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 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 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. We are pleased with our performance in Q2 where we exceeded our guidance and delivered revenues of 17.1 million dollars. This marks the fifth consecutive quarter of growth for our company. Gap gross margin came in at 63.5 percent in the mid-range of the guidance and adjusted EB downloads was 4.0 million dollars above the guidance range. Nevertheless, like to the impact of global tariffs, these have prompted some customers to lower their focus for the second half of the year. Therefore, we are updating our full year 2025 revenue of 66 to 71 million dollars. Still, the momentum continues and the new guidance range reflects a 14 to 23 percent 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 chips have always been known across industries for offering the best connectivity available, the highest bandwidth, the simplest wiring infrastructure, the most resilient 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. 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. 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 EV market and especially for the VS3000. 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 products 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 okay with slow-resolution video contrasting setup or some optimal office layouts, expectations installation has guided our lives with the VS3000 chipset. Here are a few notable examples of customers who have already launched products built on our VS3000 chip. Market leader Crestron based its DM Essential line on this technology. Inogeny has introduced a 3-host switcher for USB and HDMI. Crema Electronics brought to market an all-in-one hybrid representation matrix. and AV Pro 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 VS3000 growing market penetration at Infocom International where three of our customers won awards for products based on this chipset. innovative dual-sided digital silent solution, Rethink AV for a fully uncompressed 4K and USB 3.2 extension solution in a single box, which also uses the VST6320, and M solution for the first of its kind device capable of extending uncompressed 4K video over USB type-C using display link alt mode it wasn't just our custom infocom event in beijin and orlando at infocom china in april we were honored with the best of show editor's choice award in the best technology application category for a v6 international in june we were honored with the best of show award of our va7000 chip recognized for its innovation feature set and industry impact our technology was at the heart of our AI-powered 360-degrees immersive experience. With an eight-camera setup along the HDBTA line's 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. In the industry business unit, I would like to discuss machine vision. This is another example of go-to-market strategy. Target the market with the premium offering and let the market catch up. The last AFI 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 the presence helps strengthen relationships with key players, positioning AFI as the leading candidate for next-gen factory automation and in July we were proud to announce that our VA7000 chipset is enabling the market-first MIPI AFI platform offered by D3 Embedded. The platform embedded vision systems offering D3's custom palette, EMI, resilience, longer link distances and the ability to operate over simple, low-cost cabling. The chipset also features built-in advanced diagnostics for continuous link monitoring and preventive maintenance. This directly addresses one of the major challenges in factory floor machine vision, ensuring round-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 Jetson Oren X or Nano, and sensors from Sony. In addition, D3 Embedded is offering six A5 Design Core Discovery Series SKUs. The significance of this partnership, D3 Embedded CEO Scott Reardon remarked, 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 of unshated twisted spread 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 tool set to accelerate innovation in order to continue to support our customers in bringing solutions to the market based on our BS7000 and BS6320 chipsets. Machine vision to become an increasingly significantly 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 followed, with the update on the notable progress we are making in medical endoscopies. We held two road rules in Europe and Japan where we showcased our VA7000 chief support of reliable, high-quality endoscopic procedures. We have received initial feedback from some of the last. We came away more confident than ever that Valens' 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 begin to see that validation taking shape. Now, I'd like to tell the opportunity in automotive is dominated by the VA7000, the same chipset that drives our offering in the machine vision and medical industries. The VA7000 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 A5 standard for high-speed sensor connectivity. Three designments with leading European OEMs for this solution, gaining a strong foothold for the A5. Building on the momentum, in Q2, we brought the VA7000 and the broader connectivity with products from major industry players. First, we had Qualcomm's Snapdragon platform with A5 connectivity. Second, we had Chinese T1 suppliers that say SV with an A5 surround view system. And finally, an ADAS reference design with Sigma Star based on A5. I'd like to make note of the NIPI Alliance's annual meeting that took place in Russia towards the end of June, which brought together 117 representatives from... The keynote address at the opening plenary was given by a senior vice president at Mobilite. I remind you that in Q1 we announced that Mobilite is the tier 1 involved in our three A5 design wins. In his address, active participation. In addition, he provides certain feedback about the Valens VN7000 ease of integration, highlighting performance, design flexibility, and fast time to market. The representative of Leading Automotive OEM shared with the audience why his company chose Valens A5-compliant 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, than the incumbent, we announced interoperability testing with seven different aphid 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 OEM-based. 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 data system. It's clear that momentum around AFI is building all around the world. we continue to participate in several evaluation processes as various stages with multiple owners. 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 Lens 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 A5-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 state until a successor is 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.

