Thank you and welcome, everyone, to Valens Semiconductor’s Fourth Quarter and Full Year 2021 Earnings Call. With me today are Gideon Ben-Zvi, Chief Executive Officer, and Dror Heldenberg, 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 today 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, 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. Dror and I will be on the West Coast and in New York City later this month for IR meetings. Those interested in booking a one-on-one slot, please feel free to email me at investors@valens.com. With that, I will now turn the call over to Gideon.

Thanks, Daphna, and thank you everyone for joining our call today. Q4 was a strong finish to 2021. We achieved solid results in both of our Audio-Video and Automotive segments. Revenue and gross margins topped the high end of our guidance. We exited the year with a record backlog and a robust balance sheet that will support our continued growth. In the fourth quarter, we reported record quarterly total revenues of $20.7 million, up 47% compared with Q4 2020. Audio-video revenues increased 40% from Q4 last year. Our automotive revenues increased by more than 140% from Q4 last year, crossing the $2 million quarterly revenue mark for the first time. For the full-year 2021, we achieved record revenues of $70.7 million, an increase of 24% from 2020. Audio-video revenues increased to $62.8 million, up 15% from 2020. Our automotive revenues approached $8 million, almost four times greater than 2020, reflecting the first full year of mass production of our VA6000 chipsets and expansion of our products into additional car models. Throughout the year, we met all the demand from our customers in a severely supply constrained environment. We anticipate the strong demand for our products to continue in 2022 and have taken proactive measures to ensure we will again be able to timely fulfill our customers' needs. As our customers in the audio-video markets already know, Valens is the industry leader for advanced high speed connectivity solutions. We are well on our way to replicating the success in the much larger and faster growing automotive markets. This leads me to one of our most recent achievements in automotive -in December 2021, we shipped the first-in-the-industry MIPI A-PHY compliant chipset, our VA7000 family, to select customers and partners. This secures our first mover advantage. We shipped engineering samples of our next…

Thank you, Gideon. I'll start with our fourth quarter and full-year results and then provide our outlook for the first quarter and full-year 2022. All comparisons are year- over-year unless otherwise noted. As Gideon stated, our Q4 and full-year results demonstrated the substantial progress we are making in our Audio-Video and Automotive businesses, especially in a constrained supply environment. Beginning with our fourth quarter of 2021 results. We achieved record total revenues of $20.7 million, which represents an increase of 46.8% from the fourth quarter of 2020. Breaking it into our two business segments. Audio-Video revenues increased 40.4% to $18.6 million and the Automotive revenue reach $2.2 million, a remarkable 141.2% increase compared to the last year. Q4 2021 gross profit grew to $14.8 million from $10.3 million, an increase of 43.5%. Fourth quarter 2021 gross margin was 71.2% compared to last year's 72.8%. Non- GAAP gross margin was 71.5% compared to 73.4% in Q4 2020. The difference in gross margin was primarily due to a higher revenue contribution from our Automotive business. Operating expenses in Q4 were $23.4 million, up $6.7 million from Q4 last year. The increase was mainly due to an increase of $4.1 million in research and development expenses, as we invested in growing our headcount to accelerate the execution of projects to address business opportunities in both our Audio-Video and Automotive businesses, including the VA6003 tape out. The remainder was a mix of sales and marketing expenses related to promotion of our new audio-video and automotive products as well as G&A expenses that increased primarily due to our listing as a public company. Fourth quarter adjusted EBITDA was a loss of $7 million compared to the $4.6 million in the fourth quarter of 2020. Loss per share was 8 cents, 91% lower than Q4 2020,…

Thank you, Dror. As you all have heard, we're off to a strong start in 2022 and we are well positioned to create long-term shareholder value. We operate in two large and fast-growing markets, audio-video and automotive. We have a clear go-to-market strategy. We set industry standard for high-speed connectivity, and therefore, have a significant first mover advantage. We have a compelling financial model, strong revenue visibility, and a solid balance sheet that support our investment in our product offering that will further expand our business. Finally, I would like to take this opportunity to thank our amazing team of 300 employees around the world who have contributed to the company's success. Their execution, talent, dedication and continued flexibility made 2021 another great year for Valens. Operator, I would now like to open the call for questions.

