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 third quarter 2024 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 Michal Ben-Ari, Investor Relations, for Valence Semiconductor. Please go ahead.

Thank you, and welcome everyone to Valence Semiconductor's third quarter 2024 earnings call. With me today are Gideon Bentsby, Chief Executive Officer, and Guy Nathanson, Chief Financial Officer. Earlier today, we issued a press release that is available on the investor relations sections of our website under investor.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 20-X filed with the SEC on February 28, 2024 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 earning release. With that, I will now turn the call over to Gideon.

Thank you, Michal. Hello, everyone, and thank you for joining Valens Semiconductor's third quarter 2024 earning call. 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. We push the boundaries of connectivity. Our advanced chipsets empower customers to bring disruptive 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. We are proactively introducing our new chipsets to existing and new customers where there is strong interest in audio-video, industrial and machine vision verticals. We expect more design wins over the near and mid-term. 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. 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. 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. Importantly, we have a very strong balance sheet with $133.1 million of cash-on-cash equivalents We're well positioned to continue investing in innovation and exploring strategic M&A that will support long-term growth. Now, I'll discuss the trends and opportunities we see in our markets. Starting with professional audio-video, which includes applications such as entertainment, video conferencing, education, and digital signage. Since its introduction late last year, the VS-6320 has attracted over 50 customers that are developing and launching products for audio-video applications. This is an extremely high adoption rate and is expected to contribute to a record number of customers' products that should be launched in the next 9 to 12 months. 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. One exciting new video conferencing product, the Logitech Xtend, is based on our HD-based technology. Xtend allows meeting rooms users to connect using a single USB-C cable and launch a meeting from a laptop or a mobile device utilizing the room's peripherals. We expect it's high performing easy-to-use extension solutions to fuel demand for advanced meeting room solutions. Moving on to the machine vision and industrial verticals. Based on market research, the broader machine vision market is expected to reach $7.8 billion by 2029. Factory and warehouse automation combined with more demanding inspection regulations will drive this growth. We anticipate that the time for the segment in which we compete can reach $460 million by 2029 and believe we are well positioned to capture a significant market share. Last month, we showcased our innovative solutions for the industrial machine vision market at the Vision Trade Show in Stuttgart, Germany. Vision is the leading international trade fair for machine vision. The show attracts thousands of visitors from a wide range of industries. I am pleased to report that Valence received outstanding feedback from prospective customers for two of our latest products, our VA7000-CSI2 extension solution as well as the VS6320-USB3 extension solution. Both chipset enhance commonly used interfaces in the industrial market and eliminate the constraints of choosing between expensive long cable connectivity or compromising on short cables with no flexibility to modify the length. Our solution enables the capability and flexibility that machine vision for industrial installation is eager for. We also announced the release of our USB3 industrial-grade extender product. Based on the VS6320 chipset, this product allows vendors to extend their existing portfolio of USB3 cameras. This is done without any product redesign, providing a ready-to-use solution and significantly decreasing time to market. Currently, we are engaged with leading camera module manufacturers in industrial machine vision. 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. We're also excited about Acroname's potential to expand our position in the industrial market. 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. To this end, Valence is conducting strategic organizational changes with the audio-video business unit. Audio-video business is transitioning to cross-industry business encompassing verticals including audio-video, industrial, machine vision, and medical. To facilitate our growth strategy, 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. As part of this change, and after over a decade, Gabi Schricke, will be stepping down as head of audio-video business. Gaby has been instrumental in establishing and growing the audio-video business from the ground up and has played a pivotal role in positioning Valence as the unrivaled leader in professional audio-video connectivity. On behalf of the Valence team, I would like to thank Gaby 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 Valence starting February 16, 2025. Gabi will remain at Valence for a period of time to facilitate a smooth transition. Next, I'll talk about automotive. We are thrilled to have achieved three design wins with leading European OEMs this quarter. The OEMs are expected to begin integrating our VA7000 chipsets into certain vehicle models starting in 2026 with further acceleration in 2027 and 2028. 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. We believe These wins show that our superior technology is advancing the MIPI AFI global standard for high-performance connectivity. Importantly, we believe they position us for future design wins with other OEMs looking to adopt this standard. Furthermore, we believe these design wins 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. Since the announcement, we were received many questions as to why we can't disclose the names of the OEMs. It is common practice in the automotive industry for OEMs to avoid revealing the technology inside their cars, at least until the start of production. This is also true for tier two suppliers like us, who need to protect the OEM customers' development of new technologies, which is an important competitive advantage to them. Our goal over the next 12 to 24 months is to support the recent design wins and to receive new wins. We currently have several evaluation processes with multiple OEMs in various stages. I would like to take this opportunity to thank Gidon Kedem head of our automotive business for his instrumental role in securing these three pivotal design wins. As he prepares to retire at the end of 2024, we would like to recognize his dedication and success in positioning Valence as a key player in automotive connectivity. Gideon Hedem's tenure at Valence has been marked by exceptional leadership, dedication, and an unwavering focus on advancing our automotive business. I would like to thank Gideon Kedem for waiting with his personal retirement plans until achieving his goal of securing new design wings for Valence. After laying the foundation for future success, he is now ready to pass on the leadership of the automotive business. Effective January 1st, 2025, Adar Segel will assume the role as head of automotive business. Adar joins Valence with over 20 years of expertise in technology-driven sales, complex deal structures, and partnerships across multiple high-tech industries. We are confident in his ability to drive our automotive strategic growth. Gidon Kedem will remain at Valence for a period of time to facilitate a smooth transition. Turning to our first-generation automotive chipset, the VA6000 business with our legacy automotive customer Mercedes-Benz remains on track. In the tracking segment, we're making progress in field trials with StoneRidge. Turning to a brief update on the MIPI AFI standard. We are pleased that AFI is gaining wider adoption beyond OEMs. For example, Continental, a leading global automotive supplier, introduced an 8 megapixel camera that deploys MIPI AFI connectivity, further expanding the AFI ecosystem within the automotive industry. Also, companies in test and measurement systems are using Valence chipsets in their connectivity solutions. Recently, the MIPI Alliance highlighted the large and rapidly growing ecosystem supporting AFI technology. Currently, 32 companies are developing products based on the standard according to public announcements. We're excited to see meaningful progress in our automotive business. This is a vast long-term opportunity with an expected sum of $4.5 billion per year by 2029. With that, I will turn the call to Guy to discuss our financial performance in more detail.