Stonegate Capital Partners Updates Coverage on Valens Semiconductor Ltd. (VLN) Q4 2024February 27, 2025 4:48 PM EST | Source: Reportable, Inc. Dallas, Texas--(Newsfile Corp. - February 27, 2025) - Valens Semiconductor Ltd.(NYSE: VLN): Stonegate Capital Partners updates their coverage on Valens Semiconductor Ltd. (NYSE: VLN). In FY24, Valens Semiconductor faced significant headwinds, mirroring the broader struggles of the semiconductor industry amid market slowdowns and inventory corrections. D ...

Financial Data and Key Metrics Changes - The company reported revenues of $16.7 million for Q4 2024, exceeding the top end of guidance and marking the fourth consecutive quarter of revenue growth [10][32] - Full-year revenue for 2024 was $57.9 million, down from $84.2 million in 2023, reflecting challenges in customer markets and inventory digestion [38][39] - Q4 2024 gross margin was 60.4%, above guidance, compared to 56.4% in Q3 2024 and 61.7% in Q4 2023 [34][39] - GAAP net loss for Q4 was $7.3 million, an improvement from a loss of $10.4 million in Q3 2024, but a decline from a profit of $2.8 million in Q4 2023 [37][39] - The company ended 2024 with $131 million in cash and cash equivalents, maintaining a strong balance sheet [43][44] Business Line Data and Key Metrics Changes - The cross-industry business (CIB) generated $11.7 million in Q4 2024, accounting for approximately 70% of total revenue, while automotive contributed $5 million, approximately 30% [33] - CIB revenue decreased from $57.4 million in 2023 to $36.3 million in 2024, primarily due to inventory issues [39] - Automotive revenue was $21.6 million in 2024, down 19.4% from $26.8 million in 2023, attributed to price erosion and reduced unit sales [39] Market Data and Key Metrics Changes - The company is targeting high-growth markets such as industrial machine vision and medical endoscopes, with potential revenue of $460 million by 2029 for industrial machine vision [22][24] - The automotive industry is projected to have a total addressable market (TAM) of $4.5 billion per year by 2029, with significant growth expected as data systems become more sophisticated [27] Company Strategy and Development Direction - The company has announced a five-year plan aiming to quadruple top-line revenue, with a focus on high-growth markets and a reorganization of corporate structure [9][44] - The acquisition of AkerLane is expected to enhance the company's position in the professional audio-video and industrial markets [23][44] - The company is actively seeking further acquisition opportunities, particularly in the ProAV and industrial machine vision sectors [44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about emerging from the bottom of the cycle, citing improved customer demand and healthier inventory levels entering 2025 [6][17] - The company anticipates a return to growth in 2025, driven by new design wins and increased activity in customer markets [17][45] - Management highlighted the importance of the automotive sector, with expectations for new design wins and commercialization of the VA7000 chipset [30][68] Other Important Information - The company has initiated a new share repurchase program of up to $15 million, reflecting confidence in long-term growth [44] - The guidance for 2025 anticipates annual revenue between $71 million and $76 million, representing a year-over-year growth of 23% to 31% [45] Q&A Session Summary Question: Key drivers behind the gross margin guide for Q1 - Management indicated that gross margin sustainability will depend on product mix and optimization efforts in automotive [50][51] Question: Insights on customer demand compared to three months ago - Management noted improved customer sentiment and optimism about market recovery based on discussions with customers [53][55] Question: Thoughts on competitor M&A in the automotive market - Management expressed confidence in the superiority of their A-PHY technology despite competitor acquisitions, emphasizing their competitive edge [57][60] Question: Update on design wins with European OEMs - Management expects chips to be shipped and embedded in cars by 2026, acknowledging potential delays typical in the automotive industry [66][68] Question: Timing of opportunities in medical imaging - Management is optimistic about earlier-than-expected opportunities in medical imaging, driven by unique market needs [72][74] Question: Environment for acquisition targets - Management discussed various acquisition opportunities, including family-owned businesses and companies with high debt levels [76][78] Question: Cadence of guidance for 2025 - Management expects a gradual ramp in the second half of 2025, particularly with the commercialization of the VS6320 chipset [79][84]

Valens Semiconductor Ltd. (NYSE:VLN) Q4 2024 Earnings Conference Call February 26, 2025 8:30 AM ET Company Participants Michal Ben Ari - Investor Relations Gideon Ben-Zvi - Chief Executive Officer Guy Nathanzon - Chief Financial Officer Conference Call Participants Neil Young - Needham & Company Wei Mok - Oppenheimer Suji Desilva - Roth Capital Dave Storms - Stonegate Operator Good morning. My name is Yoni, and I will be your conference operator today. At this time, I would like to welcome everyone to Valen ...

Industry Dynamics - The semiconductor industry is highly cyclical, with significant downturns impacting demand, as seen in 2023 following a recovery in 2022[36]. - The semiconductor industry is characterized by rapid technological changes and short product life cycles, necessitating timely introduction of new technologies[53]. - The semiconductor industry is facing significant price erosion, with rapid declines in average selling prices impacting gross margins and overall financial health[56]. - The automotive market's downturn, influenced by inflation and rising interest rates, could negatively affect demand for the company's products and growth strategy[6]. - Any prolonged downturn in the semiconductor industry could materially affect the company's financial condition and results of operations[37]. Revenue Sources - Approximately 63% of total net sales in fiscal year 2024 were generated by cross-industry products, while 37% came from automotive products[52]. - The company derives about 16% of its total revenues from China, which may be affected by U.S. export restrictions on advanced computing integrated circuits[46]. - Approximately 38% of the company's revenues in 2024 and 36% in 2023 were generated by the top three customers, indicating a significant reliance on a few key clients[67]. Supply Chain and Production Risks - Disruptions in supply chains due to geopolitical tensions or natural disasters could adversely affect the company's ability to meet production demands[48]. - The company is dependent on key suppliers, such as TSMC, for silicon wafers, and any disruption in their operations could significantly impact production[40]. - The company does not operate its own manufacturing facilities, which may hinder its ability to reduce costs as quickly as competitors, impacting gross margins[57]. - The company faces challenges in maintaining manufacturing yields, which could lead to lower margins and affect customer relationships[91]. Financial Performance and Inventory Management - Rising inflation and interest rates in 2024 have led customers to adopt a cautious approach to inventory building, resulting in high inventory levels[36]. - The company experienced high inventory levels among customers in 2023-2024, leading to decreased demand for products due to inflation and high-interest rates[6]. - Failure to accurately estimate customer demand may lead to excess inventories or lost revenue opportunities, adversely affecting financial results[61]. - The company relies heavily on obtaining orders during each quarter to meet net sales objectives, with open backlogs typically lower than expected[76]. Competitive Landscape - The company must navigate challenges related to pricing pressures and competition in the semiconductor market, which could impact profitability[53]. - Winning competitive technology selection processes is crucial for the company, as failure to do so may adversely affect revenues and market position[78]. - The company anticipates that it will need to continue reducing prices of existing products to remain competitive, which could further pressure gross margins[60]. Geopolitical and Economic Risks - The company faces risks from global political and economic uncertainties, particularly related to U.S.-China relations and Taiwan[40]. - The geopolitical situation in Israel has caused temporary shifts to remote work and military reserve duty among employees, potentially delaying the introduction of new technologies[6]. - The ongoing geopolitical instability in Israel, including recent conflicts, may disrupt operations and impact revenues[169]. - Geopolitical events, such as the Russia-Ukraine conflict, may increase cybersecurity risks and associated costs for the company[115]. Intellectual Property and Compliance - The company may face challenges in adequately protecting its intellectual property rights, which could harm its competitive position[100]. - Patent prosecution is complex and costly, with no assurance that necessary patents will be issued or maintained[103]. - The company may be subject to litigation regarding intellectual property rights, which could result in significant liabilities and divert management attention[107]. - The company must comply with transfer pricing rules, which require documentation to establish arm's length pricing for transactions with non-resident related parties, or face potential additional corporate income tax liabilities[149]. Cybersecurity and Data Protection - Cybersecurity risks are heightened due to increasing sophistication of attacks, which could irreparably damage the company's reputation and business[111]. - The company may incur significant expenses related to cybersecurity breaches, which could materially affect its financial results[116]. - Evolving privacy and data protection regulations across different jurisdictions may complicate compliance efforts and impact revenue[125]. - The company is subject to strict obligations under the EU General Data Protection Regulation (GDPR), which can impose fines of up to 4% of global annual revenue or €20 million, whichever is greater[128]. Financial Health and Capital Management - Future capital raising may be limited, impacting the ability to execute growth strategies and respond to business opportunities[93]. - Insufficient capital resources may lead to the need for additional equity or debt financing, resulting in shareholder dilution or increased expenses[94]. - The company is exposed to various financial risks, including currency fluctuations and credit risk, which could adversely affect financial results[95]. - Valens' financial results may be adversely affected by fluctuations in foreign exchange rates, particularly with the NIS[152]. Corporate Governance and Shareholder Relations - The company has a duty to act in good faith towards shareholders, which may impose additional obligations not typically found in U.S. corporations[175]. - The company’s articles of association require a 65% shareholder vote for certain amendments, which may limit shareholder influence[176]. - Valens' board of directors has sole discretion over dividend payments, which depend on future operations, earnings, and financial conditions[189]. - The company has not declared or paid any cash dividends and does not intend to do so in the foreseeable future[188]. Market Position and Growth Opportunities - Valens aims to transform digital connectivity across industries, focusing on reliable and optimized solutions for long-distance connectivity[216]. - The company is positioned to capture growing business opportunities arising from the evolution of AI-based applications in remote communication platforms[222]. - Valens operates in a fabless model with two main business units: Cross-Industry and Automotive, targeting diverse verticals[219]. - The company is leveraging its core technology to expand into new markets, including industrial machine vision and medical endoscopies[220].

