Valens Semiconductor Ltd. Q1 FY2026 Earnings Call

Thank you for standing by, and welcome to the Valens Semiconductor First Quarter 2026 Financial Results Conference Call. I'd now like to turn the call over to Michal Ben Ari, Investor Relations. You may begin.

Thank you, and welcome, everyone, to Valens Semiconductor's First Quarter 2026 Earnings Call. With me today are Yoram Salinger, 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 25, 2026, 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 Yoram.

Thank you, Michal. Hello, everyone, and thank you for joining us. During our last call, we discussed how macroeconomic conditions and a slow pace of technology adoption could affect our business in 2026, and our first quarter was in line with our expectations. Nevertheless, we are pleased to report that our revenues exceeded the top end of our guidance at $16.9 million. GAAP gross margin for the first quarter came at 62.2%, well above the guidance. Our adjusted EBITDA was a loss of $5.5 million, a smaller-than-anticipated loss compared to our guidance. I'd like to highlight some of our key achievements in Q1, and I'll start with audio-video. We continue to see strong adoption of one of our newest chips, the VS3000, as the industry trends toward high-resolution video. As a reminder, this chip is the only one on the market that can extend uncompressed HDMI 2.0 over widely used category cables. In Q1, we saw additional products hit the market based on this chip. One exciting example came from a leading AV manufacturer, Extron, which released to the market new matrix switches built for premium collaboration spaces, what they are calling the DTP3 CrossPoint 42 series. Our chip is a cornerstone technology underpinning this product, supporting uncompressed video, audio and controls up to 330 feet. This is great news for Valens as the VS3000 is the most advanced HDBaseT chip we offer and is a pillar of the growth opportunity in our core audio-video market. We are also seeing healthy traction with our newest VS6320 chip. As a reminder, this is the first and only high-performance USB 3.2 extension solution built on a dedicated chip. Continuing the momentum in Q1, we saw another major AV manufacturer release to the market a product based on the VS6320. We are encouraged by the continued adoption of this innovative chip as we move further into 2026. Both chips featured notably at our booth during key first-quarter events, CES in January and ISE in February. Across both events, our customers and partners were enthusiastic about our technology demonstrations and the innovations our chips can enable. Innovations like multi-camera extension over a single category cable, single-box extension of uncompressed 4K video and USB3, streamlined infrastructure supporting multiple cameras and sources, and full-room conferencing setup with USB-C to USB-C extension. We look forward to replicating the success of those events at additional audio-video-focused shows around the world, including the upcoming InfoComm show in Las Vegas. I'd like to turn now to the automotive industry. Our opportunity in automotive is dominated by the VA7000 chipset, which offers high-performance connectivity of cameras and radars used in ADAS and autonomous driving. The VA7000 is the first chipset on the market to comply with the MIPI A-PHY standard. Our ability to promote this chipset hinges not only on its clear technological advantages for OEMs, but also on compliance with the standard. As you know, the automotive industry has been actively working to move away from proprietary solutions driven by concerns around vendor lock-in and supply chain uncertainty. The defining characteristic of a true standard is interoperability — that A-PHY–compliant components from different suppliers can work together seamlessly. In Q1, we demonstrated exactly that at Auto China: a balanced serializer connected to A-PHY deserializers from two other vendors. This marks the first three-company demonstration of any interoperable A-PHY connectivity solution anywhere in the world for any automotive standard. This is not just a technical milestone. It directly reinforces one of the core value propositions of our A-PHY offering — eliminating vendor lock-in, reducing supply chain risk and enabling a more flexible multi-vendor ecosystem for OEMs. Of course, we continue to participate in several other evaluation processes at various stages with multiple OEMs. With that, I would like to turn the call to Guy to discuss our financial performance in more detail.

