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 Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. All participant lines have been placed in a listen-only mode. Opening remarks by Valens Semiconductor management will be followed by a question-and-answer session. I will now turn the call over to Daphna Golden, Vice President of Investor Relations for Valens Semiconductor. Please go ahead.

Thank you, and welcome, everyone, to Valens Semiconductor's fourth quarter and full year 2023 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 earlier today 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. In the coming weeks, we will attend the Annual ROTH MKM conference in Dana Point, California. If you're interested in meeting with us, please e-mail me at investors.valens.com. With that, I will now turn the call over to Gideon.

Thank you, Daphna. Hello, everyone, and thank you for joining the Valens Semiconductor fourth quarter and full year 2023 earnings call. I'm joined today by Guy Nathanzon, our new Chief Financial Officer. Guy will play a key role in progressing the Valens Semiconductor high-performance strategy and its execution. Guy has more than 20 years of executive leadership experience with U.S. listed and private companies in the semiconductor, medical imaging and aviation technology sectors as CFO of these companies, including Provigent, Altair Semiconductor, TAT Technologies and Scopio Labs. We are excited to welcome Guy to our executive team and glad he is here today for our earnings call. I also want to thank you and Yael Rozenberg for stepping in as our Interim CFO for the past six months. Yael is working closely with Guy and will continue to manage all aspects of our finance department as VP of Finance. As you all know, the past year has been challenging for the semiconductor industry, largely due to macroeconomic headwinds, including customer inventory levels, high interest rates and inflation. Against this backdrop, at Valens Semiconductor, we continue to expand our engagement and partnerships across the various verticals we serve, enhance our innovative high-performance connectivity offerings and improve the visibility of our technology. We are pleased to report with both fourth quarter and full year revenues were at the top end of our guidance range at $21.9 million and $84.2 million, respectively. Automotive revenue reached new highs and accounted for more than 30% of total revenues in 2023. Non-GAAP gross margin for the fourth quarter and the full year came in 63.1% and 63.9%, respectively. And adjusted EBITDA was $2.2 million for the fourth quarter and a loss of $10.3 million for the full year, substantially better than our guidance. We entered 2024…

Thank you, Gideon. Hello, everyone. I'm excited to be here today for my first earnings call at Valens Semiconductor. Over the past few weeks, since I joined Valens Semiconductor, I have met and engaged with a passionate results-driven team. We look forward to the future success of our superior product offerings and are ready to move full steam ahead on executing our long-term strategy regardless of the immediate environment. I'll begin with a review of the company's fourth quarter and full year 2023 results and then turn to our guidance for Q1 2024 and what we expect for the first half of the year. Starting with the quarterly results. Q4 2023 revenues reached $21.9 million, at the high end of our guidance range. This compares to revenues of $23.5 million in Q4 2022. Q4 2023 gross profit was $13.5 million, and gross margin was 61.7%, compared to gross profit of $16 million and gross margin of 68.3% in Q4 2022. Q4 2023 non-GAAP gross margin came in at 63.1%. This compared to 69.2% in Q4 2022. The year-over-year change in gross margin was mostly due to product mix, with a higher proportion of automotive revenue compared to our audio-video business, which has much higher gross margin. Operating expenses in Q4 2023 totaled $15.3 million, significantly lower than $24.1 million in Q4 2022. I'd like to turn to analyzing the improvement achieved in OpEx. Research and development expenses were $8.6 million compared to $16.5 million in Q4 2022. Several factors contributed to substantially lower R&D expenses. Last year, the company recorded expenses of $4.2 million associated with development of our VA7000 chipset family, an essential step towards mass production. As Gideon mentioned, the VA7000 is part of our vision for a holistic strategy that leverages Valens Semiconductor's core technology to power…

