7 million to $15.4 million, of which Acronym contributed $1.6 million, exceeding our guidance of $1.2 to $1.4 million.
Guy Nathanzon: This compares to revenues of $13.6 million in the second quarter of 2024 and $14.2 million in the third quarter of 2023.
Guy Nathanzon: The audio-video segment, including Aquanet, contributed $9.4 million, or approximately 60% of total revenue. And Automotive contributed $6.6 million, or approximately 40% of total revenue this quarter.
Guy Nathanzon: 4.5 million dollars, representing 70% and 30% of total revenue, respectively, in the third quarter of 2023.
Guy Nathanzon: Third quarter 2024 gross profit was $9 million compared to $8.3 million in the second quarter of 2024 and compared to $8.3 million in the third quarter of 2023.
Guy Nathanzon: Sales Quota 2024 Growth Margin was 56.4% compared to our guidance of range between 52% and 53%.
Guy Nathanzon: This compared to 61.4% in the second quarter of 2024 and compared to 58.9% in the third quarter of 2023.
Guy Nathanzon: On a signal basis, our audio-video gross margin was 70.2%.
Guy Nathanzon: An Automotive Gross Margin was
Guy Nathanzon: 37%
Guy Nathanzon: compared to 75.4% and 40.9% respectively in the second quarter of 2024 and 75.8% and 21.6% respectively in the third quarter of 2023.
Guy Nathanzon: Non-GAP gross margin was 60.7% compared to 64.5% in the second quarter of 2024 and compared to 61.1% in the third quarter of 2023.
Guy Nathanzon: Operating expenses in the third quarter of 2024 totaled $21.3 million compared to $17.8 million at the end of the second quarter of 2024 and compared to $21.3 million in the third quarter of 2023.
Guy Nathanzon: Research and development expenses totaled $10.3 million compared to $10 million in the second quarter of 2024 and compared to $13.4 million in the third quarter of 2023.
Guy Nathanzon: SG&E expenses were $10.7 million compared to $7.8 million in the second quarter of 2024 and compared to $7.9 million in the third quarter of 2023.
Guy Nathanzon: The third quarter of 2024 GAP net loss was $10.4 million versus a net loss of $8.9 million recorded in the second quarter of 2024 and versus a net loss of $12.5 million recorded in the third quarter of 2023.
Guy Nathanzon: Adjusted EBITDA in the third quarter of 2024 was a loss of $5.1 million compared to a guidance range of a loss between $6.8 million and $6.3 million.
Guy Nathanzon: This compared to adjusted EBITDA loss of $5.2 million in the second quarter of 2024 and $8.8 million in the third quarter of 2023.
Guy Nathanzon: Gap lost per share for the third quarter of 2024 was $0.10 compared to Gap lost per share of $0.08 for the second quarter of 2024 and compared to $0.12 for the third quarter of 2023.
Guy Nathanzon: Non-Gap Loss Per Share in the 3rd Quarter of 2024 was $0.03 compared to a Loss Per Share of $0.04 in the 2nd Quarter of 2024 and compared to $0.08 in the 3rd Quarter of 2023.
Guy Nathanzon: The main difference between GAAP and non-GAAP loss per share was due to a stock-based compensation, depreciation and amortization, and to a certain batch production incident expenses.
Guy Nathanzon: We ended the third quarter of 2024 with a strong balance sheet with cash, cash equivalent and a short-term deposit totaling $133.1 million and no debt.
Guy Nathanzon: This compared to $130.6 million at the end of the second quarter of 2024 and $142 million at the end of 2023.
Guy Nathanzon: Our working capital at the end of the quarter was $136.1M compared to $142.3M at the end of the second quarter of 2024 and $158.8M at the end of 2023.
Guy Nathanzon: Our inventory as of September 30, 2024 was $11.7 million, down versus $14.1 million on June 30, 2024 and $13.8 million on December 31, 2023.
Guy Nathanzon: Now, I would like to provide our guidance for the fourth quarter and full year of 2024.
Guy Nathanzon: We expect fourth quarter revenue to be in the range of $16 to $16.3 million.
Guy Nathanzon: We expect gross margin for the fourth quarter to be in the range of 58% to 62% and we expect adjusted VDL loss in the fourth quarter to be in the range of $4.9 to $4 million.