Thank you, Gidon. I'll start with our second quarter results and then provide our outlook for the third quarter of 2025. We generated quarterly revenue of $17.1 million, which exceeded our guidance of between $16.5 million to $16.8 million. This compares to revenue of $16.8 million in Q1 2025 and $13.6 million in Q2 2024. The cross-industry business, or CIB, accounted for $12.8 million, or approximately 75% of the total revenue, while automotive contributed $4.3 million, or approximately 25% of total revenue this quarter. This compares to Q1 2025 revenue of $11.7 million from CIB and $5.1 million from Automotive, which represented 70% and 30% of total revenue, respectively. In Q2 2024, revenue from CIB were $8.1 million and $5.5 million were from Automotive, representing 60% and 40% of total revenue respectively. Q2 2025 gross profit was $10.8 million compared to $10.6 million in the first quarter of 2025 and compared to $8.3 million dollar in the second quarter of 2024. Q2 2025 gross margin was 63.5% compared to our guidance of between 63% and 64%. This compares to a Q1 2025 gross margin of 62.9% and 61.4% in Q2 2024. On a segment basis, Q2 2025 gross margin for the CIB was 67.10% and gross margin for automotive was 50.5%. This compares to a Q1 2025 gross margin of 69.1% and 48.4% respectively and a Q2 2024 gross margin of 75.4% and 40.9% respectively. The decrease in the gross margin of the CAB compared to Q2 2024 was due to a change in product mix. The increase in Q2 2025 in automotive gross margin compared to Q1 2025 was due to an optimization of our product cost. Non-gap gross margin in Q2 was strong at 67.2%, which compares to 66.7% in Q1 2025 and 64.5% in Q2 2024. Operating expenses in Q2 2025 totaled $18.2 million compared to $20 million in the end of Q1 2025 and $17.8 million in Q2 2024. The decrease compared to Q1 2025 is mainly due to the change in earn-out liability. Research and development expenses in Q2 totaled $10.2 million compared to $10.6 million in Q1 2025 and $10 million in Q2 2024. FG&A expenses in Q2 were $8.9 million, compared to $9.3 million in Q1 2025 and $7.8 million in Q2 2024. Gap net loss in Q2 was $7.2 million, compared to a net loss of $8.3 million in Q1 2025 and a net loss of $8.9 million in Q2 2024. Adjusted EBITDA in Q2 was a loss of $4 million, better than the guidance range of loss between $4.9 million and $4.4 million. This compares to an adjusted EBITDA loss of $4.3 million in Q1 2025 and an adjusted EBITDA loss of $5.2 million in Q2 2024. Gap loss per share for Q2 was $0.07, compared to a gap loss per share of $0.08 in Q1 2025 and a gap loss per share of $0.08 for Q2 2024. Non-gap loss per share in Q2 2025 was $0.04, compared to a loss per share of $0.03 in Q1 2025 and a loss per share of $0.04 in Q2 2024. The difference between gap and non-gap loss per share was mainly due to a stock-based compensation, change in earn-out liability and depreciation and amortization expense. Now turning to our balance sheet. We ended Q2 with cash, cash equivalent and short-term deposits totaling $102.7 million and no debt. This compares to $112.5 million at the end of Q1 2025 and $130.6 million at the end of Q2 2024. In November 24, we launched our initial share pay purchase program of up to $10 million, followed by a second plan in February 2025, increasing our commitment by an additional $15 million dollars. While the first plan was completed during Q1 2025, during Q2 we invested 10.2 million dollars from the second plan, demonstrating our ongoing dedication to returning value to shareholders. During July 2025, we have completed the share repurchase program under the second plan. Our working capital at the end of Q2 was 106 million dollars, compared to $119.8 million at the end of Q1 2025 and $142.3 million at the end of Q2 2024. Our inventory as of June 30, 2025 was $11.5 million, a slight increase from $10.9 million on March 31st, 2025, and down from $14.1 million on June 30th, 2024. Now, I would like to provide our guidance for the third quarter of 2025. As Gidul mentioned, the uncertainty surrounding tariffs has led some customers to reduce their forecasts. Therefore, we expect Q3 revenue to be in the range of $15.1 to $15.6 million. For 2025, we expect revenues to be in the range of $66 million to $71 million. We expect growth margin for Q3 to be in the range of 58% to 60%. And we expect adjusted EB Dallas in Q3 to be in the range of 7.4 to 6.8 million dollar loss. Although we have adjusted our full year guidance due to the unpredictable impact of tariffs, our confidence in the company's long-term strategy and market opportunity remains unchanged. I'll now turn the call back to Gidon for his closing remarks before opening the call for Q&A.

Thank you, Guy. It's well-supported by our industry-leading technology and robust balance sheet. Our focus remains in executing sustainable growth demonstrates remarkable results. I'll now open the call to answer...

Thank you. 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 with the handset before pressing the numbers. Please ask your question in a loud and clear voice. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Quinn Bolton of Needham and Company. Please go ahead.

Hey this is Neil Young. I'm for Quinn Bolton. Thanks for taking my questions. So you You mentioned that the downward revision to both the 3Q and full-year revenue guide is primarily tied to tariffs. Could you help us understand how the pressure is distributed across the two segments? Specifically, is one segment, CIB or automotive, seeing a more pronounced impact in 3Q? Thank you.

Thank you for the question, and I'll be pleased to answer. We are selling semiconductor to electronic and automotive industries. They are the ones who are infected by the tariffs because their products are produced in countries which are tariffs exposed, and this is the reason we are exposed. It's not that our chips are under tariffs, it's our customers who integrate our chips are those who are under tariffs, and this is valid both for automotive and for audio Okay, great.

So, in first quarter and second quarter, you talked about the optimization of product costs within automotive uh do you foresee that uh repeating in 3q and boosting auto gross margin i guess if possible could you just discuss what you expect from gross margin across the two segments in 3q and maybe throughout the rest of the year thanks so we provided the guidance for the third quarter on the gross margin and we typically do not provide allocation between between the different segments for Q3, the gross margin.

Quinn, are you done?

I am, thank you.

Okay, thank you. The next question is from Rick Schaefer of Oppenheimer. Please go ahead.

Hi, this is Wayne Mark on the line for Rick. Thanks for taking the question. With the 3Q outlook and the revised full year guidance lower to 66 million to 71 million, it looks like 3Q should be the bottom. And with some of the tariff policies starting to take shape, are you seeing any improvements in orders and bookings compared to 30 days ago? Which business do you see that rebound accelerate in 4Q?

I'm sorry, can you please repeat? I'm not sure I didn't understand the question.

Yeah, sure. Yeah, so you provided the 3Q outlook. It looks like it's going to be declining around 10% for 3Q, but then with the full-year guidance, it looks like it's going to be recovering 25% in 4Q. So which business do you see that accelerating in 4Q?

So again, we do not provide allocation between the different segments, not in terms of revenue, as well as other parameters we provide the numbers for the overall a company and i would say that in both segments we see kind of a temporary a weakness for the third quarter and kind of a better for a visibility for the fourth quarter and all together for the year we we reduced the guidance as already indicated okay great that's all for me thanks the next question is from Suji

da Silva of Roth capital please go ahead yeah hi Gideon hi guy any color on the auto 3 OEM design wins what the next milestones are that we should be watching for hi so thank you for your question yeah I can provide some information and yet I can't tell the names but they can say it's very prestigious companies and it creates a positive noise in the industry that such respective companies selected us purely on quality and our capability to do more than others in the uniqueness of our solution and we hope that we know that we hope we know that we will generate a more attention and not to disclose anything which is in the process only after we have something formally but we're working with it and leveraging the same success of these three ovms thanks gideon that's good the next question is from robert lynch of stonegate please go ahead hi guy hi gideon good morning uh thank you for taking my questions i'm on for dave storm today i just wanted to ask a question around customer acquisition in industrial machine vision um there appear to be some strong tailwinds in machine vision following the d3 platform uh could you speak to the customer acquisition trends within that segment um and how the pipeline is shaping up moving forward yeah uh thanks for the question and i will answer as follows first the a machine vision is we have a very good market product market fit it is both ai it's both cameras that need to be remoted with very low error rate with very high bandwidth and with no compression so it's exactly what we know to provide them very unique this market is a market that is growing and we are speaking with the leading customers in this industry and already have design wins a lot more design wins to discuss in the future And it's mainly with our VA 7000 and also a lot of interest with the VA 6320. The machine vision looks as a very natural development of our products, both from automotive and audio video, that find their way to this industry. And this is the source of where we see the demand.

Right. I really appreciate the color there. I guess moving forward, and one more left, what momentum are you seeing across end markets like logistics and pro-AV? Are you seeing any acceleration in customer activity across those verticals or anything else there?

Thanks again for this question and the answer divided to two. In the regular market, the regional market we have, we see a recovery. It's not very fast recovery, but there is recovery, definitely the tariffs, maybe less faster than it could, but there is recovery in the traditional audio-video market. And there is a new developing market, which is the conference rooms, where we have, again, a very good product market fit for the future conference room. Conference room is a growing market. if you see the the cameras in in the in many in a lot more rooms that are complementary the whole video experience the whole video conferencing experience and this is market which we're growing into in in this audio video and it's i would call it a derivative of the segment i think this is the best definition of the growth so we have the recovery of the traditional and this additional new segment as well thank you very much for the color there I'll hop back in the queue really appreciate it and

congratulations on you too thank you the next question is from Quinn Bolton of Needham and Company please go ahead thanks for taking my question I just wanted to ask you know obviously tariff uncertainty has caused customers to reduce near-term forecasts but have you seen any change in their product development plans you know anything that might affect your longer-term opportunity in the machine vision market question and we don't see a particular

change in what the companies are looking to develop we even the opposite we see that they're very stick to the land the same development maybe the speed the changes, maybe they have some influence, but the companies are looking ahead, I believe, with the same focus and the same product.

Great. Thank you for that. And then in the prepared script, Gideon, you mentioned the Snapdragon Write platform, and I wasn't sure, could you just expand on what you're doing with that platform? Are you part of that reference design? Was it just a demo to show interoperability? Any other information you could provide would be helpful. Thank you.

Yeah, we show, and it's very important for us to show not only that our ships have an advantage. We show how simple it is for the customers to integrate. And some of the advantages for Valence is that integrating the VA 7000 to post to customers is very fast and and create stability also very fast. So this is the reason we are making ourselves compatible to chips like the Qualcomm and the NVIDIA and others in the industry. And yes, it works well and it shows interoperability very fast.

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 poll for more questions. There are no further questions at this time. Mr. Bensby, would you like to make your concluding statement?

Yes, thank you. I would like to thank you all for joining us today for our second quarter 2025 telling call and for your continued support and interest in Valence Semiconductor, and we hope to meet you again in our next telling call. 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.