Valens Semiconductor Ltd.

Good morning. My name is Yoni, and I will be your conference operator today. At this time, I would like to welcome everyone to Valence Semiconductor's fourth quarter and full year 2023 earnings conference call and webcast. 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 Daphna Golden, Vice President of Investor Relations for Valence Semiconductor. Please go ahead.

Thank you and welcome everyone to Valence Semiconductor's fourth quarter and full year 2023 earnings call. With me today are Gideon Bensley, Chief Executive Officer, and Guy Nysensen, Chief Financial Officer. Earlier today, we issued a press release that is available in 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 in form 20F filed with the SEC earlier today for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. We will be discussing certain non-GAAP measures on this call, which we believe are relevant in assessing the financial performance of the business, and you can find reconciliations of these metrics within our earnings release. In the coming weeks, we will attend the annual Roth MKM Conference in Dana Point, California. If you're interested in meeting with us, please email me at investors at valence.com. With that, I will now turn the call over to Guidon.

Thank you, Daphna. Hello, everyone, and thank you for joining the Valence Semiconductor Fourth Quarter and Full Year 2023 Earnings Call. I'm joined today by Guy Nacanzon, our new Chief Financial Officer. Guy will play a key role in progressing the Valence Semiconductor high-performance strategy and its executions. Guy has more than 20 years of executive leadership experience with U.S. listed and private companies in the semiconductor, medical imaging, and aviation technology sectors, and CFOs with companies including Provigent, Altair Semiconductor, Tax Technologies, and Scorpio Labs. We are excited to welcome Guy to our executive team and glad he is here today for our earnings call. I also want to thank Yael Rosenberg for stepping in as our interim CFO for the past six months. Yael is working closely with Guy and will continue to manage all aspects of our finance department as VP of Finance. As you all know, the past year has been challenging for the semiconductor industry, largely due to macroeconomic headwinds, including customer inventory levels, high interest rates, and inflation. Against this backdrop, at Valen Semiconductor, we continue to expand our engagement and partnerships across the various verticals we serve, enhance our innovative high-performance connectivity offerings, and improve the visibility of our technology. We are pleased to report that both fourth quarter and four-year revenues were at the top end of our guidance range at $21.9 million and $84.2 million, respectively. Automotive revenue reached new highs and accounted for more than 30% of total revenues in 2023. Non-GAAP gross margin for the fourth quarter and the full year came in at 63.1% and 63.9% respectively. And adjusted EBITDA was $2.2 million for the fourth quarter and a loss of $10.3 million for the full year, substantially better than our guidance. We entered 2024 with a strong balance sheet with $142 million of cash and cash equivalents. Valence Semiconductor's robust balance sheet allows us to continue investing in innovations and pursue long-term growth opportunities as we overcome these headwinds. Looking ahead, I am confident that Valence Semiconductor is well positioned with a highly relevant and compelling set of solutions to address customer demand as we see market tailwinds return. For example, the advantages of our technology make it an optimal connectivity solution to support the increasing need for AI-based applications in robust connectivity solutions that allow the distribution of ever-increasing data. Now, let me turn to our performance and the trends we are seeing in the markets we serve, starting with audio video. While demand since the second half of 2023 has been challenging, I remain excited. Our offering is designed to benefit from the positive long-term trends in the video conferencing, education, industrial, and medical imaging sectors, among others. As more and more corporations are implementing return-to-office policies, they will need to invest in their video conferencing platforms to redefine the hybrid work environment. The install base potential of video is approximately 100 million conference rooms and classrooms worldwide. The penetration level is very low, at about 10% or so, according to industry analysts. We believe it's only a measure of time before we see widespread demand from companies for connectivity solutions like ours that offer high bandwidth, quality, easy installation, and low total cost of ownership. To that point, the CEO of Logitech, our customer partner, recently commented that the time in video conferencing is enormous. He also said that if you look out 10 years, it makes perfect sense that all conference rooms will be video enabled. I obviously agree with this view of the video conferencing market, which means there is a significant opportunity for balanced semiconductor. Our offering is increasingly relevant for all types of meeting rooms, from large corporate boardrooms to smaller hotel rooms and small home office setups known as SOHO. In 2023, we introduced a very exciting and innovative product, our USB 3.2 extension, the VS6320 chipset. With the introduction of this groundbreaking product, Valence Semiconductor addresses the most prominent industry pain points. We provide a high-performance single-chip solution for multi-gig connectivity for distances up to 100 meters or 328 feet over simple category copper cables. Just as with video conferencing, the USB3 extension opens up new opportunities for valence semiconductor in the audio-video market. For example, in the industrial vertical, we can expand our penetration to address the for high bandwidth and resilience required by AI-based computer vision. Due to the growing use of high-bandwidth USB peripherals and the inherent limitation of connectivity length, the industry has been seeking a professional-grade extension solution. The Lens Semiconductor has identified these growing requirements in video conferencing, IT, industrial, and medical applications. We are receiving exceptional feedback from our customers on this newly introduced chipset, and it was a major hit at the Consumer Electronics Show in Las Vegas and at Integrated System Europe in Barcelona, the world's largest audio-video trade show. At CES, the VS6320 was a 2024 Innovation Award honoree in the Embedded Technology category for outstanding design and engineering as the first to market cheap solution for professional-grade extension of USB 3.2. And last month, we won two more distinguished awards for the VS6320 at ISE, the Commercial Integrator, TNT Top New Technology Award, and AV Technology Magazine's Best of Show. Momentum around the VS6320 is strong, with dozens of products under development by valence semiconductor customers, a dozen of which were introduced at ISE. Products introduced range from point-to-point extension between cameras and computers, USB hub and switch extension, enabling long-range connectivity between multiple USB cameras, video conferencing, touchscreen control, panels