Guy Nathanzon: For the full year 2024, we expect revenue to be in the range of $57.2 to $57.5 million. Gross margins are expected to be in the range of 58 to 60%.
Guy Nathanzon: and Justin B. Dallos is expected to be in the range of $22.3 to $21.4 million. I'll now turn the call back to Gideon for his closing remarks before opening the call for Q&A.
Gideon: Thank you, Guy. Valen Semiconductor is a strong position to grow across our target markets with our industry-leading technology and Fortress balance sheet. We look forward to executing our long-term strategy and restoring growth and profitability.
Gideon: As a reminder, we are hosting our first-ever Investor Day in Midtown New York next week on Tuesday, November 12 at noon.
Gideon: At this event, we will discuss...
Gideon: Our enhanced strategic plan and long-term financial objectives, our expanded go-to-market strategy focused on high-growth industries and applications. We will also be demonstrating our advanced technology and sharing video testimonials and leading customers and partners.
Gideon: If you are interested in attending, please email michal at investors at valence.com
Gideon: Before opening the call for questions, I want to express my gratitude to the entire Valencia team for their ongoing commitment and dedication. With that, I will now open the call for your questions, Operator.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Please ask your question in a loud and clear voice. Your questions will be polled in the order they are received. Please stand by while we poll for your questions.
Gideon: and Gideon Ben. Thank you.
Speaker Change: The first question is from Suji Da Silva of Roth Capital. Please go ahead.
Speaker Change: Hello Gideon, hello Guy and Gabby and Gideon, best of luck in the next stages.
Speaker Change: Gideon, the visibility here with the inventories being worked down, do you feel you're at a point now where you can ship to demand, to consumption again, starting in 25 or certain pockets of inventory still remain to be worked down?
Gideon: and Guy Nathanzon.
Gideon: First, thank you Suji and I want to thank everyone that after such an interesting day you found the time and hearing us, I guess we cannot compete the interest that you have in youth and I do appreciate that you still decided to devote your time for this earning call. And the answer is yes, visibility is improving and I believe that it's improving because of several reasons. One of them is the sales cycle shrunk. The time to order chips is not as bad as we had in the past during the COVID that the supply chain went up until sometimes to 40 weeks and it's not the case anymore. On the other hand, you know, we have no interest so a lot of the purchasers
Gideon: have in consideration that zero interest is over.
Gideon: So there are pros and cons in the change of the money of making an order, yet we feel that we have some visibility of recovering the market. We don't give yet the whole forecast for where it is, but we invite everyone to come next week to our, I think, very interesting Investor Day, maybe better competition to the news
Speaker Change: and I'll be happy to elaborate more then.
Speaker Change: I hope it answered your question, did I?
Speaker Change: Yes, that's very helpful. We'll look forward to that.
Speaker Change: of the self acronym are ad hoc. It's a lot of them are like someone needs them and they simply go to the internet and makes an order. Very, very, very different than the process that we have.
Speaker Change: And the main surprise that we have with acronym is we have no surprises. It looks like
Speaker Change: They have some cells which are B2B and are more kind of, as you said, in order, but the rest are...
Speaker Change: Simply, they need, the customer makes an order of 5 or 10 or whatever, sometimes of more, and press the button, and get it after some days, this is the kind of the acronym.
Speaker Change: Sales cycle, so it's not typical, it's very different than the semiconductor industry.
Speaker Change: Okay, now it's all pulled out. And then I'm switching to auto on the OEM winds. Just a clarification here. Are these programs, the three you've discussed, are they EV-only programs, or are these across a platform of EV, hybrid, traditional, combustion, any color that would be helpful?
Speaker Change: Well, there is no difference in ADAS in EV and non-EV.
Speaker Change: Yael Haine, Gideon Ben Nathanzon, Gideon Ben Nathanzon, Guy Nathanzon, Gideon Ben Nathanzon,
Speaker Change: For us it doesn't matter. For instance, what we do with Mercedes-Benz for many years
Speaker Change: And it's the same. So the EV is not any distinguished for us.
Speaker Change: In the OEM, it's the same, it's ADAS, and ADAS is, you know, people in gasoline and EV cars, they want to be protected the same way, and the OEMs want to protect them the same way.
Speaker Change: And then the last question, I'll switch on, for Guy, perhaps, the gross margin trend here, what is the expectation going into 2025, is it mixed driven or are there gross margin tailwinds, any color would be helpful, thanks.
