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 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 fourth quarter 2024 and full year earnings call. With me today are Gideon Ben-Tvi, 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 investors.valence.com. As a reminder, today 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 20S 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. 2024 was a challenging year for many companies around the world including semiconductor companies in many markets and these challenges affected Valens as well. However, although our sales were slowed by continued inventory digestion and weakness in our customer markets we believe that we are emerging from the bottom of the cycle and the 2025 will prove a turnaround year for our company i want to start by giving you some highlights for 2024 three design wins in the automotive industry second we successfully completed our first acquisitions acronym which will enable valence to expand its position in the industrial market with a holistic usb focused offering third we released the vs6320 chipset the first asic based usb on the market create a new market that has high growth potential industrial machine vision and established specific cooperation with companies in this space fifth that if achieved could see us more than quite in order to maximize our ability to reach new high gross potential markets over the next few minutes the details of this plan will achieve our goals the million dollars which exceeded the top end of our guidance 60.4% above the midpoint of the guidance and adjusted EBITDA loss was 3.7 million dollars better than the guidance range we have a robust balance sheet of 131 million dollars now let's turn to the five-year plan cross-industry business unit or CIB and they'll bring down into the various sub-verticals included within it first and foremost the professional audio video vertical this is the bread and butter of balance the video conferencing vertimate will signify a sum of 350 million dollars by 2029 although this market is currently addressed by our legacy hdbc solutions we believe that there are significant additional growth opportunities here fueled by a variety of market dynamics including increased demand for video and video peripherals inside meeting rooms as well as the growing popularity the interface of choice the vs6320 which we believe is the most reliable and cost-efficient extension solution for usb 3.2 on the market today and continue to impact our pro EV sales positive market feedback following the video leader Sennheiser cutting edge chipsets can power Logitech's innovative rally camera streamline kit and Logitech's conferencing and hybrid learning applications capitalize on important trends with conference rooms more opportunities for technologies already embedded within all major projectors brand is Sonic and it is the external audio-video distribution of Crestron, Xtron, Aklona, and Pacto providers of comprehensive meeting room connectivity solutions. We estimate that in 2025, we will be given the following factors. Our customers are entering 2025 with much healthier inventory levels and they report increased activity with small new bits and and installation in their end markets. Staying with the Cross Industry Business Unit, we are going to move to our new high-growth market, industrial machine vision and medical endoscopes. We are long being active in industrial and medical, offering IPC connectivity in the former and medical imaging connectivity in the latter. Additionally, as outlined in our five-year plan, we believe the industrial machine vision and medical endoscopy vertical represents new and exciting opportunity with high potential upsides. In the industrial machine vision vertical we are heavily promoting our VA6320 and VA7000 chipsets which extend the commonly used USB 3.2 and CSI2 interfaces respectively. Actively engaged with leading camera module manufacturers including Teledyne, E2V, Framos, Leopard Imaging and D3 embedded among others and these collaborations are developing. D3 officially began selling camera modules based on the VA7000 A5 chipset offering half a dozen A5 models. We will be showcasing these chipsets taking place in November next month. Live demonstrations and machine vision events will be an excellent opportunity to further broaden our customer base. In total, our five-year plan anticipates that our potential time for the industrial machine vision vertical can reach $460 million by 2029 and are well positioned to capture a significant share of this market. The next step is to achieve new design wins based on our advanced chipset with expected commercialization starting from 2026 and beyond. A couple of words about Acroname, the company we acquired in May 2024, has the potential to expand our position in the professional audio video and industrial markets. Just last month, Acroname announced a new product based on the Valence VS Role Manager and Extend USB devices. A variety of projects with companies in this space, some in the stage of preparing for clinical trials while others are readying to seek FDA approval. A small market and our solutions are only now starting to gain traction. However, in the long term we are excited about how this vertical could evolve. I would like to turn now to the automotive industry. Our five-year plan clearly highlights this industry as a key component in our long-term vision. This is a vast long-term opportunity with an estimated time of 4.5 billion dollars per year by 2029 with significant upside during the following years one there is wide market adoption of sophisticated aid assistance and once again i am confident that we will capture a significant share of this market chipset the v8 7000 particular evaluation process we're undergoing with a top five global oem benchmark our v8 7000 a5 compliant chipset against competing solutions as a result of intensive testing which took place over this our technology won by knockout and was found far superior across the majority of testing parameters including with satellite reception 21 in mercedes-benz this contract has generated 21.6 million dollars of revenues during 2024 and we expect it to account for most of our automotive revenues during 2025 as well With that, I will turn the call to Guy to discuss our financial performance in more detail.

Thank you, Gidon. Let me start with our fourth quarter and full year 2024 results, and then I'll provide our outlook for the first quarter of 2025. We achieved quarterly revenue of $16.7 million, the fourth consecutive quarter of revenue growth, which exceeded our guidance of between $16 million to $16.3 million. This compares to revenue of $16 million in Q3 2024 and $21.9 million in Q4 2023. The cross-industry business, or CAB, accounted for $11.7 million, or approximately 70% of total revenue, while automotive contributed $5 million, or approximately 30% of total revenue this quarter. This compares to Q3 2024 revenue of $9.4 million from CAB and $6.6 million from automotive, which represented 60% and 40% of total revenue respectively. It also compares to Q4 2023 revenue of $15.8 million from the CAB and $6.1 million from automotive, representing 70% and 30% of total revenue, respectively. Q4 2024 gross margin was 60.4% compared to our guidance of between 58% and 62%. This compares to a Q3 2024 gross margin of 56.4% and Q4 2023 of 61.7%. On a segment basis, Q4 gross margin from the cross-industry business was 64.7%, and gross margin from automotive was 50.5%. This compares to a Q3 2024 gross margin of 70.2% and 37%, a Q4 2023 gross margin of 76.6% and $22.00 in Q4. Research and development expense in Q4 totaled $10.1 million, compared to $10.3 million in Q3 2024 and $8.6 million in Q4 2023. The increase compared to Q4 2023 is mainly due to payroll related expenses of acronyms workforce in the amount of $0.9 million. SG&A expenses in Q4 were $8.3 million, compared to $10.7 million in Q3, 2024, and $6.6 million in Q4, 2023. The quarterly decrease was mainly driven by a $2.2 million expense resulting from a certain batch production incident expense recorded in Q3, 2024. Gap's net loss in Q4 was $7.3 million, compared to a net loss of $10.4 million in Q3 2024 and a net profit of $2.8 million in Q4 2023. Adjusted EBITDA in Q4 was a loss of $3.7 million, lower than the guidance range of loss between $4.9 million and $4 million. This compares to an adjusted EBITDA loss of $5.1 million in Q3 2024 and an adjusted EBITDA profit of $2.2 million in Q4 2023. Gap loss per share in Q4 was 7 cents, compared to a gap loss per share of 10 cents for Q3 2024 and a gap profit per share of 3 cents for Q4 2023. Non-gap loss per share in Q4 2024 was 2 cents, compared to a loss per share of 3 cents in Q3 2024 and a profit per share of $0.06 in Q4 2020. The main difference between gap and non-gap loss per share was due to stock-based compensation, appreciation and amortization expense, and expense relating to a certain batch production incident. I will now turn to the full year 2024 results. Total revenue for the year 2024 were $57.9 million, exceeding our guidance of between $57.2 million to $57.5 million. This compared to full year revenue from 2023 of $84.2 million. Revenue from the cross-industry business were $36.3 million, of which acronym contributed $3.4 million dollars compared to 57.4 million dollars in 2023. This decrease was due to customer working through excess inventory which slowed the pace of orders as well as the weakness in their end markets. Automotive business revenue was 21.6 million dollars down 19.4% from 26.8 million dollars in 2023 due to gradual price erosion and a reduction in the number of units sold to Mercedes-Benz. Gap gross margin was 59.2% for the full year 2024, compared to 62.5% in 2023. On a segment basis, 2024 gross margin from the cross-industry business was 71% and gross margin from automotive was 39.5%. This compares to gross margin of 77.1% and 31.1 percent respectively in 2023. The increase in 2024 automotive gross margin was due to an optimization of our product cost. The decrease in gross margin of the CAB was due to a product mix shift and lower fixed cost. Non-GAAP gross margin was 62.9 percent for the full year 2024 compared to 63.9 percent in 2023. Full year 2024 operating expenses were lowered, reaching 75.6 million dollars compared to 79.5 million dollars in 2023. The year-over-year decrease of 3.9 million dollars in OPEX was driven by a decrease in R&D expense, moving to net loss and adjusted EBITDA. Gap net loss for the full year 2024 increased to 36.6 million dollars from 19.7 million dollars in 2023. Adjusted EBITDA loss for the full year 2024 was 21.1 million dollars, a decrease compared to 10.3 million dollars in 2023. Gap net loss per share for 2024 was 35 cents, a decrease compared to 90 cents in 2023. Non-gap loss per share for 2024 was 15 cents a decrease compared to five cents in now turning to the balance sheet we ended 2024 with a strong balance sheet insured and deposits totaling 131 million dollars and no debt this compared at the end of q3 2024 and 142 million dollars at the end of 2020 at the end of the quarter 130 at the end of q3 2024 and 150 for a total consideration of 7.8 million dollars in cash and potential earn-out of up to an additional $7.2 million that shall be paid during 2025 EBITDA and cash flow targets in 2024 and 2025 and the development of a certain product by June. The company is actively looking for more acquisition opportunities with a focus on companies generating revenue with a clear path to profitability, particularly in the Pro-AV and industrial machine vision markets. In addition, we recently announced another share repurchase program of up to $15 million, following the completion of a $10 million program we announced in late 2024. The new share repurchase program reflects our confidence in the company's long-term growth and commitment to enhancing our shareholders value. Now, I would like to provide our guidance for the first quarter of 2025 and the full year of 2025. For 2025, we expect our annual revenue to be in the range of $71 million to $76 million, which represents a year-over-year growth of 23% to 31%. We expect Q1 revenue to be in the range of $16.3 to $16.6 million. We expect gross margin for Q1 to be in the range of 60.8% to 61.3% and we expect adjusted EBITDA loss in Q1 to be in the range of $4.5 to $4.2 million loss. I would like to remind you that our five years plan which we presented in November 2024 set our long-term financial goals. We are targeting that by 2029, our revenue will be in the range of $220 to $300 million, with gross margin in the range of 50 to 60%, and EBITDA margin in the range of 15 to 20%. I'll now turn the call back to Gidon for his closing remarks before opening the call for Q&A.