[Operator Instructions]. The first question is from Suji Desilva of ROTH Capital.

Congratulations on the strong finish to 2021 and the strong outlook as well. I had a question first on the supply chain. You talked about proactive measures to ensure you can beat your backlog in 2020. Can you elaborate on what some of those measures might have been, if any balance sheet capital use, et cetera?

I'd like to start by saying that I'm proud of the fact that we met all our customers' commitments and deliveries despite the global supply chain issues during 2021. As we see strong demand for products continuing this year, as you said, we have taken proactive measures to ensure that we'll be able to timely fulfill our customer needs, which means for us that we increased the level of inventory, and you can see that the balance sheet, we reported an increase of $6.2 million in our inventory level compared to the same balance as of last year. At this point, I would like to mention a few things. One is that Valens is not exceptional. Basically, we acted like the rest of the industry and saw several issues related to the supply chain. The first one is that we saw extended lead times that, as I mentioned, it requires Valens to increase its inventory, but also it forced us to increase the lead time to our customers. The second thing is that the supply chain vendor were expecting to see and asked to secure capacity by placing long term binding orders. This, again, explains the increase in the level of inventory. And finally, it's the fact that – and we mentioned it in the previous session, that we saw some price increases from our supply chain vendors. Later on, I assume that you're going also to ask about what we did with it with our customers. But this increase in the prices also contributed to the increase in our inventory levels.

I did hear that you guys passed along some of the prices and the gross margin was strong.

Correct.

I think that was the takeaway there? Okay, great. And then I'm curious on the trucking market, can you update the timing of the revenue contribution? Obviously, Mercedes is going well. How soon can that support the, I guess, auto revenue segment?

So I would say that with respect to Automotive revenues in general, as of today, there are two main drivers for this revenue growth. The first one, obviously, the project that we have with Mercedes Benz, and we just mentioned that 2021 was the first full year of mass production. And that explains the increase – the significant increase that we've seen in the revenues, the automotive revenues in our P&L. With respect to the Stonebridge project, I can say that everything is progressing according to the plan. And we assumed that it will get into mass production at the beginning – in early 2023, which means for us that we'll start to see some initial revenues towards the end of 2022. And I would say that, in terms of the new product that we just introduced to the market, the VA7000, that's the MIPI A-PHY compliant chipset. So we continue to ship – we see lots of traction in the market. We continue to ship evaluation samples, engineering samples to our customers. But we believe that this will ramp up to mass production around 2025, 2026.

And two quick follow-ups. On the trucking, are there multiple customers, if you could clarify how many might be coming in from the Stonebridge partnership, that'll be helpful.

At this point, we only work with Stoneridge. That's the only project that is in advance stage. But I can tell you that, in [indiscernible], we've started some initial discussion with other trucking companies that are watching the progress of this development project.

One last question, on the VA7000 you're sampling with 25 customers, did any of those customers, I'm curious, also sample the VA6000 and choose to wait for the MIPI A-PHY standard. Or are they all new to the Valens technology?

This is Gideon. The VA7000 Is the revolutionary product of Valens, and therefore, this is the flagship of the next generation. And people who are looking for the VA7000 look for a very particular answer for a future need which is the robustness, the electromagnetic, being a standard and so forth. While the VA6000, it's a generation where we put the HDBaseT first time in vehicles and the derivatives of this. They are very much complementary because if you look at the one-stop shop solution, which is actually what we want to provide, we will have all the assymetric which are the 7000 and the future generation, and the symmetric could be 6000 or 6003. So, this is a comprehensive one-stop shop solution that is built by different generations of the company. But definitely, we differ between the very futuristic, also very revolutionary, which is the 7000, and the 6000, which is actually a derivative of existing technology.

The next question is from Vivek Arya of Bank of America.

This is Karan Pasricha over here just standing in for Vivek. My first question is just in relation to your full year guidance, roughly $84 million at the midpoint. It kind of implies relatively flattish revenue cadence, roughly of about $21 million per quarter, give or take. So I was wondering if you could talk a little bit about the extent to which supply chain issues are perhaps driving this relatively flat cadence and the extent to which there could be some upside to these numbers as we go forward throughout the year.

So, let's start with the Q1 2022 revenue guidance that we just mentioned. So, first of all, with respect to Q1, it's typically impacted by the Chinese New Year. And this year, specifically, Q1 also suffered a bit from the outbreak of the Omicron. In general, I would say that we expect Q1 year-over-year revenue growth to be more than 30%. In terms of the overall revenue for 2022, I would say that the current backlog that we have definitely give us confidence that we are going to support or to meet the revenue guidance that we have provided. Let's not forget, we're just at the first quarter of the year, and let's see how it's going to develop.

Just for my follow-up, just a very general sort of industry question. So, as you look across the industry, we're seeing record revenue growth from many sort of auto semi chip lenders. And at the same time, many of these lenders are struggling to rebuild inventories, particularly in that channel. So, if you could just take a very high-level view, where do you sort of see chip inventory levels currently in the automotive space? And when do you sort of expect the situation to normalize?

I'll split my answer to the audio-video and to automotive. I know that you've just asked about the automotive. But in terms of the audio video, I must admit that we don't hear from our customers that they have lots of inventory. More than that, we hear from our distributors that they have little level of inventories and this is very encouraging. That's a very encouraging sign for us that they will continue to consume and we are not going to see reduction in revenue in this business line. With respect to automotive, we work not directly with Daimler, with Mercedes. Mercedes is the OEM, but we work directly with the different tier 1s that serve Daimler. And according to what we hear from these guys, and they work – they're very organized and we hear from them we get, on a monthly basis, their rolling forecasts. So, we get the indication that the level of inventory that they keep of our products are very minimal, and they don't stock, they don't have lots of inventory in their premises.

The next question is from Rick Schafer of Oppenheimer.

This is Wei Mok on the call for Rick. Congrats on the quarterly results and positive outlook. So, in regards to my first question, looks like you guys are guiding 1Q revenues flat to slightly up, which is better than a down seasonal quarter. So, I was wondering if you can comment on what are some of the factors that you're seeing that's driving this upside?

So, if we look on the revenue growth for 2022, I would say that, basically, we're going to see the impact of two parameters. The first one, we mentioned in the call that our supply chain vendors increased their prices, and we had to pass portion of the price increases from our supply chain to our vendors. And that was the first reason that we see some increase in revenue. Not that dramatic. The main trigger for the increase in revenue is mainly triggered by the increase in the unit volume that we see for 2022.

My second question is on the recent truck partnership with Stoneridge. So I was wondering how should we think about the average dollar content in a truck compared to a passenger vehicle.

So in the case of Stoneridge, the revenue per truck is going to be richer compared to the revenue per car that we have today from the OEM that we work with. I think that it's fair to say, if we say today that with respect to Mercedes Benz where we deploy today, in average, between 3 to 4 chips in every car and the revenue, the average revenue per car is north of $25, I would say that in the case of the truck, it will be fair to say that you can double this revenue. And this is a representative number for the trucking deal.

May I add one thing here. In the truck industry – it's Gideon. The truck industry has also scaled up because it's – first, there is a potential in the same truck. There is a significant aftermarket. And there are more future applications, which can be embedded in trucks. So, the comparison is quite not apples-to-apples. But it's definitely a market which we look as a potential of growth.

My last question, I wanted to ask about your first generation VA6000 family of chipsets. It looks like you expanded into the VA6003. So I was wondering, what are some of the features in this product? And does it tap into a specific area or application in the passenger vehicles? And what does this mean for your TAM?

The 6003 is a subset of the 6000. And in developments of chips, I guess, you know that better than me, once you have a chip that is successful and performing, the fork of different applications can be higher end, subset, or any other derivative. The 6003 features significantly smaller power and size and give us more robustness and more confidence in future use of it for many years. Of course, just like the 6003, it benefits from the UTP, the unshielded capability which is very important feature in many in the industry. Also, it's really complimentary for our vision of one-stop shop that will complement the 7000. If you look at some of the drawings and some of the thoughts of tier 1s in regards to zonal architecture and many other thoughts, you see that there is a lot of correspondence between the symmetric and assymetric links. And the 6003 plays a very important role to complete the whole picture. And this is the reason we thought it is good to have this chip as well.

The next question is from Atif Malik of Citi.

The first one for Gideon. You talked about working with 25 auto customers. Can you give us some color? How many of them are Chinese because China seems to be growing faster in some of the auto areas? If you can just provide some color on how many Chinese customers you're working with?

Unfortunately, I cannot give information about the future customers and geographic diversification. We have a lot of tier 1s, a lot of OEMs actually, and a lot of other collaboration. At this moment, I can just say that four OEMs and growing are in the list. But we cannot supply more information than that. I am sure you can understand and have empathy to my answer.

As a follow-up for Dror, just to be clear, Dror, on the gross margin outlook for this year, 66.5% to 67 %, the decline from last year predominantly is driven by the increasing mix of autos and the price increases you're doing and the wafer cost increases that you saw, that is a wash. Are those puts and takes in your gross margin outlook?

Yeah, absolutely. I think that your analysis is correct. The main reason – or I would say, the main reason for the small declines that we see in the gross margin in 2022 compared to 2021 is driven by the different mix of revenue and the fact that, next year, we expect to have a higher contribution from our Automotive to the level of about 20% of the total revenues of 2022 revenues for the company. And as you probably remember, in the Audio-Video, we have higher margins than in Automotive. So the more we increase the portion – the contribution of Automotive, obviously, the weighted average gross margin declined a bit.

The last one, on the 20% of revenues for Auto this year, any comments on the mix of VA6000 versus the VA7000? Is it mostly VA6000 for this year?

As I explained before, at least in the next two, three years, the only product in Automotive that will generate revenue for the company in mass production will be the 6000. And later on, we are going to see some revenue contribution from the VA6003. But the 7000, we started to ship samples towards the end of December of 2021. We continue by the way to ship to additional customers, prospect customers, evaluation kits and samples this year as well. But as you know, we're dealing with the automotive industry, which is very conservative. The decision-making process can be quite lengthy. We believe that it will be somewhere between one and one-and-a-half year. And so, we do not expect any significant revenue, at least not in mass production of the VA7000 in the next two, three years. We expect that – said that, we do believe that by mid-2023, we will have two design wins of VA7000 with two leading OEMs.

The next question is from Brian Dobson of Chardan Capital Markets.

So, you held an event last month highlighting your VA7000 chip series. Have you received any feedback from your customers to the samples that you sent out or to that event day? And if so, could you maybe share with us?

The 7000 was just shipped a month-and-a-half ago. The time it takes for a customer to learn, to adopt and to, actually, I would say to play with the chip is quite long. We are in the auto and chip industry, industry that's together, we call it, creates geological speed. And it's not – I don't think that you can download from the internet and play. It's chips and it takes the time to evaluate and understand. However, I can share with you that we demonstrated on the web, real time, that we showed some of our customers by filming the 7000 performance and people were literally astonished by the performance and especially by what we demonstrated in electromagnetic capability, which is one of, I think, the increasing concerns of the industry, how to deal with all these electromagnetic that influence the safety of the car? And so, the answer is, we are in the process. It looks close. The answers are positive. But we're speaking about a chip that's in mass production is two years ahead. And we're in the stage of first evaluation, and this is the stage.

In terms of the backlog that you referenced at year end, can you give us a little bit more color on the composition of that backlog? Perhaps some percentage between Audio- Video and Automotive chips?

We do not provide the composition of the backlog for the two segments that we run in the company. I can just say that the backlog supports the growth that we see in both segments, and we feel very confident that we will be able to meet the revenue – the ambitious revenue targets that we have in both business lines. Beyond maybe to give the last comment on this one is that only really small portion of the backlog is scheduled to be shipped after December 2022. Most of it, the lion's share of this backlog is scheduled for shipment delivery during 2022.

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

First, I want to thank everyone for joining, for asking questions. And we're very pleased to be with you and hope that actually is going to be again and again in all the further year and the coming reports. I would like to thank you for joining today for our Q4 and full-year 2021 call and for your continued support and interest in Valens. And let's keep in touch. Thank you very much.

Thank you. This concludes the Valens Semiconductor fourth quarter 2021 and full-year results conference hall. Thank you for your participation. You may go ahead and disconnect.