Guy Nathanzon: Okay, hi Sujit, great to meet you again. So we do not provide specific guidance at this point for the growth margin for the future.
Guy Nathanzon: The revenue coming from the audio video.
Guy Nathanzon: and the automotive. There is significant difference of the cross-margin between these two business units, as well as the level of the revenue due to the fixed costs.
Speaker Change: This is the main principle that will be relevant for the future as well.
Speaker Change: Okay, thanks everybody.
Speaker Change: Thank you.
Speaker Change: The next question is from Kevin Cassidy of Rosenblatt. Please go ahead.
Speaker Change: and Gideon Ben. Thank you. Thank you.
Kevin Cassidy: Thanks for taking my question and congratulations on the strong results. During the quarter, did you have any 10% plus customers? And maybe my follow-on question is going to be, with all the new designs in your pipeline, do you see this changing or are you expecting this to be a broad-based growth, or is there going to be a few customers that will leave the way?
Speaker Change: Sorry, can you repeat the questions? It was quite rough. If you can repeat the questions, please, for me.
Speaker Change: Did you have any customers that were more than 10% of revenue during the quarter?
Speaker Change: Guy will take this one, so no, the simple answer is no.
Speaker Change: Okay, and then my following question is, with your design pipeline that you have, do you see this changing? Are there certain customers that would be growing faster, or do you expect this to be a broad-based growth?
Speaker Change: Are you referring to the automotive customers or to the audio video customers?
Speaker Change: Both, your total revenue, you know, if they're going to be one customer that leads the way.
Speaker Change: Well, definitely no. The difference between the 7a in audio video and the automotive are the difference of climbing on a mountain and climbing on a reef. And in automotive, every bit is a huge deal.
Speaker Change: It takes a long time, it's a climb of a cliff, and then it's a big cliff.
Speaker Change: And the mountain is step-by-step, another account in another account, so every time we have an OEM, it will influence in the future.
Speaker Change: and significant percentage that can be five, seven, whatever percent of the revenues at once. It's not a– it's not a, if a place that while in the audio video industrial
Speaker Change: The customers are in a magnitude of between 1 and 5 million dollars, so they are never a big percentage as they can be in automotive. It very much belongs to the characteristics of the customer, whether it's automotive or not.
Speaker Change: But as far as we see in the long term, there is no risk of being company dependent in a single customer in the coming years.
Speaker Change: I hope never.
Speaker Change: Okay, great. Thank you. Thank you. Thank you
Speaker Change: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions.
Speaker Change: The next question is from Dustin Flower of Oppenheimer. Please go ahead.
Dustin Flower: Hey guys, this is Dustin. I'm for Rick Schaefer. I just have one quick question. On the call I think you said Stonehenge is on track. Can you just remind us of the timing and the opportunity size there?
Speaker Change: thank you for the question and actually it's an excellent question you helped me by asking me this question and I'm thankful
Speaker Change: This was a long shot with Storm Ridge and it took a long time to stop the pilot, to make the pilot and to generate a forecast and so forth, but we've been patient.
Dustin Flower: And it seems like that the truck industry, you know, it's never be as big as the regular automotive industry, but the truck industry will reward us. And Stone Ridge made a very successful pilot and the customers were very happy with
Speaker Change: with the results and the feature. It's a very important feature for a truck driver. And we believe that although it took time,
Speaker Change: and we see an automotive world, the world, although it takes time and probably an initial of every sentence, but although it took time, it is going to be a fruitful market for us and I'm happy we stick to it and we see results. Furthermore, we have now achieved the 700R, which is suitable for further features specifically for the truck industry and we consider it and we'll speak about it next week in the investor event, we see the truck industry as a real segment.
Speaker Change: So please come and hear in a week from us the details that I believe will be quite very interesting.
Speaker Change: Thank you, that's all I have.
Speaker Change: Daphna Golden, Unknown Executive, Yael Haine, Guy Nathanzon, Gideon Ben
Speaker Change: There are no further questions at this time. Mr. Benstein, would you like to make your concluding statement?
Speaker Change: Yes, I would. And I want to thank you again all for continuing to trust in Valence. And we hope you will be joining our Investor Day in New York next week. And I wish you have a great day. And I guess it's going to be an interesting day for all. So all the best and goodbye.