Thank you, Guy. We remain focused on execution and on capitalizing on the great opportunities we see ahead in the market that offer the best growth opportunities for Valens Semiconductor. In 2024, we will continue to invest in an innovative and broad pipeline of connectivity solutions and opportunities such as the VA7000 for automotive and audio-video, the VS6320, our new USB3.2 extension offering, and various AI-based applications. We are positioned to take advantage of market tailwinds with a focus on delivering long-term sustainable value to our stakeholders. Valens Semiconductor offers the most innovative, high-performance connectivity solutions with the most advanced chipset in the industry, and we were honored to receive recognition by IFS for developing one of the most advanced chipsets for automotive. We have over 50 years of innovation excellence in the semiconductor industry and a strong balance sheet with the cash necessary to withstand market fluctuations. Valens Semiconductor is a driving force behind technological innovations that make tangible impact on people's life. And with our chipset already embedded in millions of products, we are not just setting standards, we are redefining them across industries. Before opening the call for questions, I would like to take this opportunity to thank our employees. You are the force driving Valens Semiconductor forward with your passion, dedication and an unmatched innovative spirit. With that, I will now open the call to your questions. Operator?

Thank you. [Operator Instructions] The first question is from Brian Dobson of Chardan Capital Markets. Please go ahead.

Yeah, thanks very much for taking my question, and congratulations on your CES award this year. So, as you're thinking about growth for the year, where do you see pockets of strength and relative weakness compared with 2023?

Thank you, Brian, for the question, and welcome. We see the strengths and weaknesses as follows. Currently -- we'll start with the softness of the industries in our ecosystem that is still -- we still feel it. I believe we hope that it is -- we are going out of this weakness by the second half of 2024. We feel that we are very well positioned to execute growth plan. We are seeing currently -- the market is -- first is audio-video. We believe the inventory consumption is in good progress. And in automotive, the sector is experiencing, I would say, a cyclical downturn and slower decision-making around new technology adoption, yet we get, in parallel, very, very good recognition about the need, the demonstrable advantage, and we are retained the hopefulness that our solution is this solution and that we'll eventually get what we're looking for. It's harder to predict the date. But it is -- the certainty about the uniqueness and the need of the market is -- we feel it very strong. We also believe it will benefit from capturing new untapped market with our USB3 extension. The product that we just launched and got all those awards, the VS6320, it's a product we are very, very proud of. It's a very high-end product and a very sophisticated technology for the use of a lot broader market, which we were in before. All in all, once the markets we serve recover, we are well positioned to execute our growth plan, and we are all prepared for that. So, I hope I answered you. Thank you.

Yeah, very good. Thanks. And then you highlighted that you sold VA6000 chipset into Mercedes-Benz for use in a wide swath of its car offerings. Do you think that other automotive OEMs will see that as a tested stamp of approval? Have you had conversations with other, call it, household brands about selling into those companies as well? And I'm not asking you to specifically name companies.

We are focusing on the next generation on the VA7000, where we see a lot higher technological barrier and a lot more blunt need and demonstrable advantage on the market. Though the VA6000 is the product that entered us to the market and we believe is a very important player here. Answering specifically about other customers, of course, we cannot discuss. I can just tell that we see the VA6000 also in other markets than automotive. We have sales in industrial. We have sales in audio-video. And the VA6000 has a lot of influence in Valens. As said, it entered us into the automotive. We have Mercedes. We have Stoneridge, and we have other companies which are looking at it, which we cannot elaborate, of course, at this stage. But as I said, it was the step to get into the big market, the VA7000, where we see the huge upside in totally different magnitude. I would like to elaborate one sentence here. If you look at the car, at the vehicle, how many of the links are symmetric? It would require 6,000 and the like versus how many are non-symmetric, asymmetric that would need to connect between a sensor like a radar or a camera to the ECU. And it's by far, by far, more links and also the significance and the importance of those links and how the core vehicle is fragile if those links are not perfect. So, this is the way we see the -- those two chips and the connection between them. So that, I think, summarizes my answer.

