Valens Semiconductor Ltd.

Good morning. My name is Yoni Schottenstein, and I will be your conference operator today. At this time, I would like to welcome everyone to Valens Semiconductor's fourth quarter and full year 2021 earnings conference call and webcast. All participant lines have been placed in the listen-only mode. Opening remarks by Valens management will be followed by a question-and-answer session. I will now turn the call over to Daphna Golden, Vice President, of Investor Relations for Valence. Please go ahead.

Thank you and welcome everyone to Valence Semiconductors' fourth quarter and full year 2021 earnings call. With me today are Gideon Benci, Chief Executive Officer, and Roald Heldenberg, Chief Financial Officer. Earlier today, we issued a press release that is available on the Investor Relations section of our website under investors.valence.com. 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 20F filed today with the SEC 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. Dror and I will be on the West Coast and in New York City later this month for IR meetings, Those interested in booking a one-on-one slot, please feel free to email me at investors at valence.com. With that, I will now turn the call over to Gideon.

Thanks, Daphna, and thank you, everyone, for joining our call today. Q4 was a strong finish to 2021. We achieved solid results in both our audio, video, and automotive segments. Revenue and gross margins topped the high end of our guidance. We ended the year with a record backlog and a robust balance sheet that will support our continued growth. In the fourth quarter, we reported record quarterly total revenues of $20.7 million, up 47% compared with Q4 2020. Audio-video revenues increased 40% from Q4 last year. Our automotive revenues increased by more than 140% from Q4 last year, crossing the $2 million quarterly revenue mark for the first time. For the full year 2021, we achieved record revenues of $70.7 million, an increase of 24% from 2020. Audio-video revenues increased to $62.8 million, up 15% from 2020. Our automotive revenues approached $8 million, almost four times greater than 2020, reflecting the first full year of mass production of our VA6000 chipsets and expansion of our product into additional car models. Throughout the year, we met all the demand from our customers in a severely supply-constrained environment. We anticipate the strong demand for our products to continue in 2022 and have taken proactive measures to ensure we will again be able to timely fulfill our customers' needs. As our customers in the audio-video markets already know, Valence is the industry leader for advanced high-speed connectivity solutions. We are on our way to replicating this success in the much larger and faster-growing automotive markets. This leads me to one of our most recent achievements in automotive. In December 2021, we shipped the first in the industry MIPI A5 compliant chipset, our VA7000 family, to select customers and partners. This secures our first mover advantage. We shipped engineering samples of our next generation VA7000 chipset family to more than 25 automotive customers and partners. These include four leading automotive OEMs and more than 10 tier one potential customers, who are in the process of evaluating these chipsets for integration into their platforms. The MiG PA5 standard, which is based on Valence technology, has the bandwidth and performance specification that today's and tomorrow's vehicles require and that current analog-based legacy technologies can no longer support. In addition, the automotive market is moving away from proprietary legacy solutions and deploying standard-based products such as MIPI AFI. Last month, we demonstrated the unique capabilities of our MIPI AFI compliant chipset family to hundreds of representatives from leading automotive companies in the US, Europe, and Asia Pacific. We showed how the VA7000 provides best-in-class bandwidth and distance over a simple low-cost wiring harness with end-to-end safety. It supports a wide variety of sensor types and provides robust electromagnetic compatibility performance, known as EMC. It has a simple architecture design that provides OEMs and Tier 1 cost optimization. It is evident that enhancing passenger safety remains a top priority for OEMs and is driving an increasing number of advanced driver assistance systems, otherwise known as ADAS, in each vehicle. Another top priority for automotive OEMs is preventing recalls. We have seen a number of recalls recently due to harness-related challenges. The growing number of ADA systems is leading to more in-vehicle sensors. All these sensors require long-reach high-speed connectivity and, more importantly, zero latency to detect and act upon safety events within microseconds. They also require near zero error rate to mitigate the growing electromagnetic influence and this too is where our chipset excels. Our high-speed connectivity solutions are uniquely agnostic to the types of sensors, cameras, LIDARs or radars being deployed in cars and will provide automotive OEMs with better and faster connectivity for their ADAS systems. We see growing interest in the MIPI AFI standards from companies across the automotive supply chain as they prepare for the AFI revolution. We are already engaged with several sensor and SOC companies such as Mobilife, Sony, and Sunny Optical that plan to embed AFI solutions within their product offering. We are also working with leading industry players such as Aptiv, Denso, Jasper, LG Innotech, and Sumitomo Electric. In the case of Sumitomo Electric, for example, we are collaborating to match their wiring harness technology with MIPI AFI requirements. Sumitomo controls more than 30% market share in wire harness manufacturing and assembly. Having their off-the-shelf cables meeting AFI channel requirements will serve to further accelerate the deployment of MIPI AFI connectivity solutions in vehicles. 