Thank you, Yoram. I will start with our first quarter of 2026 results and then provide our outlook for the second quarter of 2026. We achieved quarterly revenues of $16.9 million, which exceeded our guidance of between $16.3 million to $16.7 million. This compares to revenues of $19.4 million in Q4 2025 and $16.8 million in Q1 2025. The cross-industry business, or CIB, accounted for $11 million, or approximately 65% of total revenues, while automotive contributed $5.9 million, or approximately 35% of total revenues this quarter. This compares to Q4 2025 revenues of $13.9 million from CIB and $5.5 million from automotive, which represented approximately 70% and 30% of total revenues, respectively. It also compares to Q1 2025 revenues of $11.7 million from CIB and $5.1 million from automotive, representing 70% and 30% of total revenues, respectively. Q1 2026 gross profit was $10.5 million compared to $11.7 million in the fourth quarter of 2025 and compared to $10.6 million in the first quarter of 2025. Q1 2026 gross margin was 62.2% compared to our guidance of between 57% to 59%. This compares to Q4 2025 gross margin of 60.5% and Q1 2025 of 62.9%. On a segment basis, Q1 2026 gross margin from the cross-industry business was 70.8% and gross margin from automotive was 46.2%. This compares to a Q4 2025 gross margin of 66.4% and 45.9%, respectively, and a Q1 2025 gross margin of 69.1% and 48.4%, respectively. The increase in the gross margin of the CIB compared to Q4 2025 was mainly due to product mix. Non-GAAP gross margin in Q1 was 65.2%, which compares to 63.9% in Q4 2025 and 66.7% in Q1 2025. Operating expense in Q1 2026 totaled $19.4 million compared to $20.9 million at the end of Q4 2025 and $20 million in Q1 2025. Research and development expense in Q1 totaled $10.3 million compared to $11.1 million in Q4 2025 and $10.6 million in Q1 2025. SG&A expense in Q1 was $9.4 million compared to $10.1 million in Q4 2025 and $9.3 million in Q1 2025. GAAP net loss in Q1 was $8.3 million compared to a net loss of $8.8 million in Q4 2025 and a net loss of $8.3 million in Q1 2025. Adjusted EBITDA in Q1 was a loss of $5.5 million, below the guidance range of a loss between $7.9 million and $7.5 million. This compares to an adjusted EBITDA loss of $4.3 million in Q4 2025 and an adjusted EBITDA loss of $4.3 million in Q1 2025. GAAP loss per share in Q1 was $0.08 compared to a GAAP loss per share of $0.09 for Q4 2025 and a GAAP loss per share of $0.08 for Q1 2025. Non-GAAP loss per share in Q1 was $0.05 compared to a loss per share of $0.04 in Q4 2025 and a loss per share of $0.03 in Q1 2025. The difference between GAAP and non-GAAP loss per share was mainly due to stock-based compensation and depreciation and amortization expense. Now turning to the balance sheet. We ended Q1 with cash, cash equivalents and short-term deposits totaling $86.1 million and no debt. This compares to $92.6 million at the end of Q4 2025 and $112.5 million at the end of Q1 2025. Our working capital at the end of the first quarter was $91.3 million compared to $95.7 million at the end of Q4 2025 and $119.8 million at the end of Q1 2025. Our inventory as of March 31, 2026, was $10.9 million, an increase from $10.1 million on December 31, 2025, and $10.9 million on March 31, 2025. Now I would like to provide our guidance for the second quarter of 2026. We expect Q2 revenues to be in the range of $17.2 million to $17.6 million. We expect gross margin for Q2 to be in the range of 60% to 62%, and we expect adjusted EBITDA loss in Q2 to be in the range of $4.9 million to $4.4 million loss. As a reminder, our full-year guidance is unchanged between $75 million to $77 million. Before turning the call back to Yoram, I would like to take a moment to share that I will be leaving Valens on July 13 to pursue new opportunities. I would like to take this opportunity to thank the exceptional team of Valens for their professionalism and dedication. Valens has incredible technology that is in high demand across industries, and I'm confident that Yoram and the executive team will take the company to new heights. I'll now turn the call back to Yoram for his remarks before opening the call for Q&A.

Thank you, Guy. On a personal note, I'd like to thank you for your significant contribution to Valens over the recent years. I enjoyed working with you, and I hope our paths cross again in the future. I will note that the company has initiated a search for a replacement, and we look forward to welcoming them to the team in due course. I believe that Valens is well positioned for success, leveraging our superior technology and robust balance sheet, focusing on our core markets. I'm committed to driving meaningful growth opportunities as we move further into 2026 and beyond. With that, I'll now open the call to answer your questions. Operator?

Your first question comes from the line of Quinn Bolton from Needham & Company.

This is Neil Young on for Quinn Bolton. So first question I wanted to ask was, could you touch on what drove the quarter-over-quarter decline in CIB? And within auto, how much of the strength was sustainable end demand versus timing, inventory or customer ordering patterns? Was the auto upside still largely driven by Mercedes? Or are you starting to see contribution from A-PHY ecosystem activity, Mobileye-related programs or any other customers? And then I have a follow-up.

