Valens Semiconductor Ltd. (VLN) Q3 2021 Earnings Report, Transcript and Summary

Hello all and a warm welcome to Valens Third Quarter 2021 Earnings Call. My name is Lydia and I'm your operator today. [Operator Instructions] It's my pleasure to now hand you over to our host Daphna Golden, Vice President of Investor Relations. Please go ahead when you're ready.

Thank you and welcome everyone to the Valens third quarter 2021 earnings call. With me today are Gideon Ben-Zvi, Chief Executive Officer; and Dror Heldenberg, Chief Financial Officer. On a personal note, I'm excited to join Valens earlier this week, and I'm looking forward to working with the team and communicating with the investment community, investors and analysts. Earlier today, we issued a press release that is available on the Investor Relations section of our website under investor.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 registration statement on Form F-1 filed on October 20 with the SEC 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, subsequence 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.

Thanks Daphna and welcome to Valens. You definitely came to the right place. Thank you everyone for joining our first conference call as a public company. I'd like to welcome our new shareholders and research analysts. Becoming a public company, following the completion of our business combination with PTK Acquisition Corporation and the PIPE investment and listing on the New York Stock Exchange on September 30th is an exciting milestone in our corporate journey, that would help us continue to push the boundaries of connectivity. Our team remains focused on execution to address the unfolding near and long-term opportunities in the large and growing automotive and audio-video market that we serve. To that end, we delivered strong results in the third quarter, which demonstrate solid execution and the continued momentum we are seeing across our business. We reported record revenues of more than $19 million, record bookings and ended the quarter with record backlog and with a fortress balance sheet, that will support our continued growth. For those who may be new to Valens, I'd let you take a few minutes to provide a brief overview of our company and the main reason why we believe we are winning position to create value for our shareholders. First, and to put it as simply as possible, Valens is a company that sets industry standards for high-speed connectivity. We did it in the audio-video market, and we're doing it again in the automotive market. Second, we operate in large and fast-growing addressable market. And third, our business model offers a compelling financial model. I'd like to address these three in greater detail, starting with our company's ability to set standards. In our audio-video business, we invented HDBaseT technology, which quickly became the leading industry standard for long-reach, high-speed digital connectivity. We are the leader in this market today and enjoy a profitable business with significant growth opportunities across the variety of verticals. Our chipsets are deployed in products manufactured by technology leaders Creston, Epson, Extron, Logitech, LG, Samsung, Panasonic and many other reputable brands. Our audio-video chipsets are embedded in a variety of end products from video conference to home entertainment, outdoor TVs, projectiles and cameras. We benefit from the video-conferencing trends and started way before COVID-19 and significantly accelerated during the pandemic. Video-conferencing and the preferred audio-video equipment is now expanding well beyond traditional business applications and is moving rapidly into the education, medical and infotainment industries. I'm sure you would all agree that video-conferencing is now touching many more aspects of our daily lives. Valens' ability to extend high-quality audio-video and USB with zero latency makes us a key enabler of what we call the new hybrid normal, a trend we believe is here to stay. In our automotive business, we have developed superior solutions for in-vehicle high-speed connectivity. Valens’ technology addresses a critical need for the advanced cars of tomorrow that would demand seamless connectivity for a growing number of sensors, cameras and displays. We are proud that camera chipsets are already on the road in Daimler Mercedes-Benz cars, providing best-in-class connectivity for infotainment applications. In what we consider to be one of our automotive business’ most significant achievements to date, Valens’ technology was selected by the well-known standard organization MIPI Alliance as the base for its new smooth high-speed in-car video connectivity standard A-PHY. This standard was released by MIPI in September 2020, and shortly after was fully adopted by the prestigious IEEE organization in one of their automotive standards. Obviously, Valens enjoys the first mover advantage with MIPI A-PHY. We will begin shipping engineering samples of our standard compliant VA7000 chipset to select prospect customers and partners next month, and we are working closely with leading OEM, Tier 1s and Tier 2s on deploying our technology into their next-generation car models in the coming years. To address our second value proposition, I'd like to turn to a large and growing market opportunity. We estimate that our serviceable addressable market will grow to more than $9 billion in 2026 across our automotive and audio-video markets. This provides us the potential to drive our revenue growth over the coming years as our next-generation connectivity solutions are widely adopted. Valens has established a track record of market leadership; we have exceptionally set industry standards in both of our businesses and then successfully translated our innovation into remarkable customer wins. Our digital Signal Processing based connectivity technology is unmatched in speed, performance, distance and resilience. This uniquely positions us to capture a substantial share of the rapidly growing automotive market, as well as to increase our foothold in our audio-video business. Third, we have a compelling financial model. In automotive, considering the nature of the business, new design wins will ensure additional long-term contract and secured revenues. In audio-video, costumers tend to use our solutions for a long period. They like our products because we offer an unmatched combination of best of breed, feature set and cost performance. Our business model is supported by high gross margin, near term and longer term revenue visibility. With that, I will now turn the call over to Dror Heldenberg, our CFO, to review our key business milestones, third quarter financial results and outlook.

