Valens Semiconductor Ltd. Q1 FY2025 Earnings Call

Good morning. My name is Yoni and I will be your conference operator today. At this time, I would like to welcome everyone to Valens Semiconductor’s First Quarter 2025 Earnings Conference Call and Webcast. Opening remarks by Valens 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 Ben-Zvi, Chief Executive Officer; and Guy Nathanzon, Chief Financial Officer. Earlier today, we issued a press release that is available on the Investor Relations section of our website under investors.valens.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-F 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 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. GAAP 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 CIB, which consists of a variety of industries, professional audio/video, industrial, machine vision, and medical. In Pro AV, last quarter, inventory digestion continued to impact our sales. But as expected, we are emerging from the bottom of the cycle. As such, 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 of 2026. The interest in our Pro AV solutions was most apparent during a couple of industry events. First, in February, we were at ISE, 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 room setups powered by our latest chipset, the VS6320 and the VA7000. We also announced the integration of the chipset into next-gen products from top manufacturers and showcased products from customers such as Sennheiser and Logitech. These partnerships reflect key industry trends: more rooms, more displays, more video equipment, all creating more opportunities for Valens. Second, in InfoComm 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 in USB 3 extension with our VS6320 chip and is further testament to the superiority of our technology. InfoComm China is an influential conference, and China is a large and growing market. So this sort of recognition is important as we continue to promote our chipset offering. As mentioned in previous calls, we are seeing growing adoption of our VS6320 chipset for the extension of USB 3. There are now over 70 products that have hit the market with our chip inside. Examples of recently released 6320-based products include whole technologies discovery featuring, inorganic and IPAV extenders, all of which hit the market over the last couple of months. Staying with our cross-industry business unit, I would like to discuss another industry, machine vision, where once again, a recent international conference shines the spotlight on our technology with very positive customer feedback. In March, at the Embedded World event in Nuremberg, we showcased our innovative connectivity solutions, the VA7000 and VS6320. Initially developed for the automotive and for industrial applications, these chipsets are already proven and mass produced and are now being repurposed to extend common use machine vision protocols. At the conference, we met with the leading players in the industry, all of whom were impressed by our technology. There is no substitute for seeing live demonstrations of our chipset and this renowned industry event was an excellent opportunity to further broaden our customer base. Our project with leading machine vision sales continues to progress, and we are confident that our A-PHY based solution will soon begin to reach this industry. One machine vision partnership I would like to mention, which we announced just prior to the show, is with RGo Robotics and CHERRY Embedded Solutions. This collaboration integrates RGo’s advanced perception engine, Valens VA7000 chipsets, and CHERRY’s Rockchip-based hardware module. The collaboration delivers unprecedented design flexibility, cost efficiency, and performance for mobile machine manufacturers, enabling AI robotics applications. Valens chipsets offer a number of important advantages in this industry. First, Valens chips support high-resolution video, increasing the precision of automated machine vision solutions. Second, the Valens chips are standardized, facilitating the implementation of smaller form factor camera modules. Third, like all our other chips, Valens solutions are the most resilient on the market, important for ensuring 24/7 operation in the noisy electromagnetic environment of the factory floor. And fourth, due to the ability to operate over low-cost cables and connectors, these chipsets enable significant total system cost reduction. Here is what the head of BD and CHERRY had to say, and I quote: 'The addition of Valens VA7000 MIPI A-PHY connectivity into our portfolio opens new opportunities for our platform.' The Co-Founder and CEO of RGo Robotics agreed and I quote again: 'Our Robotics Perception Engine demands high-quality video data, and that’s exactly what Valens’ connectivity solution provides while allowing us to distance the processing unit from the sensors.' Next week, at Automated Choice, we will be showcasing our machine vision solutions with partners that are adding A-PHY technologies to their platforms such as D3 embedded and Framos. In addition, our A-PHY chipset has been shortlisted for the show’s innovation award. We are very proud of this industry recognition. In all, we continue to support our customers in bringing solutions to the market based on our VA7000 and VS6320 chipsets, and we are confident that the machine vision industry will become an even more significant source of revenues for us before long. We expect initial revenue from the end of 2026 with significant potential growth during the following years. I would like to turn now to the automotive industry. As a reminder, our opportunity in automotive is dominated by the VA7000 chipset, the first in the industry to comply with the MIPI A-PHY standard for high-speed sensor connectivity. Late last year, we announced three design wins with leading European OEMs, gaining a strong foothold for A-PHY within the OEM community. The momentum for MIPI A-PHY continued to build in Q1 2025 as we announced two significant milestones. The first is that Mobileye, a global leader in ADAS systems, selected our chips for the in-car sensor to compute connectivity infrastructure for Mobileye’s EyeQ6; high production programs are underway with a group of global automotive brands. The design wins we announced last year came about through a strong collaboration with one of the most central automotive Tier 1s in the industry, Mobileye. Most importantly, in announcing this partnership, we are signaling to the OEM community that A-PHY has the backing of a key industry player like Mobileye, and that they will be working with us to bring this solution to other OEMs around the world. Here is what the Executive Vice President of Engineering at Mobileye said: 'MIPI A-PHY delivers efficient and robust high-performance standardized connectivity, and we look forward to working with Valens to broaden the MIPI A-PHY ecosystem and deliver this technology to more market-leading automakers.' The second significant milestone that we announced is the successful interoperability with seven vendors of A-PHY Silicon. Note that interoperability is a hallmark of any true standard. Having multiple suppliers for MIPI A-PHY can only broaden the A-PHY site, or the A-PHY as I like to call it. I will make special mention of one of these A-PHY vendors, OmniVision, a global supplier of imaging solutions for automotive OEMs, which is integrating A-PHY directly inside the sensor. After Sony, OmniVision is the second major company to announce this type of integration, which is only possible because A-PHY is a standard. Heng Fan, Senior Director of Design at OmniVision said: 'Integrating MIPI A-PHY directly into our sensors provides significant value for our OEM customers and partners.' I would like to take a moment to discuss the growth of MIPI A-PHY in China. We are hearing that the Chinese automotive ecosystem is rapidly adopting the A-PHY standard, with a variety of local A-PHY silicon vendors, Tier 2, and Tier 1 suppliers designing around this specification, and significant interest from OEMs in this technology. Of course, China is unlike any other country in the world. They are fast to adopt new technologies, but there are also a series of regulations that we are required to adhere to when attempting to penetrate this market. To address some of these challenges, we have partnered with a local Chinese firm, ESWIN Computing, to present Chinese automakers with the opportunity to source locally manufactured production-ready MIPI A-PHY chipsets for both sensor and display connectivity. This partnership allows us to access the large and growing MIPI A-PHY business opportunity that exists in the Chinese market. Additionally, with regards to our activities in China, we were proud to display our A-PHY technology at the Auto Shanghai Conference at the end of April. At our booth, we unveiled a number of A-PHY demonstrations with major players in the automotive industry. First, we had Qualcomm’s Snapdragon Ride for evaluation platform with A-PHY connectivity. Second, we had a Chinese Tier 1 supplier with an A-PHY surround system. Third, we had the RGo Robotics journeys platform with A-PHY, and finally, an ADAS reference design with Sigmaar based on A-PHY. It’s clear that the momentum around A-PHY continues to build. We continue to participate in several evaluation processes at various stages with multiple OEMs. With that, I will turn the call to Guy to discuss our financial performance in more detail.

Thank you, Gideon. I’ll start with our 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 between $16.3 million to $16.6 million. This compares to revenue of $16.7 million in Q4 2024 and $11.6 million in Q1 2024. The Cross-Industry Business or CIB accounted for $11.7 million or approximately 70% of total revenue, while automotive contributed $5.1 million or approximately 30% of total revenue this quarter. This compares to Q4 2024 revenue of $11.7 million from CIB and $5 million from automotive, which represented 70% and 30% of total revenue, respectively. It also compares to Q1 2024 revenue of $7.2 million from the CIB and $4.4 million from automotive, representing 60% and 40% of total revenue, respectively. In Q1 2025, gross profit was $10.6 million compared to $10.1 million in the fourth quarter of 2024 and compared to $6.8 million in the first quarter of 2024. Q1 2025 gross margin was 62.9% compared to our guidance of between 60.8% and 61.3%. This compares to Q4 2024 gross margin of 60.4% and Q1 2024 of 59%. On a segment basis, Q1 2025 gross margin from the Cross-Industry Business was 69.1% and gross margin from automotive was 48.4%. This compares to a Q4 2024 gross margin of 64.7% and 50.5%, respectively, and a Q1 2024 gross margin of 77.2% and 29.1%, respectively. The increase in gross margin of the Cross-Industry Business, CIB, compared to Q4 2024 was due to an inventory adjustment in Q4 2024. The increase in Q1 2025 automotive gross margin compared to Q1 2024 was due to an optimization of our product costs. Non-GAAP gross margin in Q1 was 66.7%, which compares to a 64.5% in Q4 2024 and 62% in Q1 2024. Operating expenses in Q1 2025 totaled $20 million compared to $18.5 million at the end of Q4 2024 and $18.1 million in Q1 2024. Research and development expenses in Q1 totaled $10.6 million compared to $10.1 million in Q4 2024 and $10.1 million in Q1 2024. SG&A expenses in Q1 were $9.3 million compared to $8.3 million in Q4 2024 and $8 million in Q1 2024. GAAP net loss in Q1 was $8.3 million compared to a net loss of $7.3 million in Q4 2024 and a net loss of $10 million in Q1 2024. Adjusted EBITDA in Q1 was a loss of $4.3 million within the guidance range of a loss between $4.5 million and $4.2 million. This compares to an adjusted EBITDA loss of $3.7 million in Q4 2024 and an adjusted EBITDA loss of $7.1 million in Q1 2024. GAAP loss per share for Q1 was $0.08 compared to a GAAP loss per share of $0.07 for Q4 2024 and a GAAP loss per share of $0.10 for Q1 2024. Non-GAAP loss per share in Q1 2025 was $0.03 compared to a loss per share of $0.02 in Q4 2024 and a loss per share of $0.07 in Q1 2024. The difference between GAAP and non-GAAP loss per share was due to stock-based compensation and depreciation and amortization expenses. Now turning to the balance sheet. We ended Q1 2025 with cash, cash equivalents, and short-term deposits totaling $112.5 million and no debt. This compares to $131 million at the end of Q4 2024 and $139.8 million at the end of Q1 2024. In November 2024, we announced a first share repurchase plan of up to $10 million and in February 2025 on another plan of up to $15 million. During the quarter, we spent $9.6 million on both plans. Our working capital at the end of the first quarter was $119.8 million compared to $133.6 million at the end of Q4 2024 and $153.3 million at the end of Q1 2024. Our inventory as of March 31, 2025, was $10.9 million, a slight increase from $10.2 million on December 31, 2024, and down from $12.5 million on March 31, 2024. Now I would like to provide our guidance for the second quarter of 2025. We expect Q2 revenue to be in the range of $16.5 million to $16.8 million. We expect gross margin for Q2 of 2025 to be in the range of 63% to 64%, and we expect adjusted EBITDA loss in Q2 2025 to be in the range of $4.9 million to $4.4 million loss. Before turning the call back to Gideon, I want to refer to the new tariffs. While semiconductors are currently exempt from these tariffs, it is still too early to estimate the direct impact on our operations and the impact on our customers’ end market demand. We are closely monitoring the situation, and we will provide updates to the investment community as we get more information. I’ll now turn the call back to Gideon for his closing remarks before opening the call for Q&A.

Thank you, Guy. We believe that Valens Semiconductor is well positioned for a return to growth in our target markets, leveraging our industry-leading technology and robust balance sheet. We remain committed to executing our long-term strategy to drive renewed growth and profitability. Before opening the call for questions, I want to express my gratitude to the entire Valens Global team for their ongoing commitment and dedication. With that, I will open the call to answer your questions.

Thank you. The first question is from Rick Schafer of Oppenheimer. Please go ahead.

Hi, this is Wei Mok 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 A-PHY? 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 Mobileye collaboration is a collaboration which is purely on quality. What Valens provided here is the need to elevate the quality and the bandwidth of cameras that are coming into the ECU of Mobileye, a need that, of course, is for more resolution, as more bandwidth is more exposed to the noise that can ruin the whole system. And we proved that by this elevation and 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 essence is that Mobileye is moving up and is elevating their capabilities and requires better cameras that provide more data, and we are there for them. So we believe even those systems that initially they are installed or have their own design wins with other chips, those customers would like to elevate at some stage, and then we will be there. I guess that if you ask Mobileye, as I have said in the press release, they see our solution as a solution that is helping them take the connection between the camera and to the ECU up. I hope I answered exactly what you – but Wei, if it’s not the answer, let me know.

No, yes. I was just wondering, because Mobileye is already working with other large OEMs, are you working directly closer to those OEMs, or will you still be pursuing OEM design wins independently?

Of course, we are – this market is a market where everyone speaks to everyone. And the influences are quite complex if you look at it from above. And yes, we need the customers and need Mobileye, and this market is a market where Tier 1s and Tier 2s and OEMs know each other. The OEM is always aware of who is the Tier 2 that is supplying to the Tier 1 and sometimes even the whole negotiation is done between the Tier 2 and the OEM and only the technical and delivery are done through the Tier 1. The case of Mobileye is different because Mobileye acts in the market as both Tier 1 and Tier 2. So, actually, all answers are right. Sometimes you fix the OEM, sometimes the Tier 1, sometimes both. But in all cases, the OEM is fully aware and involved in the decision as we will be the service.

Okay. Got it. That’s clear. Thank you. And as for my follow-up on tariffs, I really appreciate the color that you are not seeing any direct impacts, so what gives you this level of visibility? And while there is no direct impact, are you seeing any second or third order effects, so any indirect impacts to your business from tariffs?

Of course, this is something that we cannot disclose at this stage, but the nature of this market is such that an OEM, which is very prestigious, has the circles around and the circles around them. The whole idea of our business model is to create a presence to start with the strong ones – with those who give us credibility and to move on. When we have news to announce, believe me, we will not wait a minute.

Hey guys. Let me offer my congratulations on the steady results. I wanted to follow-up on the Mobileye question. Gideon, you mentioned that as camera resolution and bandwidth goes up, that hopefully pushes solutions or 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 maxes out? Like, are we talking 8-megapixel resolutions? Does it have to be something higher? Just any kind of metrics around the resolution where the MIPI A-PHY 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 technical, and I will try to leave it in a way that is not too technical. I hope I will succeed. Bandwidth is not only resolution. Bandwidth is also frames per second. It’s also how many pixels, how many bits per pixel, all of these together create the bandwidth. The higher the bandwidth, the more exposed it is to noise. This is something which is quite not intuitive. When we move from a 4-gigabit bandwidth to 8-gigabit bandwidth, we move to twice the bandwidth. But the fragility and the exposure to noise is not linear; it’s far more intricate. Meaning that if a car that is moving at a higher bandwidth will be driving near a cellular antenna on a bridge or near a truck, the result can be lost frames and lost frames meaning that missing the red light or missing a passenger or missing something. Now, the calculation of what the bandwidth is, whether it’s an 8-megapixel camera or a 4-megapixel camera, 30 or 60 or 24 frames per second, all of these have their own calculations. And yes, they can play with it. They can definitely decide to move one up and one down in order to stay with lower bandwidth and use the incumbent technology so as not to move to the next stage, and sometimes they do this. But there is a level that they cannot do it anymore. They understand that in order to move to the next stage of quality of the ADAS, it requires the next level of quality of information. This is needed to digest it and make a decision, like whether to stop at a red light or to identify a passenger, bicycle, and so forth. Often, this requires only one way to determine enough information. Of course, the other side is the quality of Mobileye, which is a supreme system that analyzes the information, but you need a certain level of information to analyze. I hope I was not too technical and that I provided the answer.

No, that was very helpful. I wanted to follow-up. You mentioned the MIPI A-PHY interoperability testing in China and your work with the local partner. I guess two questions there. Can you give us some sense of how you are 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 are working with that local partner, does that have any impact on profitability or margins for your solution since you are working with that partner on the go-to-market strategy?

Yes, there are several sections in this question, and I will try not to miss any of them. First, China has become a place of innovation, and we are very happy to see that innovation and A-PHY go together. There is no place that A-PHY has been accepted in the market more than China, and we see so many A-PHY players, and we are helping interoperability for everyone. We are happy to bring competitors to the market even if they eat part of our lunch. We do this because at the end of the day, we have a superior technology and a lot of those chips would be acquired and purchased from us. So, we help the ecosystem, and we are happy to see how the ecosystem is vibrant and how active it is. This is about A-PHY in China. About us in China, yes, we are – China often requires different business models. These business models, without getting too detailed, require JVs and other, I would say, mechanics in order to penetrate the market, and we adopt them. We don’t try to teach the Chinese the Israeli way; instead, we are trying to learn the Chinese way. And in order to penetrate the market, we understand that we need to make some adjustments, and if we do those adjustments, we will see results. And the last question is whether we speak to OEMs. Of course, we do. You know that there are many, many OEMs in China. There are many mergers. There are a lot of activities, and I believe that we are very well aware and accepted in China as a superior technology. Most, if not all of the Chinese manufacturers know about A-PHY, and it is an option; they know about Valens, and it’s also an option. We are working very hard to create news for us and for the markets.

Okay. Great. And then just one 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 any comment about 2025 guidance. I am not sure if you are willing to reiterate that this morning or whether you are pulling that guidance given some of the tariff uncertainty. But just any comment on the 2025 annual guidance?

At this stage, there is no change in the guidance. We keep it as we said. And yes, we are closely tracking the situation and the impact of the tariffs. If there is any change, we will let you know. But at this stage, we keep everything as is.

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, machine vision, or medical? And then which products would lead the ramp? Is it – will it be VA7000 or VS6320 or will it be both together?

Okay. There are – we are active in several markets in the CIB. There is traditional Pro AV, a market which suffered from inventory digestion, and we see recovery in that market. There is another market, which is somehow can be called Pro AV but is more AV-related, which includes conference rooms; a market that we are helping to ramp up. It needs definitely with the VS6320 and somewhat with the VA7000 from the VS family. If we consider USB 3 extension and the extension of industrial cameras, both the VS6320, the chip that was made for audio-video, and the VA7000 series for automotive both find a way to extend and connect cameras in the industrial world to the computing power that calculates and helps monitor the industrial process. So, the answer is that in the industrial machine vision, both chips from automotive and audio-video can be used with very few changes in configuration that are suitable for this market, which we are very happy about.

Thank you, Gideon. Hi Suji. So, I will give you again the data we provided during the Analyst Day. First, we expect to be EBITDA positive at an annual run rate of revenue of approximately $120 million. We did not say when we expect it to happen. We said about the guidance for ‘25. We stated our goal for 2029, which is anywhere between $220 million to $300 million by 2029. The second element, we said what the expectations for 2029 are regarding allocations. We expect to have the CIB anywhere between $90 million to $100 million of revenue, and we expect to see automotive at $65 million to $110 million, machine vision and industrial at $35 million to $50 million, and potential acquisitions at $30 million to $40 million, totaling $220 million to $300 million of revenue by that year. We did not mention anything about the allocation of the different verticals or segments at the breakeven point because we still have limited visibility. However, I can say the following: we expect initial ramp-up from the CIB business starting from ‘25 and beyond, machine vision and industrial from ‘26 and beyond, and ramping up of the revenue in automotive from late ‘26, ‘27 and beyond. I think that these are the inputs we provided during the Analyst Day. I think that can help you with the calculation concerning the specific question you asked.

Hi Gideon. Hi Guy. This is Robert Lynch on for Dave Storms. I just have a couple of 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 provide more color on what specific initiatives allowed for a decrease in costs? And do you find these margin levels to be sustainable going forward?

So unfortunately, I don’t have too much to say beyond what we mentioned. We do ongoing efforts to improve the cost of manufacturing, and we do different types of things all the time. Specifically, in Q4, we had some inventory adjustments, but in Q1, we did not. I would call it ongoing efforts and routine activities to improve margins at all times. In addition, typically, we also have the element of product mix, which has an impact on gross margin. So these are the typical elements that influence the gross margin of the company.

Okay. Understood. 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, there are two parts to this question. I will take the first one. Because of Valens’s very strong balance sheet, our policy is zero risk in being a very good supplier to our customer. And because we know the digestion now is very stable, we prefer to have a bigger buffer and continue to be a company that each of our customers will complement us with, and this is part of the company’s pride. I think this is one of the better uses of capital. As for the second part, Guy will take it.

I think that eventually lead times have returned to normal levels compared to pre-COVID. This means both lead times that Valens provides to its customers and conversely, Valens getting them from its suppliers. We are trying to manage inventory in the most efficient way possible, adjusting lead times and keeping some buffers to ensure that we can always supply on time. This is how we maintain our inventories.

Thank you, Gideon. Thank you, Guy. That’s all for me. Congrats on Q1 and good luck in Q2. Yes, please. Thank you. I would like to thank you all for joining us for the questions and for the discussion and for joining us today for our first quarter 2025 earnings call and for your continued support and interest in Valens Semiconductor. Hope to meet you again in our next earnings call, and thank you and goodbye.

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