Yeah. Very good. That's helpful. Thank you. And then, could you share a little bit about potentially positive or constructive feedback you've received from the trucking industry regarding the VA7000 chip's ability to provide, call it, rear-view and surround view visibility for trucks?

Well, we -- the answer -- the real answer that I cannot share, not because I do not have, it's because we are in some -- I cannot share too much about it, but I say that we have significant hopes of VA700R. We believe that it gives us opportunities. I hope that in the future, we'll be able to share more. At the moment, I can say the following. The [VA700R] (ph) is an industry-leading bandwidth and links distance and gives the solution for long vehicle sensor connectivity that enables things no one can, like 4-gigabit of distance up to 40 meters, 130 feet. And this enables the long-distance vehicle a full surround view and ADAS. And it leverages the VA7000 chipset family for more. While the VA6000 is mainly for rear-view visibility, in tractor-trailers and the VA7000 gives the whole surround view for a long vehicle market. It will enhance the safety offering of trucking industry. And we believe it enables decreasing -- reducing the number of accidents that are because of either going backwards or having a blind spot while in different turns. A lot of the -- and we have a very thorough statistics about accidents with trucks. We believe to give something very serious solution. But about the process we struck, I cannot elaborate now. But I hope I did answer you.

Yeah. Thanks. And just one final question. As far as your involvement with the school district in Florida, has that helped you further conversations with other school districts? I know we touched upon that on your last call.

Sorry, I could -- can you please repeat? We don't -- it was heard here not so clear. Can you please repeat the question?

Yeah. Apologies. So, as far as your work with the Florida school district, has gaining a foothold there helped further discussions with other school districts that you may be speaking with? I know we chatted about that briefly on your last call.

Well, there are -- again, it's like -- in this kind of session, we cannot speak a lot about certain customers. I can say that our AV activity is facing new opportunities, both in school districts, both in the hybrid education, in industrial, and it is something that we believe has a lot of upside for Valens in the future. And part of it is the hybrid education, which is actually part of what you just mentioned at the school district. It's an industry which has own mannerism and own decision-making speed, and it's a B2G, it's business to government, but we are also see an upside here.

Thank you very much.

Thank you.

The next question is from Suji Desilva of ROTH Capital. Please go ahead.

Hi, Gideon. And Guy, welcome to the call. Best of luck in the new role here.

Thank you.

So, yes, the VS6320 sounds interesting here, Gideon. Can you talk about the AI CV market opportunity, the surveillance opportunity for computer vision? That sounds very interesting and could be probably your largest opportunity. But I curious if that is the case and how your traction is there early in that market.

Thank you very much, Suji, for the question, especially thank you because I asked Daphna before, I want someone to ask me about AI, and therefore, I'm especially thankful this time. AI -- my personal background is -- before Valens is in AI for more than 20 years. AI requires a lot of data and very accurate, especially AI, which is untapped. That's actually needs to learn itself the situation. What we are doing in the world of ADAS, the world of ADAS require a lot of data all the time. And I just want to be very concrete and down to earth. When speaking about compromising on data, what is compromising on data? It's going -- let's say, we don't have enough bandwidth. Should we go from 30 to 24 frames per second? Should we go from 12-bit pixel to 80-bit pixel? And what does it mean? It means that it might not see the foot of the child is going to cross the street in 300 yards from us or because of the fog that there is not enough color there to see the difference between the red light and green light. And this is where the amount of data that is required becomes a lot more essential as important, and the resilience of the link that takes all this data back from the camera to the ECU is more and more essential, because if you lose this link because of electromagnetic influence, the AI, the whole AI might function less good than pre-AI system. So, the AI requirement for a lot of data, and people -- when people start to speak about AI, they started to speak about big data. It came together because AI is -- has a very unique need of a lot of data, and this is where we are positioned. One last thing. When you move from a certain resolution to double resolution and from certain data bandwidth to double, the exposure to EMC is not double. It's exponentially higher. So, the case of a car, they're moving your cellular antenna under a truck, above a bridge, wherever, whether you have a magnetic influence make the whole link a lot more fragile and the ADAS is lot less functional. So this is where AI and how Valens is an AI enabler because of the need for more data and more resilience, a way to transfer the data in time.

Okay. No, that makes a lot of sense, Gideon. Appreciate that. In the '24 revenues versus '23, do you have a sense of what auto will be in the mix? And in the first half, is it weaker because of the -- into the cautious guide because of the inventory digestion? Does that impact on the first half for auto?

Okay. Thank you for the question. So, we think that eventually -- just one second. Sorry for the wait. We have a technical problem. Sorry for that. Can you repeat the question, please, one more, because...

Sure, yes. Sure. I'm sorry. So in the -- what the auto revenue mix will be in '24 versus the 30% you saw in '23? And if the first half auto might be impacted by inventory corrections but perhaps recovering in the second half?

Okay. So, at this stage, we have kind of limited the visibility into the first half of '24 and all over '24. This is why we would prefer this stage not to refer to the product mix between the AV and the automotive. I think that we've seen a significant trend in the automotive between '22 to '23. I would not expect the same pace on the Mercedes-Benz design also into '24 because we are fully ramped. And currently, we would not provide any further information on any new designs on the automotive. If we had something to announce, of course, we will.

Okay. Great. And one last question, perhaps, to Gideon. With the partnership with Intel IFS, I'm just curious what features of your chip from a technical perspective stood out to them to have them highlight it versus other chips.

Well, of course, we cannot elaborate about the detail about technical detail of the chip. I can say one thing. The essence of Valens is a company that replaced the full analog technology with carving out part of the analog and putting the DSP inside. And this puts us in a situation that unlike analog company, we benefit from the more advanced processes because, as you know, the digital enjoys from an advanced processes, while the analog suffers from advanced packages because it's far more expensive. And this -- the deal with Intel will enable us to -- without going to the specs of the chip, that each chip on this process will give us far higher performance, smaller and more efficient power, a power-efficient chip. So that's the advantage of the IFS. I'm not sure if this is what you asked. MIPI A-PHY chipset -- did you ask particularly about the MIPI A-PHY chipset or about this [indiscernible]?

Just, yes, what Intel noticed about your chip architecture, obviously, to the auto chip, right?

Well, the Senior Vice President of Intel, Stu Pann, said that their goal is to identify transformative technologies. And this is what put Intel to do it. And I think this is what put us to do this deal. It'll accelerated innovation, and it'll really unlock opportunities, new opportunities that automotive don't have today. There are a lot of barriers today in the automotive industry regarding bandwidth as we discussed before with AI, but also power. Power, power and power, the -- speaking about the cars that have hundreds of watts -- actually a range of kilowatts in order to operate a different system. And the Intel -- the deal with Intel addresses this particular problem as well inside of the performance -- it's inside of the performance of [indiscernible] for sure, but also the power. MIPI A-PHY chipset is the obvious fit for the next-generation technology because the next-generation technology, as I mentioned before, we speak about AI, it's more resolution, more bandwidth -- more resolution and depths of the color, more bandwidth in order to capture and avoid more accident cases. And the Intel did enable the resolution and the speed that -- and the power to accomplish those needs, and this is why we think it's a transition in the automotive -- for automotive.

Okay. Thank you, Gideon. Very helpful. Thanks, guys.

[Operator Instructions] There are no further questions at this time. Mr. Ben-Zvi, would you like to make your concluding statement?

Yes, please. Thank you. I would like to thank you all for joining us today for our Q4 and the full year 2023 call and for your continued support and interest in Valens Semiconductor.

Thank you. This concludes the Valens Semiconductor fourth quarter and final results of 2023 conference call. Thank you for your participation. You may go ahead and disconnect.