2021 was the first full year of mass production of our first-generation automotive chipset, the VA6000, in select Mercedes-Benz car models. We expect the VA6000 will be added to additional Mercedes-Benz car models in the very near term. The VA6000 is the only multi-gigabit connectivity solution available on the market that can work with unshifted wiring in today's cars and support multiple interfaces for infotainment and telematic systems now being required by customers. Our VI6000 chipsets are also a good fit for trucking industry. In late 2020, we engaged with Stone Ridge, a leading designer and manufacturer of highly engineered electrical and electronic vehicle systems for the trucking industry. In 2021, we continued to make progress in developing a connectivity solution related to vision systems to address critical safety issues of truck drivers. The solution will also reduce fleet operation costs. We expect initial revenues from the StoneRidge partnership towards the end of 2022 and to increase in 2023 and onwards. Towards the end of 2021, we taped out the VA6003, a derivative product of the VA6000. The VA6003 provides significant power reduction and very efficient cost performance. It is designed to fit both advanced infotainment use cases and the next generation of telematics units, also known as smart antennas, which require low power and resilient connectivity. It also supports the vision of zonal architecture resilient connectivity between ECUs and ADAS. We estimate that initial revenues from this new product will start in the second half of 2024. The VA6003 alongside the VA7000 is part of our strategy to become a one-stop-shop for all in-vehicle high-speed symmetric and asymmetric links. We expect continued revenue growth from our first-generation automotive chipset and its derivatives. Longer term, we are highly focused on achieving design wins for our next-generation chipset, the VA7000, which we believe will drive a significant increase in revenue. As you may know, the selection process in today's automotive industry is very extensive and needs to answer growing regulatory demands and stricter standards. As a result, once our chipsets are designed in by automotive OEMs, they become sticky with a long production life cycle that generates a steady revenue stream for Valence. In addition to its automotive use cases, the VA7000 chipsets family is well suited for applications in markets served by our audio-video business unit, such as medical machine vision and other industrial applications. Turning to our audio-video business. We are the market leader in language audio-video connectivity. Our products are used today by most of the leading manufacturers in this industry, such as Crestron, Epson, Xtron, Harman, LG Electronics, Logitech, NEC, Panasonic, Samsung, Siemens, Sony, and many more. Our audio-video products power millions of video conferencing applications such as signage, home entertainment, as well as command and control. In the beginning of 2021, we started seeing growing demand for high-speed connectivity audio-video products in multiple regions, most notably in APAC and EMEA. that had been negatively impacted by COVID-19 in 2020. Towards the end of 2021, we also started seeing a positive recovery in North America. Furthermore, our distributors are telling us that they are currently holding lean inventory levels. All these themes, which are reflected in our current backlog, are driving our audio-video revenue growth in 2022. We are well positioned to capitalize on some new opportunities in the audio video market following the pandemic. First, Valence technology delivers the enhanced and seamless user experience that is key to a successful hybrid environment while also reducing total cost of ownership. There are many hybrid model use cases, incorporation, There are huddle rooms which are small private meeting areas with audio and video conferencing equipment and other work from home applications. Additional market segments adopting hybrid models including medical and education. In education, for example, we see educational institutions planning to use government budgets to upgrade their classrooms. We believe classrooms will undergo a significant connectivity infrastructure upgrade to also enable remote learning, thereby requiring multiple high-quality displays, cameras, and audio products. As the world continues to adapt to hybrid models, we expect the demand for audio-video solutions to continue to grow significantly. Second, we continue to see solid demand in both the industrial and medical equipment markets from leading equipment vendors. For example, Our extended video technology is deployed in large medical diagnostic equipment such as MRIs and x-ray machines. In industrial, for example, our video extension technology is used in machinery and computer vision system for line inspection. Third, other audio-video growth areas which accelerated recently include government due to the growing number of command and control rooms as they are seeking new ways to convey public safety information. Signage, as institutes, municipalities, federal and state governments increase mandatory public announcements. Finally, while we continue to win new designs with our earlier generation of audio-video solutions, our focus today is on securing design wins and ramping production of our newest generation, the Stelo VS-3000. It is the first and only solution on the market that supports long-range transmission of uncompressed 4K60 as well as HDMI 2.0 and USB 2.0 over a single cable. Destello is already embedded in designs of more than 100 different products from leading manufacturers. Shipments started in 2021 and we expect to see revenue ramp in 2022. To summarize, Valence had a very strong year in 2021. We successfully became a public company on September 30, achieved robust performance and record revenue. We ended the year on a strong note with record backlog, growing customer's demand and a strong balance sheet to support our future growth. The technologies we created have matured into industry standards in both markets we address. Our leadership enables us to leverage our first mover advantage, expand our foothold and secure increasing demand. To cement our leadership position, we continue to invest in expanding our innovative product portfolio. We're extremely proud to provide offerings that are essential in forming a more advanced and safer future of connectivity as we build upon our leadership position in the audio video market and are gaining share in the larger and faster growing automotive markets. Valen's success and plans give me great confidence as I look forward to the rest of 2022 and beyond. I'll now turn it over to Dror Heldenberg, our CFO, to review our fourth quarter and full year 2021 financial results and provide our financial outlook for 2022.