Core Viewpoint - Valens Semiconductor will release its fourth quarter and full year 2024 financial results on February 26, 2025, before market opening [1] Financial Results Announcement - The financial results will be discussed in a conference call hosted by CEO Gideon Ben Zvi and CFO Guy Nathanzon on February 26, 2025, at 8:30 a.m. Eastern Time [2] - Access to the conference call will be available via multiple phone numbers for different regions and a live webcast on the company's investor relations website [2] Company Overview - Valens Semiconductor is a leader in high-performance connectivity, providing technology that enhances digital experiences globally [3] - The company's chipsets are utilized in various devices, supporting advanced audio-video installations, next-generation videoconferencing, and the development of ADAS and autonomous driving technologies [3] - Valens is known for setting industry standards, including HDBaseT® and MIPI A-PHY, showcasing its commitment to pushing connectivity boundaries [3]

Core Insights - Sennheiser has launched the TeamConnect Bar Solutions, entering the all-in-one unified communications AV bar market, which has gained popularity in corporate and educational settings and is certified for Microsoft Teams [1] - The TeamConnect Bars can be extended using Valens technology, allowing flexible placement without proximity to power outlets, utilizing the Valens VA6000 chipset for high-speed USB connections up to 100m/328ft and power over a single Category cable [2][3] Company Overview - Sennheiser has over 75 years of experience in audio solutions, focusing on professional audio products like microphones and meeting solutions, while consumer devices are managed by Sonova Holding AG under Sennheiser's license [4] - Valens Semiconductor, listed on NYSE as VLN, specializes in high-performance connectivity, providing chipsets for advanced audio-video installations and next-generation videoconferencing [5]

Financial Performance - Solid order backlog of $298.7 million, up $15.0 million or 5.3% since the beginning of the year [8] - Adjusted net income from continuing operations of $8.5 million, versus an adjusted net loss of $7.0 million in the corresponding quarter [8] - Sales of $73.4 million, up $11.2 million or 18.1% compared to the same quarter last year [8] - Gross profit of $28.3 million or 38.6% of sales, up significantly from $8.2 million, or 13.1% of sales, last year [8] - Net loss from continuing operations of $47.8 million, versus a net loss of $9.5 million last year reflecting restructuring costs of $74.5 million before income taxes [8] - Adjusted EBITDA from continuing operations of $14.3 million, compared to negative $4.1 million last year [8] Strategic Transactions - Agreement with Global Risk Capital to divest asbestos-related liabilities, removing $143 million in liabilities from the balance sheet [2] - Memorandum of understanding with Framatome for the sale of French subsidiaries Segault and Velan France for $198.4 million [3] - The sale of French businesses met the criteria for assets held for sale and discontinued operations, adjusting the consolidated balance sheet [4] Operational Highlights - Bookings of $59.1 million, versus $60.1 million last year, representing a book-to-bill ratio of 0.81 [8] - Cash flows from operating activities was breakeven, versus $0.1 million last year [8] - Net cash of $32.1 million at the end of the quarter, versus $36.4 million at the beginning of the fiscal year [8] Industry and Market Position - The company is well-positioned to benefit from robust momentum in the clean energy sector, particularly in the global nuclear market [9] - Recent alliances with leading players for proprietary products at small modular reactors bode well for the long term [9] - The company expects nuclear activities to generate new orders in the near future [9] Financial Position and Outlook - As at November 30, 2024, orders amounting to $249.1 million, representing 83.4% of a total backlog of $298.7 million, are expected to be delivered in the next 12 months [29] - The company anticipates concluding fiscal 2025 with a growth year over year in sales from continuing operations [29] - The Board of Directors has declared a dividend of CA$0.03 per common share, reinstating the dividend payment given the improved financial performance [30]

