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 second quarter 2025 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 second quarter 2025 earnings call. With me today are Gideon Bentzvi, Chief Executive Officer, and Guy Nathanson, Chief Financial Officer. Earlier today, we issued a press release that is available on the investor relations section of our website under investor.valence.com. As a reminder, today's earning 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-S, filed with the SEC on February 26, 2025, 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 reconciliation of these metrics within our earnings release. With that, I will now turn the call over to Gideon.

Thank you, Michal. Hello, everyone, and thank you for joining us. We are pleased with our performance in Q2, where we exceeded our guidance and delivered revenues of $17.1 million. This marks the fifth consecutive quarter of growth for our company. Gap gross margin came in at 63.5% in the mid-range of the guidance and adjusted EBITDA loss was $4.0 million above the guidance range. Nevertheless, like many in our industry, we haven't been immune to the impact of global tariffs. These have prompted some customers to lower their forecast for the second half of the year, which we expect will affect our revenue outlook. Therefore, we are updating our full-year 2025 revenue guidance to be in the range of 66 to 71 million dollars. Still, the momentum continues and the new guidance range reflects a 14% to 23% increase compared to 2024, which is in line with the long-term plans we presented. Before we dive into the activities in Q2, I would like to remind you of our go-to-market strategy at Valence, which begins by targeting integration into high-end products. Our chiefs have always been known across industries for offering the best connectivity available, the highest bandwidth, the simplest wiring infrastructure, the most resilient to interferences. For this reason, when we enter a new market, we expect penetration to take time. Companies start with extensive evaluation of the chip, then integrate it into high-end models. After that, months or sometimes even years later, we see the market catching up. What starts out as a high-end only requirement becomes the new normal, and the volumes increase accordingly. We call it expectation inflation. And when this happens, our chips go from being a niche connectivity solutions for premium products to must-haves for flagship product lines. I'm bringing this up now because in Q2, we saw the latest examples of how this strategy bears fruit with our VS3000 chip. So that's where I'm going to begin our quarterly discussion I'll start with our cross-industry business unit, which covers professional audio-video, industrial machine vision, and medical. In the first half of 2025, we experienced growing demands from our customers, mainly in the pro-AV market, and especially for the VS-3000. This chip remains the only solution on the market for the long-range distribution of uncompressed HDMI 2.0 delivering high fidelity audio, Ethernet, USB 2.0, controls, and power over a simple category cable up to 100 meters. What we saw during the course of Q2 was a surge of new product based on this chip going from around 100 at the end of 2024 to more than 150 today. This is a reflection of a market catching up, so to speak. Where customers may have in the past been OK with slow resolution video processing setup or sub-optimal office layouts, expectations installation has guided our customers to solve these issues with the VS-3000 chipset. Here are a few notable examples of customers who have already launched products built on our VS-3000 chip. Matic Leader Crestron based its DM Essential line on this technology. Innogeny has introduced a 3-host switcher for USB and HDMI. Crema Electronics brought to market an all-in-one hybrid presentation matrix and AVPro Edge has released 18 gigabit 4x4 and 8x8 matrix switches. We expect momentum for this chip to continue as we carry forward into the end of 2025 and beyond. We received further recognition of the VS-3000 growing market penetration at Infocom International, where three of our customers won awards for products based on this chipset. Apantac for its innovative dual-sided digital sign-in solution. Rethink AV for a fully uncompressed 4K and USB 3.2 extension solution in a single box, which also uses the VS-6320. and M-Solution for the first of its kind device capable of extending uncompressed 4K video over USB Type-C using DisplayLink Alt mode. It wasn't just our customers. Valen also won awards during the two InfoComm events in Beijing and Orlando. At InfoComm China in April, we were honoured with the Best of Show Editor's Choice Award in the best technology application category for a VS6320 chip. At Infocomm International in June, we were honoured with the best offshore reward of our VA7000 chip, recognised for its innovation, feature-set and industry impact. Our technology was at the heart of our AI-powered 360° immersive experience. With an 8-camera setup along the HD-based TA lines boost perimeter, we enabled real-time gesture recognition and dynamic camera angle control, which could be used in applications such as retail and in-person entertainment. This demonstration was created in collaboration with this re-embedded look sensing technology and enabled by NVIDIA. Staying within the cross-industry business unit, I would like to discuss another industry, machine vision. This is another example of go-to-market strategy. target the market with the premium offering and let the market catch up. Valence A5 offering attracted strong interest across a couple of events, automating Detroit and ISS in Japan. This was thanks to our chipset's robust EMI performance, long reach capabilities, and suitability for compact, high bandwidth camera systems. Our presence helps strengthen relationships with key players, positioning AFI as a leading candidate for next-gen factory automation and inspection systems. In July, we were proud to announce that our VA7000 chipset is enabling the market's first comprehensive camera-to-processor MIPI AFI platform offered by D3 Embedded. The platform brings to market the first product-ready solution for implementing this standard in embedded vision systems offering this risk customer a series of unique benefits. These include unparalleled EMI resilience, longer link distances, and the ability to operate over simple low-cost cabling. The chipset also features built-in advanced diagnostic for continuous link monitoring and preventive maintenance. This directly addresses one of the major challenges in factory flow machine vision. ensuring round-the-clock system reliability as equipment ages and operating conditions evolve. The platform includes some additional components from other leading companies, a processor from NVIDIA, the Jackson Orin XO Nano, and sensors from Sony. In addition, D3 Embedded is offering six A5 DesignCore Discovery Series SKUs. On the significance of this partnership, D3 Embedded CEO's Scott Redon remarked, quote, AFI ability to deliver high speed data over long distance with exceptional electromagnetic compatibility is a game changer for the industry. Investing in this technology was crucial because it addresses the key challenges our customers face. Reliable connectivity in harsh environments and simplified system design, including the industry's first-ever use of unshaded twisted spare channels for multi-gig use cases. By building this platform around MIPI AFI and partnering with Valen Semiconductor, we are giving developers a powerful, flexible toolset to accelerate innovation in embedded vision. In order, we continue to support our customers in bringing solutions to the market based on our VL7000 and DS6S320 chipsets. We expect machine vision to become an increasingly meaningful part of our revenue mix in the coming quarters, with initial revenue anticipated by the end of 2026 and strong growth potential in the years that follow. I would like to close out the discussion of our cross-industry business unit with the update on the notable progress we're making in medical endoscopies. We have the two road tools in Europe and Japan, where we showcase our VA7000 chipsets and their ability to support a new generation of reliable, high-quality endoscopic procedures. While I can't disclose specific names, we have received initial feedback from some of the largest players in the industry. We came away more confident than ever that Valen's value proposition is essential in moving the market forward. As a reminder, this is still a small part of our business, but one with significant long-term potential. Unlocking this potential starts with validation of our offering from the industry's leading players, and in Q2, we began to see that validation taking shape. Now I'd like to turn to the automotive industry. As a reminder, our opportunity in automotive is dominated by the VA7000, the same chipset that drives our offering in the machine vision and medical industries. The V7000 extends an interface CSI2 that is used commonly across a number of industries, offering high bandwidth and best-in-class EMI immunity. It is the first chipset on the market to comply with the MIPI AFI standard for high-speed sensor connectivity. Late last year, we announced redesigns with leading European OEMs for this solution, gaining a strong foothold for the AFI within the OEM community. Building on the momentum, in Q2 we brought the VS7000 and the broader AFI ecosystem to the global stage. At Auto Shanghai, we unveiled a number of demonstrations showing AFI connectivity with products from major industry players. First, we had Qualcomm's Snapdragon Ride 4 evaluation platform with AFI connectivity. Second, we had Chinese T1 supplier Desai SV with an AFI surround view system. Third, we had Horizon Robotics journey platform with AFI. And finally, an ADAS reference design with Sigma Star based on AFI. I'd like to make note of one event that really made waves within the industry, the MIPI Alliance's annual meeting that took place in Warsaw towards the end of June, which brought together 117 representatives from 36 companies from around the world. The keynote address at the opening plenary was given by a senior vice president at Mobileye. I remind you that in Q1, we announced that Mobileye is the Tier 1 involved in our three AFI design wins. In his address, the executive stated that Mobileye anticipates a significant expansion of the AFI ecosystem with active participation from all sensors and camera sensor vendors. In addition, he provides certain feedback about the Valence VN7000 ease of integration highlighting performance, design flexibility, and fast time to market. In that same meeting, a representative of leading automotive OEM shared with the audience why his company chose Valence A5 compliance chipset for their ADAS platforms. His endorsement of our technology was exceptionally strong from highlighting its superior noise immunity to its support for smaller, more cost-effective cameras, and more. He summed it up best when he said, quote, AFI has much better performance than the incumbent solutions. A word about the momentum of MIPI AFI in Asia. Earlier this year, we announced interoperability testing with seven different AFI silicon vendors in China, a testament of the vast market opportunity that exists there for this standardized connectivity solution. In addition, we announced special partnerships with the local company ESWin Computing, which will allow us to streamline our sales into the Asian markets. This kind of localization activity places us in a stronger competitive position as we advertise our chips to the many global OEMs based out of China. As an example, our chipsets are currently undergoing advanced testing by a leading Chinese OEM which wants to use our solution with a low-cost harness for its next-generation ATA system. It's clear that momentum around A5 is building all around the world. We continue to participate in several evaluation processes at various stages with multiple OEMs. Now, before I turn the call to Guy, I want to take a moment to acknowledge the leadership transition we announced in May. I will be stepping down as CEO of Alen Semiconductor by the end of 2025. It's been an honor leading this exceptional team for over five and a half years through major milestones. From listing on the New York Stock Exchange to securing three design wins for the MIPI AFI compliant VA7000 chipset, to expanding into new verticals like machine vision and medical. This planned transition is designed to ensure continuity and preserve momentum moving forward. Needless to say, if additional time is required, I'll extend my stay until a successor is in place. I plan to remain actively involved as a board member and as a shareholder thereafter. With that, guys, please go ahead and discuss our financial performance in more detail.