and PCs. We saw exceptional enthusiasm around VS6320 chipsets embedded into cameras, which will eliminate the need to use external extension boxes and dedicated power suppliers. This means much faster and simpler installation of video conferencing systems at a lower total cost. We believe that this new standard of built-in high-performance USB 3.0 extension will become a default requirement in the industry. Another innovative product concept introduced by our customers was the extended docking station. Combining balanced USB 3.0 extension technology with the docking technology provides a balanced, cost-efficient, and easy-to-install huddle rooms. This will enable acceleration of the adoption of video conferencing in unequipped tens of millions of huddle rooms. These are all examples of how Valen Semiconductor is once again setting standards and transforming industries. We expect revenues from the VS6320 to begin ramping up in the second half of 2024 and believe that Valen Semiconductor will capture a substantial share of this largely untapped and growing market opportunity in the coming years. We are also targeting industrial applications with the USB3 extension chipset and are extremely excited about this opportunity as USB3 brings benefits to factory automation which heavily relies on machine vision that increasingly utilizes AI. These benefits include an easy and cost-effective replacement of parts and cables and lower latency and jitter. The VF6320 is a game changer. It solves connectivity challenges of the current solutions as it uniquely provides the ideal combination of multi-gig bandwidth extension, language, and resilience with a single chip on each end. All this done at substantially lower costs. While the sales cycle in the industrial market tends to be lengthy, it provides a long-term and extremely sticky runway. Another evolving trend is multi-camera applications, which are suitable for video conferencing and provide enhanced meeting equity. Multicamera applications are also relevant for industrial machine vision. Commonly used remote communication platforms are increasingly integrating AI-based decision-making features that select the best view of audio of in-room participants for multiple cameras and audio sources, increasing the potential quality, clarity, and resolution of the video and audio streams in the meeting, enabling better remote communication and collaboration. Valet Semiconductor's connectivity solutions enable this evolution of AI-based applications, positioning us to capture growing business opportunities. For example, in 2023, we announced a collaboration with iCatch Technology, a Taiwan-based AI image processing company, to bring a 360-degree multi-camera video conferencing solution to market. This video conferencing solution is based on our automotive-grade VA7000. Last month, iCache announced the plans to introduce an AI-enhanced multi-channel surround view monitoring system for the automotive industry, which is also based on our VA7000 high-performance automotive connectivity solution. This collaboration demonstrates our vision for a holistic strategy that leverages Valen Semiconductor's core technology to power cross-industry innovation. Talking about automotive, we have continued to make considerable progress in our automotive business and our commercial VA6000 chipsets contributed to a record level of automotive revenues in 2023. Our asymmetric VA6000 chips have been used in infotainment and telematics systems in Mercedes-Benz cars for a number of years. 2023 was our first full year of selling our chipsets into a broad range of data-based models, S, C, and E-class series, as well as our EV models. While the automotive sector is experiencing a cyclical downturn, pointing to weaker demand, as well as slower decision-making around new technology adoption, I am encouraged by the interest we see in our VA7000 MIPI A5 chipset. We have continued to make progress with various evaluation processes that we are participating in and have expanded our pipeline of opportunities. In addition to the excellent electromagnetic compatibility known as EMC immunity tests we passed in Japan by Jasper earlier in 2023, valence semiconductor technology was also validated by leading European labs at the request of leading automotive OEMs who are evaluating our technology. While this process is lengthy, as time goes by, the necessity of resilient connectivity provided by AFI will continue to grow. Our technology is designed to provide seamless connectivity for the increasing number of sensors and infotainment systems in today's and future cars. This is an unstoppable trend supported by content uplift as regulatory and safety requirements are increasingly adopted mostly for advanced driver assistance systems known as ADAS and other safety-related solutions. We expect to continue to make progress towards securing the first VA7000 design wins. In the meantime, we continue to advance our long-term prospects for ADAS and surrounding safety systems, positioning Valen Semiconductor as a top technology innovator in the automotive sector. So far in 2024, we have announced two important developments. First, we announced our partnership with Intel Foundry Services. ILS will fabricate the second generation of our A5 compliance chipsets for the automotive industry. Intel's ecosystem and advanced processes will enable significant cost and power reductions for this chipset family while achieving the highest performance and robust EMC immunity. We are extremely proud to have been recognized by Intel and industry leader for developing one of the most advanced chipsets for automotive. Stuart Pham, Senior Vice President and General Manager of IFS, said that one of their goals is to identify transformative technologies and harness Intel's breakthrough process technology and global ecosystem to accelerate innovation and unlock new opportunities for customers. He also said that the valence semiconductor MIPI AFI chipset is an obvious fit in next generation technology with the potential for broad market adoption that can help advance automotive performance and safety and further the market's vision for autonomous solutions. The second announcement made earlier this month was about another new connectivity chipset providing a robust solution to critical safety concerns and operational needs in the trucking industry. Valen Semiconductor's new BA700R chipset will uniquely solve the lack of visibility for trucks on the highway by delivering an unparalleled combination of bandwidth and lane distances for both surround view and rear view visibility. This multi-key connectivity infrastructure was designed with highway safety and tractor-trailer in mind and will address one of the most dangerous situations on our road today, making them much safer. Based on the VA7000, we developed the VA700R chipset, which was introduced last month at Automotive World Japan, the largest automotive technology show in Japan. Even with the current headwinds in automotive, we are excited about the progress we are making and can leverage our technology to capitalize on a growing set of opportunities in this multi-billion dollar market in the coming years. With that, I will turn the call to Guy to discuss our financial performance in more detail.