Thanks for the question. So I'll start off by addressing the CIB results. When we shared our guidance for the quarter, we said that we anticipated somewhat slowness in Q1 due to seasonality and a very strong Q4. That was actually the case. I want to reiterate that the guidance for the year is still remaining strong. So it has nothing to do with the demand and the anticipated growth in CIB over the year. Regarding automotive, everything that you said regarding Mercedes is actually true. It has to do with the demand from Mercedes related to their sales of cars, and therefore the uptake comes from Mercedes. Regarding the A-PHY projects, those are going to factor in in 2027. I just want to make a comment that those projects are advancing well and aligned with the timeline. So we feel very confident that those wins would obviously impact our revenues in coming years.

Great. And then I did want to ask about the full-year guide. So you're guiding Q2 to $17.4 million at the midpoint, which puts first half revenue at $34.3 million. And you're talking about the full-year guide midpoint of $76 million. I would say that implies a meaningful step-up in the second half. I guess what gives you the confidence in that second-half ramp? And how should investors think about the acceleration? Should it primarily come in CIB, continued automotive strength? Any comment would be helpful.

So let me reiterate, the second half of 2026 is going to be way stronger than the first half. Our confidence in that has to do with the design-ins and design wins into our customers' products. We have visibility to launch of those products throughout the year. Therefore, the confidence is reassured by actually monitoring how those products are going to hit the market and drive the growth in Q3 and Q4.

Your next question comes from the line of Rick Schafer from Oppenheimer.

This is Wei Mok on the line for Rick. Best of luck in your next endeavors. For my first question, I wanted to follow up on CIB. It looks like it was down, and you mentioned it looks like there was going to be some digestion due to some demand that was pulled into Q4. So how do you feel about the digestion so far in Q1? Do you think that it has bottomed? Do you expect the correction to persist into Q2? Or do you see CIB returning to growth in Q2?

If I heard your question correctly, you're speaking about growth with CIB. CIB would grow in Q2 as we anticipate the company to grow according to the guidance provided for Q2, and it would accelerate during Q3 and Q4 even further. We kind of see around 5% growth for CIB across the year. So yes, the growth is there, and it's going to be reflected in the upcoming quarters.

Great. Appreciate it. As for my follow-up, your A-PHY technology was selected by MIPI as the standard for automotive connectivity, and there's been a lot of talk across the industry on physical AI. I noticed that the MIPI Alliance launched their physical AI working group for robotics and related applications, and they listed Valens as a member. So I was wondering if you can talk about your involvement with this? Are you aiming to establish the same goal of using your connectivity expertise for physical AI?

So thank you for the question. Valens is a company that believes in standards in order to enable the industry to interoperate between different vendors and prevent lock-in with any specific vendor. We've been promoting A-PHY for quite some time, and we have reported that we've done interoperability tests at Auto China just to prove the strength of driving standard-based solutions. That being said, as members of MIPI, we participate in the different efforts introduced by MIPI. These discussions suggest an initial view toward physical AI around robotics and related applications. As a very active member in MIPI, our EVP of Products is chairing this committee in order to have leaders of the industry come together and determine the right way forward. So yes, we are involved in that, and I think it suggests that we're not just active in audio-video and automotive; we are involved in other industries as well.

Your next question comes from the line of Dave Storms from Stonegate.

I wanted to maybe go back to CIB again. You mentioned that product mix drove the margin higher sequentially. Is this durable given the consolidated sequential step back you're expecting in the guide? Or how should we think about that going forward? Understood. And then maybe just a macro question. Are tariffs maybe still the main headwinds you are facing? Or do some of these conflicts in Iran pose additional charges for shipping or materials? How should we think about the current macro environment?

No, I think that was kind of a specific product mix. Generally speaking, it's in line with what we said a few months ago about the long-term goals of the CIB, and it's a slight increase versus last quarter. It looks like it is in line with our long-term goals. We currently don't see any effect from tariffs. This has been going on for a while now, so I don't think commenting further on tariffs would add value to this discussion. Obviously, the supply chain is being challenged due to increased demand for AI and memory silicon. I just want to make sure the message comes across: we don't see any risk in our ability to meet our targets for the year. Therefore, it's basically staying on top of the demand for our products and supplying the demand that is being created by our customers for the year and for the coming years.

And there are no further questions at this time. I will now turn the call back over to Yoram Salinger for closing remarks.

I would like to thank you all for joining us today for our first quarter 2026 earnings call and for your continued support and interest in Valens Semiconductor. Hope to meet you again in our next earnings call. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.