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 first 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 Valens Semiconductor. Please go ahead.

Thank you and welcome everyone to Valens Semiconductor's first quarter 2025 earnings call. With me today are Gideon Bensley, Chief Executive Officer, and Guy Natanzon, 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 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 will 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. With that, I will now turn the call over to Gideon.

Thank you, Michal. Hello everyone, and thank you for joining us. Valens kicked off 2025 on a high note, delivering solid performance across key metrics. We reported revenues of $16.8 million which exceeded the top end of our guidance. Gap gross margin for the first quarter came in at 62.9% above the guidance and adjusted EBITDA loss was $4.3 million within the guidance range. Beyond the numbers, I'd like to highlight some of our key achievements in Q1 that reinforce my confidence in our growth potential for the near future. And I will start with our cross-industry business unit, or CAB, which consists of a variety of industries, professional audio video, industrial machine vision, and medical. In ProEB last quarter, inventory digestion continues to impact ourselves, but as expected, we are emerging from the bottom of this cycle. We are seeing an increasing interest in our solutions, which are currently being integrated into products that are set to hit the market by the middle. The interest of our pro-EV solutions was most apparent during a couple of industry events. First in February, we were at ICE, the industry's most renowned international conference for innovations in video conferencing, education, digital signage, entertainment, and more. There, we showcased a variety of meeting rooms set up powered by our latest chipsets, the VA6320 and the VA7000. We also announced the integration of these chipsets into next-gen products from top manufacturers and showcasing products from customers such as Sennheiser and Logitech. These partnerships reflect key industry trends, more rooms, more displays, creating more opportunities for balance. Second in Infocom China, in April, we were honored with a Best of Show Editor's Choice Award in the Best Technology Application category. This award was for our innovation and USB 3 extension with our VS6320 chip and is further testament to the superiority of our technology. Infocom market, thousands and VS1 suppliers, the country in the world, technologies in the biggest markets. Some of these challenges. We partnered with the local Chinese firm ESWIN computing around A5 continues to build processes

at various stages with multiple ownership performance in the first quarter 2025 results and then provide our outlook for the second quarter. We achieved quarterly revenue of $16.8 million, which exceeded our guidance of $23 million.

Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Please ask your question 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 Rick Schaefer of Oppenheimer. Please go ahead.

Hi, this is Waymok on the line for Rick, and thanks for taking the question. Firstly, congrats on the Mobileye win. I was wondering how does this partnership change the dynamic in which you pursue future OEM wins with AFI? Since Mobileye is already collaborating across several OEMs, does that by virtue mean you will be working closely with those OEMs?

Hi Rick, thank you for your question and I'm happy to answer about, actually it's almost an invited question for me. The Mobili collaboration is a collaboration which is purely on quality. What Valence provided here is the need to elevate in the quality and the bandwidth of cameras that are coming into the ECU of Mobili. A need that, of course, has more resolution, has more bandwidth, is more exposed to a noise that can ruin the whole system and we proved that by this elevation by this increase in bandwidth we can do things which others can't and this is the nature of the deal about how it will influence other deals it's time to tell but the but the essence is that mobile is moving up is elevating their capabilities and requires better cameras which provide more data and we're there for them so we believe it's even those systems that initially they are installed or have their own design with with other chips those customers would like to elevate in some stage and then we will be there i guess that if you ask mobili they would um as they said in the in the press release, they see our solution as a solution that is taking, helping them take the connection between the camera and to the ECU up. I hope I answered exactly what you, but wait, if it's not the answer, let me know.

No, yeah.

I was just wondering, yes, because Mobileye is already working with other large OEMs, um are you working directly closer to those oems or will you still be pursuing um oem design wins independently well of course we are and you know this this this market the market everyone speaks to everyone and then the influence is is quite a matrix if you look at it from above and yes we meet the customers and we meet mobili and you know this market is a market that's tier ones and tier 2s and OEMs. OEM is always aware of who is a tier 2, the tier 2 is a tier 1 and sometimes even the whole negotiation is done between the tier 2 and the OEM and only the technical and the delivery is done through the tier 1. The case of Mobila is different because Mobila are acting in the market on both as tier 1 and tier 2. So actually all answers are right. But sometimes you pick the OEM, the OEM is fully aware and involved in the decision as we will be the service.

And as far as my follow-up is on Paris, I really appreciate the color that you're not seeing any direct impacts. So what gives you this level of visibility? And while there is no direct impacts, are you seeing any second or third order effects? so any indirect impacts to your business from Paris?

Of course, this is something that we cannot disclose at this stage, but the nature of this market that an OEM, which is very prestigious, has the circles around and the circles around, and that's the whole idea of our business model is to create the presence, to start with the strong with those to give us the credibility and to move on. Believe me, we will not wait a minute.

The next question is from Quinn Bolton of Needham & Company. Please go ahead.