We believe that Valen Semiconductor is well positioned for a return to growth in our target markets leveraging our industry leading technology and robust balance sheet executing our long-term strategy before opening the call for questions to the entire valence global team for their ongoing commitment and dedication thank you ladies and gentlemen at this time we will begin the question and answer session if you have a question please press star one

if you wish to cancel your request please press star two if you're using speaker equipment kindly list the handset before pressing the numbers. Please ask your questions 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. The first question is from Quinn Bolton of Needham and Company. Please go ahead.

Hey, it's Neil Young. I'm for Quinn Bolton. So within the cross-industry business, which end markets are showing the strongest demand in the near term? Are there any showing weakness? And And then also looking forward, how should we think about the growth trajectory for this segment throughout 2025? Thanks, and then I have a follow-up.

Thanks for the question. And the answer is not simple. The answer is mixed, and I will try to simplify it. We have the traditional audio-video market, which we are a strong player, and this was the market that suffered from weakness in the past year. Yet the market have new opportunities, which are very natural for us to continue, such as the huddle room, the small conference room, and all the traction that is to connect the cameras which just below the TV to the room and this is a market which is a growing market for us and in a sense is a kind of a low-hanging fruit because it's a natural progress for our customers. When we speak about industrial market we definitely speak about larger magnitude but it's not as fast as not as a natural growth because some of the customers are new customers so on one hand you have more demand more demanding market we answer there a very painful need but it's a market with the different characteristics so if you look at the market the traditional prohibit the new AV opportunity which is the conference room and the market of the machine vision I believe there is the differences will be about the timing, about the magnitude, and sometimes longer time is also longer than magnitude, which is natural in this case. But in general, all three of them are very appealing to us, and we're very much looking forward for all the three.