Core View - The company announced two major strategic initiatives: the divestiture of asbestos-related liabilities and the sale of French subsidiaries, aimed at reducing operating and financial risks while strengthening its financial position [12][13] - These transactions are expected to unlock the company's inherent value, making it financially and operationally stronger, and allowing it to focus on growth opportunities in the clean energy sector [6][7][13] Divestiture of Asbestos Liabilities - The company entered into an agreement with Global Risk Capital to divest its asbestos-related liabilities through the sale of its US subsidiary, Velan Valve Corp, for US$143 million, which will permanently remove all asbestos-related liabilities from the company's balance sheet [14] - The transaction is expected to result in a one-time non-cash charge to earnings of approximately US$67 million, before tax benefits [1] - The company plans to fund this transaction using available cash and a portion of the proceeds from the sale of its French subsidiaries [14] Sale of French Subsidiaries - The company entered into a memorandum of understanding to sell 100% of its French subsidiaries, Segault SAS and Velan S A S, to Framatome for a purchase price of US$175 2 million (€170 million), with an additional intercompany loan transfer of US$23 2 million (€22 5 million), bringing the total consideration to US$198 4 million (€192 5 million) [8][15] - The completion of this transaction is subject to shareholder approval, and Velan Holding, the controlling shareholder, has entered into a voting and support agreement with the company [9][16] - The company will inform and consult employee representative bodies in accordance with French laws before finalizing the agreement [2] Strategic Positioning and Future Outlook - The company will continue to lead in flow control solutions for clean energy and other industrial sectors, leveraging its strong brand, high-quality products, and expertise in demanding applications [6] - The company is well-positioned in the nuclear energy market with proprietary valve offerings for small modular reactors and a global installed base of products at existing nuclear reactors [6] - The transactions are expected to strengthen the company's balance sheet, making it virtually debt-free and enabling greater investments in growth opportunities [7] Advisors and Legal Counsel - Ducera Partners LLC is acting as the exclusive financial advisor for the asbestos divestiture transaction, with legal counsel provided by Latham & Watkins LLP and Davies Ward Phillips & Vineberg LLP [3] - BMO Capital Markets is acting as the financial advisor for the France transaction, with legal counsel provided by Davies Ward Phillips & Vineberg LLP and Bredin Prat [10] - Jones Day is acting as legal advisor to Global Risk Capital and Framatome [3][10]

Financial Results Announcement - Velan Inc. will release its financial results for the third quarter ended November 30, 2024, on January 14, 2025 [1] - An analyst call is scheduled for January 15, 2025, at 8:00 a.m. (EDT) to discuss the results [2] Conference Call Details - Participants can join the conference call by registering through a provided link or by dialing in directly [2] - The call will also be available via webcast, with a replay accessible within 2 hours after the call [3] Investor Relations - Materials referenced during the conference call will be available on the company's Investor Relations section shortly before the event [4]

Core Insights - Valens Semiconductor focuses on developing advanced products for high-performance wired connectivity across various markets, including automotive, professional audio-video, industrial, and medical sectors [1][6] - The company aims to enhance connected vehicle systems, improving safety, performance, and the overall driving experience [1] - Valens' professional audio-video chips facilitate meeting equity, enabling operations in diverse conditions and locations for corporations and educational institutions [1] ESG Commitment - The 2023 ESG Report highlights Valens Semiconductor's commitment to responsible corporate governance and sustainable business practices [2][4] - The company engages with shareholders, customers, and partners to communicate progress and advancements in connectivity [2] - Valens emphasizes the importance of social and environmental responsibility in its growth strategy [5] Company Overview - Valens Semiconductor is recognized as a leader in high-performance connectivity, transforming digital experiences globally [6] - The company's chipsets are widely integrated into devices, supporting advanced audio-video installations, next-generation videoconferencing, and the development of ADAS and autonomous driving technologies [6] - Valens' technology underpins industry standards such as HDBaseT® and MIPI A-PHY, setting benchmarks in connectivity [6]