Hey, guys. Let me offer my congratulations on the study results. I wanted to follow up on the mobile-like question. Gideon, you mentioned that as camera resolution and bandwidth goes up, that hopefully pushes solution or, you know, customers to adopt your solution. Can you give us a sense? Is there a camera resolution where the incumbent technology that Mobileye uses with a large semiconductor competitor, you know, maxes out? Like, are we talking eight megapixel resolutions? Does it have to be something higher? Just any kind of metrics around the resolution where the if the AFI standard may really start to show dramatic benefits relative to the Texas Instruments FPD-Link technology.

Thank you very much for the question, and I would be happy to answer without drilling too much into technology, because the answer is quite a technique, and I will try to leave it in a way which is not too technique, I hope I will succeed. Bandwidth is not only resolution. Bandwidth is also frames per second. It's also how many pixels, how many bytes per pixel, bits per pixel. All of these together create the bandwidth. The higher the bandwidth, the more exposed it is to noise. And this is something which is quite not intuitive when we move from a four gigabit bandwidth to eight gigabit bandwidth we move to twice the bandwidth but the fragility and the exposure to noise is not wise it's not linear it's far more meaning that if a car that is moving to a higher higher bandwidth will be driving near a cellular antenna on a bridge or near the result can be lost frames and lost frames meaning that missing the red light or missing the passenger or missing something. Now as the calculation of what the bandwidth is, whether it's 8 megapixel camera or 4 megapixel camera, 30 or 60 or 24 frames per second or 10, 12, 14, whatever number of pixels, each of them has its calculation and yes they can play with it. They can definitely decide to move one up and move one down in order to make technology in order not to move to the next stage and sometimes they do it but there is there is a level that they cannot do it anymore and they understand it in order to move to the next stage of quality of the ADAS it requires the next mode of the quality of information it is retrieved in order to digest it and make a decision red light yes or no passenger yes or no bicycle yes So no, and sometimes, not sometimes, often, only one way to know it, information. Of course, the other side is the quality of the mobile, which is, of course, you know, you need a certain level of information to analyze. I want to go in something very detailed, if I may. Think about a car that is going, and it has, the speed it is going, braking distance is 150 meters. But there is a very small foot of a child just out of the sidewalk in 100 meters. A certain resolution or certain bandwidth will not see this foot of the child. And this is exactly how to prevent casualty or accident by going up with a resolution. I hope I was not too technical and I gave the answer.

No, that was very helpful. I wanted to follow up. you mentioned the MIPI, AFI interoperability testing in China and your work with the local partner. I guess two questions there. Can you give us some sense how you're progressing in terms of conversations with Chinese auto OEMs? When could you start to see adoption of your solution in the China market?

And to the extent you're working with that local partner does that have any impact on profitability or margins um for your solution since you're you're working with that partner on the go-to-market uh strategy yeah there are several uh several sections in this question i will try to not to miss any of them first china becomes the place of innovation and we are very happy to see that innovation if i goes together there is no place that AFI has been accepted in the market more than China, and we see so many AFI players, and we are helping interoperability to everyone. We're happy to bring competitors to the market, even if they eat part of our lunch. And we do it because at the end of the day, we have a superior technology, and a lot of those chips would be purchased from us. So we help the ecosystem, and we're happy to see how the ecosystem is a vibrant and how the ecosystem is so this is about A5 in China about us in China yeah we are a China has them often need requires different business models this is not models without getting too detailed requires JV's I would say mechanically teach it the Chinese the israeli way the opposite we are trying to learn the Chinese way to enter the market we understand that we need to to do some adjustment if we do those adjustments um and then the last question is whether we speak to a course we do you know that there are many many always in china there are many mergers and there are many it's it's a lot of activities and uh accepted in china as a superior technology. I believe that there is most of, if not all, of the Chinese manufacturer know about A5 and it is an option, know about Valencia it's an option, and we're working very hard in order to create news for...

Last quick one for Guy. You guys gave 2025 guidance I think originally back at the Analyst Day late last year. I think you reiterated on your last conference call i didn't see um any comment about 2025 guidance so not sure if you're uh willing to reiterate that uh this morning or whether you're pulling that guidance given some of the tariff uncertainty but just any any comment on the 2025 annual guidance at this stage there is no change on the guidance we keep them as as we said and yes we closely tracking the situation and the impact of the tariffs.

And if there is any change, we will let you know. But at this stage, we keep everything at ease. Perfect, thank you.

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

Hi Gideon, hi Guy, congrats on the steady results here.

Switching over to the CIB segment, as you talk about the mid 26 ramp, of some of the newer products can you talk about which end markets might lead that professional av industrial um machine vision or medical and then which products would lead the ramp was it is it va 7000 or vs 6320 or will it be both uh together okay if there are um you know we're active in several markets in the cab there is a traditional prohibit the market which suffered from a inventory digestion as we look that there is recovery in the market there is the market which is it is somehow can be called prohibit but it's a in av more than prohibit which is the conference rooms a market which we are helping to ramp it up it's definitely with the 6320 and somehow with the 3000 we're from the vs family and if we're moving to a to a usb 3 extension and to a extension of a industrial camera both the vs 6320 the chip that was made for the audio video and the v7000 series for automotive both of them find the way to extension and connecting cameras in the industrial world to the computing power that calculates and and and and help

monitoring the industrial process so machine vision support both the chips from automotive with an audio video with very few changes in modification being found the chips that are suitable for this market which we're very happy about this reuse all right thanks kidding another question really is uh i'm sorry go ahead on the um on the financial model um given uh where do you think the break-even revenue is um kind of revisiting which talk about the analyst day perhaps and then what do you think the expected um cib auto mix would be at that point uh-huh

Well, it's a question of thinking timing. We see the progress in all the three sections of CAB, and automotive, and audio video. Of course, automotive, as everyone knows, is the slowest in the market. We thought that CAB would be slower than AV. We're not sure it is. With CAB, there is a lot of enthusiasm in the market, and we hope it is definitely faster than automotive. the question whether it's lower than audio video or not we are in a stage of understanding it i believe it is a lot closer in the speed to audio video than to automotive so the mix of the three is very much depends on timing i guess that when we would be at this breaking point we spoke it will be not a third a third and a third but maybe not very far away from there but it's very hard to give you an exact what would be the mix and what would be the mix in this time, but probably Geisel.

So I will give you again the data we've provided during the analysis days. First of all, we expect to be EBITDA positive at annual run rate of revenue of 120 million dollars roughly a year. We did not say when we expect it to happen. We said about the guidance for 25 And we said, where is our goal for 2029, which is anywhere between $220 to $300 million by 2029. The second element, we said, what are the expectations on 2029 of the allocations? And we said that we expect to have the CAB anywhere between $90 to $100 million of revenue. And we expect to see on automotive 65 to 110, a machine machine industrial 35 to 50, and And for potential acquisitions, $30 to $40 million, altogether $220 to $300 million revenue by this year. We did not say or mention anything about the allocation of the different verticals or segments in the break-even point, in the EBITDA positive point, because first of all, we have still limited visibility to answer this question. But I can say the following. We said that we expect an initial ramp up from the CIB business starting from 25 and beyond, machine vision industrial from 26 and beyond, and ramping up of the revenue in the automotive from late 26, 27 and beyond. I think that these are the inputs we gave during the analytics day. I think that probably can help you do the calculation on the specific question you have asked. Okay, thanks. Very helpful. Guy, Gideon, thanks.

Thank you.

The next question is from Robert Lynch of Stonegate Capital Partners. Please go ahead.

Hi, Gideon. Hi, Guy. This is Robert Lynch on for Dave Storms. I just have a couple questions here. The first one is just around margins, and I apologize if this is repetitive. Automotive gross margins improved significantly in Q1 to 48.4 from 29.1 just a year ago. Can you provide more detail on what drove this improvement? I understand it came from optimization of product cost, but if you could just provide more color on what specific initiatives allowed for a decrease in cost, and do you find these margin levels to be sustainable?

So unfortunately, I don't have too much to say about what we said. We do ongoing efforts to improve the cost of manufacturing, and we do different type of things all the time. Specifically in Q4, we had some inventory adjustments we said, and in Q1, we did not. But I would call it kind of ongoing efforts and routine activities in order to improve the margin all the time. In addition, typically, we have also the element of the product mix, which also has some impact on the growth margin. So these are the typical elements that influence the growth margin in the company.

Okay. Understood that. I really appreciate the color there. And just had one more around working capital. Given the slight volatility here in the supply chain, excuse me, how are you approaching working capital management to balance inventory levels as well as liquidity and the flexibility needed to meet customer demand amid these macro headwinds? Anything there?

Well, that's part of the question. I'll take the first one. Because of a lens, it's a very strong balance sheet. Our policy is zero risk in being a very good supplier our customer and then because we know the digestion now is very stable we rather have a bigger buffer and continue to be a company that each of our customers will complement us and and and and this is part of the company's pride and uh i think this is one of the better use of of of capital and this is the uh part of the question i guess i will take the second part so i think that they eventually lead time got back to normal levels of the pre-COVID and that means both lead time

that Valence provides to its customers and the same and the opposite Valence gets from its suppliers. So we're trying to manage the inventory in the most efficient way that we could, adjusting the lead time and keeping some buffers in order to make sure that we can always supply time and this is the way we maintain and the inventory okay great thank you Gideon thank you guy um that's all for me congrats on q1 and good luck in q2 thank you thank you if there are any additional questions please press star one if you wish to cancel your request please press star two please stand by while we pull for more questions there are no further questions at this time

Mr. Bensvee, would you like to make your concluding statement?

Yes, please. Thank you. I would like to thank you all for joining us for the questions and for the discussion and joining us today for our first quarter 2025 EARN call. And for your continued support and interest in Valence Semiconductor, hope to meet you again in our next EARN call. And thank you and goodbye.

Thank you. This concludes the Valence Semiconductor Results Conference Call. Thank you for your participation. You may go ahead and disconnect.