Great, thanks. And then could you walk us through the key drivers behind the gross margin guide for the first quarter?

And then additionally, do you see this level sustaining beyond the first quarter, or should we expect any fluctuations in the margin profile throughout the rest of the year thanks so for the is a cab we we've seen a product a specific product shift it might be changed in the falling quarters for the automotive we think it will be more sustainable because we were able to optimize the cost structure of the device of the chief and this is why we believe it will continue in the falling quarters as well. And the overall, the average gross margin of the overall company is very much dependent on the ratio of the revenue between the CIB and the automotive. It's yet to be seen.

The next question is from Rick Schaefer of Oppenheimer. Please go ahead.

Hi, good morning. This is Wayne Mark on the line for Rick. Thanks for taking the question and congrats on the results.

For my first question, in your prepared remarks, you talked about um emerging from the bottom of the cycle i was wondering if you can expand on this um anything you can share on customer demand today compared to 90 days ago and what are you seeing that gives you confidence in this um outlook thanks okay um thank you very much for the question way and the answer here is as follows uh we have some access and we speak with our customers to learn from them what they sense from the market and some of them obviously suffered from the same weakness in the past year and they are our sources to know the recovery of the market. So this is one source and this is one of the reasons for this optimism. The other source for the optimism is that we're actually not looking only in the same market we did before and we add to the market we had before also the connecting the camera to the room and the usbc the usbc connection the or product vs vs 6320 which represents new opportunities for us one of them we announced a few weeks ago about the collaboration with a sennheiser and we hope and we're working that on this market very hard and this is a natural growth of this market which i think we prepared ourselves well enough to be positioned well for this market so the answer is both the source of our customers that share with us optimism about the recovery that they see and this is actually the best way for us to know what happens in this market because they are the ones that are sensing their customers and their channel and the other is the product roadmap that enables us to penetrate other segments of this market which we didn't haven't been before good great that's good to hear and thanks um as for my second question um i'm going to shift over to auto um in december there was an m a announced for one of your competitors in the in-vehicle connectivity market um was wondering if you can share your thoughts on this how does it change the competitive landscape and

How do you see A5 positioned to compete against them?

Yeah, we definitely sense this M&A. We're not here to explain every M&A and the logic behind it. We're very persistent that whenever you go out, the problems are different. And we're very confident that A5 is the best and by far the unique solution to cope with high bandwidth, with unshielded cables, and the fact that one company has been acquired or the second company has been acquired that represents a derivative or what's supposed to be a derivative of Ethernet doesn't confuse us. I can tell you something. We said it in the past. We could go on the standard very easily. For us, it's definitely a subset of the complexity of what we chose to do. We chose to go on AFI not because we just looked for the highest technological barrier. We chose on AFI because we predicted that the market, when they go on higher resolution and the big, higher bandwidth, and the ADA system wants to cover more potential accident cases, they will have no chance but to have more data and more data is more bandwidth and more bandwidth is more exposure to noise ability to do it is unbeatable in a big big gap and we're always welcoming companies to where to challenge my sentence here and my declaration here and yet here we hear a news and definitely every company has to do the mark to maximize their ability and their presence at the end of the day there is marketing and there are chips and it comes cheap against cheap semiconductor and again semiconductor we believe we are not winning in points we're winning in knockout and the three design wins we had are people who have far easier and more access to any other technology than to us and it simply fails and they came to us.

Great. That's good to hear.

The next question is from Suji Da Silva of Roth Capital. Please go ahead.

Hi, Gideon. So, maybe perhaps on the auto side, you could update us on the three European OEMs and just remind us of L2 or L2 Plus, the programs, and what the timeframe expectation is there. That'd be helpful.

Hi, Suji. Good to see you a while ago in the show and the answer is as follows. We have dates and I will tell you what we predict it is, but I want to say a statement. We are working in the automotive industry. Automotive industry, sometimes there are delays which are dependent because of a different totally component relating to a seat of the car, a postponable car. and we're subject to this so we have the date but do have the dates we have they expected that will start to see chips shipped and embedded in the cars within end of 2026 it can be a little bit earlier or later but that's what we're hitting for but this is this is this market and I guess everyone known automotive know that's a very hard to predict the exact date it has also an advantage it also lasts more because of that so actually from the end of the end of the day what you think is actually you will be out of the design when after several years it also takes more time so the long tail so that's you know who wants to play in the automotive industry that's the game and we decided to play and the cars were L2 L2 plus Gideon just to clarify or L3 I will tell you that you will be very happy to drive each of them okay good to know um and then great and then uh maybe switching over to the industrial side the medical imaging what's the timing of that opportunity and and are you using go-to-market partners there for to target that market okay well uh must say that the medical and i must admit to the market that came to us and we were not proactive in meeting this market and we are very happy about the market been approaching us because the unique need that seems that we have here. When we had the meeting in New York with the investors, we put it many, many years ahead. I'm today more optimistic that it will be earlier than I said, but it will be... I don't have enough information to give a date, but I would say it's earlier than what we thought significantly okay great and then maybe lastly Gideon just the you said acquisitions are an important part of the strategy how is the environment for targets valuations you know just give me any thoughts there as to how the opportunity is right now for you guys there are different opportunities some of the opportunities are around companies that made many M&As and found out that they are serving too much of that and they are selling some of the activities that were not merged very good into them which is one kind and the other companies which are might be good companies but the VCs which are tired of being so many as the company or family businesses that are there are no inheritance and no one to know next generation to take it so a lot of you know we're in both the AV and the industrial are not VC backed and not private equity but it's a lot of family businesses and and in the nature of family business is different than those which where we are market and VC and all this chain so and so we don't see very big change very large changes in the in the expectation for price or the willingness to sell for good and for bad it's the same market It's less volatile than the markets that are expansion funds, stock markets, VCs, private equity, and so forth.

Okay. All right. Thank you, Gideon.

The next question is from Dave Storms of Stonegate. Please go ahead.

Morning. I appreciate you taking my questions.

I wanted to start by asking about maybe the cadence of your guidance for 2025. Should we expect a gradual ramp through the year or are there other variables that could lead to a step up that we should keep in mind?

I skipped some of the words. You should ask about design wins in 2025?

The cadence of your guidance in 2025.

Oh, our guidance.

Okay, let's guide, please. so we did not provide a we provide overall guidance for the year and we provided a guidance which is 71 to 76 million dollar revenue we provided a guidance for the first quarter a 16 to 16 point a 16.3 to 16.6 we did not provide on the following quarters a generally speaking I would say that it would expect some ramp in the second half of the year a because for example the 6320 designs that are expected to be matured and released to the more commercialized to the market during the second half of the year. But this is currently what we could say.

Understood. Thank you. And then just in the CID, curious as to what you're seeing in the new customer acquisition environment, maybe see how you see that evolving over 2025 as some of this inventory digestion takes its course?

Well, first, thanks for the question. And as I said before, the inventory digestion, we see it's recovering. And we think 2025 will be between high part or not the total recovery of the market, but the market is recovering. And we hear there are digestion of inventory in most of the customers not with all of the customers but with the majority some of them are the level of 2019 now some are not but in general we see that the inventory crisis is behind us and picking up back understood thank you for taking my questions if there are any additional questions please press star one if you wish to cancel your request please press star 2.

Please stand by while we poll for more questions. There are no further questions at this time. Mr. Bensvi, would you like to make your concluding statement?

Yes, please. I would like to thank you all for joining today and for the fourth quarter full year of 2024 earning call and for your continued support, interest in Valens Semiconductor, and I'm sure and hope that we'll meet again in our next earning call and looking forward for this interest in Valens. and thank you all.

Thank you. This concludes the Valence Semiconductor results conference call. Thank you for your participation. You may go ahead and disconnect.