Thanks, Gideon. I'll begin with a summary of our key business developments for the third quarter. Then, I'll discuss our results and our outlook for the fourth quarter. We're continuing to see the automotive ecosystem unite around the MIPI A-PHY standard ahead of our scheduled shipment of this market first A-PHY compliant shipment which is expected next month. We have a long list of more than 15 prospect customers and partners, including OEM and Tier 1s, eagerly waiting for our VA7000 chip for evaluation and integration into their platforms. I'd like to talk about the most recent indication of the growing interest in the MIPI A-PHY standard and the anticipation for our compliant chipsets in the industry. In September, we announced the partnership with Sunny Optical, a leading manufacturer of automotive camera modules. Sunny Optical is integrating our VA7000 transmitter chipset into their camera modules that enable advanced driver assistance systems, known as ADAS, and surround view applications. This partnership also provides us a strong foothold in the vast Asian market. Another example of the growing market interest in A-PHY, comes from our new partnership announced two days ago with LG Innotek for the supply of system-in-package modules for MIPI A-PHY compliant shipment. Clearly, the addition of LG Innotek, reflects the continued expansion of the MIPI A-PHY ecosystem is another measure as declared its intention to provide A-PHY based products. In the audio-video business, our latest addition the Valens Stello product family was released to the market earlier this year, and has already been embedded by leading industry players. We now have over 30 customers in stages of product development and integration, and we expect to see multiple products per customer on the market by year-end. Now, I will share some highlights from our third quarter financial results. Our Q3 results demonstrated once again the significant progress we are making to scale our audio-video and automotive businesses. All comparisons are year-over-year unless otherwise noted. We are very pleased to report record revenues of $19.1 million this quarter, which represents an increase of 48.8% from the third quarter of 2020. Broken down per business unit, our audio-video revenues increased 38.5% to $17.1 million. Our automotive business contributed $2 million in the third quarter, an increase of over 300% from the year ago quarter and representing more than 10% of our total revenue in the third quarter. While the automotive revenue numbers are still small, we are starting to see impressive growth in this part of the business as our products, our on the road in mass production and are expected to be deployed in additional car models in the short-term. Our gross profit increased from $9.5 million in the third quarter of 2020 to $13.8 million and the gross margin was 72.4% compared to 74.4% last year, primarily due to the increase in automotive revenues, which has lower gross margins than our audio-video products. We achieved record bookings of $36 million during the third quarter, and our strong bookings translated into a book-to-bill ratio of 1.88 for the quarter, supporting our growth projections. We reported robot backlog, which reached a record of $73.4 million as of the end of September 2021. Operating expenses were $22 million, 18% higher than last year, mainly due to one-time issuance costs related to the business combination with PTK totaling $5.5 million. Our third quarter adjusted EBITDA totaled a loss of $2.7 million, improving from the loss of $7.2 million in the third quarter of 2020. We calculate adjusted EBITDA, which is a non-GAAP ratio, as a net profit or loss before the following items: financial income or expenses, income taxes, equity in earnings of investee, depreciation and amortization, and finally excluding share-based compensation. Our net loss in the third quarter of 2021 was $8.5 million compared to a loss of $8.8 million last year, and the loss per share was $0.94, better than the loss per share of $1.17 in the third quarter of 2020. The loss per share in the third quarter of 2021 was affected by several one-time factors. While they will not repeat in the subsequent quarters, they will still impact the calculation of the loss per share for the full year 2021. The non-GAAP loss per share for the third quarter was $0.19. It is calculated as the $8.5 million excluding the one-time issuance costs $6 million resulting in a non-GAAP loss of $2.5 million for the quarter, then divided by 13.164 million, which is the weighted average number of shares used in computing the net loss per ordinary share. We ended the third quarter with extremely strong balance sheet, with cash, cash equivalents and short-term deposits of over $205 million, and obviously no debt. This reflects $155 million of gross proceeds before payment of deal expenses from our our de-SPAC transaction and positions us well, to accelerate our growth and advance our already leading market position in the audio-video and automotive markets. We plan to use the proceeds from the transaction to further enhance the development and commercialization of Valens next-generation products, and we expect them to fully fund our business through breakeven. Now I would like to move onto our guidance. For the fourth quarter of 2021, we expect revenue in the range of $19.4 million to $20.6 million. This guidance reflects and expected increase of our previous full year 2021 revenue guidance from $69 million to -- in a range of $69.4 million to $70.6 million, which at midpoint represents a 23% year-over-year revenue increase. Gross margin for the fourth quarter are expected to be approximately 70% to 72%. Please note that for modeling purposes, you should assume around 98 million shares for the fourth quarter. To wrap up, our achievements in the third quarter of 2021, coupled with the business momentum we see as we entered the fourth quarter, support our confidence in Valens’ continued success. I will now turn the call back to Gideon Ben-Zvi for his closing remarks before opening the call for Q&A.

Thank you, Dror. To sum up, at Valens we operate two growing businesses with considerable opportunity to scale up in the future. The new market vertical we serve, the backlog at the end of the third quarter and the momentum reflected in the pace of bookings, all provide us strong visibility with respect to our business. We look forward to continuing to execute on our strategy and business model to create value for all our stakeholders. I would also like to take this opportunity to thank our incredible team of more than 270 employees around the world for their dedication and execution. Operator?

Thank you. [Operator Instructions] Our first question today comes from Suji Desilva of ROTH Capital Partners. Your line is open.

Thank you. [Operator Instructions] Next question today comes from Rick Schafer of Oppenheimer. Rick, your line is open. Please go ahead.

Thank you. [Operator Instructions] We have no further questions in the queue. So, I will turn the call back to Gideon Ben-Zvi for closing remarks.

Thank you very much for attending and for listening to us. And I would like to thank for joining the first and our Q3 2021 call and for your continued support and interest in Valens and see you next time. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect.