Valens Semiconductor Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone Q4 filing; the provided filing text does not give a clear set of Q4-only financial results. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Business context
Valens is a fabless semiconductor company focused on high-performance wired connectivity for audio-video and automotive applications. Its products include HDBaseT solutions and automotive chipsets, including those based on the MIPI A-PHY standard. Manufacturing is outsourced; the company says its silicon wafers are designed to be manufactured at TSMC. Ordinary shares trade as VLN and warrants as VLNW on the NYSE.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $84.2 million | $90.7 million | Down 7.2% |
| Gross profit | $52.6 million | $63.4 million | Down 17.0% |
| Gross margin | 62.5% | 69.9% | Down 7.4 percentage points |
| Operating loss | $26.9 million | $28.4 million | Improved by $1.5 million |
| Net loss | $19.7 million | $27.7 million | Improved by $8.0 million |
| Net loss per share | $0.19 | $0.28 | Loss per share narrowed |
| Adjusted EBITDA loss (non-GAAP) | $10.3 million | $14.9 million | Improved by $4.6 million |
| Operating cash flow | $(6.4) million | $(22.1) million | Cash use decreased |
Revenue by segment was $57.4 million in audio-video, down 23.0%, and $26.8 million in automotive, up 65.4%. Audio-video gross margin was 77.1%; automotive gross margin was 31.1%. Audio-video generated $4.2 million of segment operating profit, while automotive recorded a $31.1 million segment operating loss, reflecting substantial automotive investment.
At year-end, cash, cash equivalents and short-term deposits totaled $142.0 million, versus $148.4 million a year earlier. Working capital was $158.8 million, compared with $163.7 million. Total assets were $180.6 million and total liabilities were $16.3 million. The balance sheet reports no conventional borrowings; liabilities include operating leases and other operating obligations. Lease liabilities totaled $2.0 million.
Net cash used in investing activities was $1.4 million, including $1.2 million of property and equipment purchases; financing activities provided $1.5 million, principally from option exercises. Inventory fell to $13.8 million from $23.8 million. The company reported $8.5 million of contractual obligations due in 2024, chiefly supply-chain and intellectual-property commitments. Management stated that year-end cash and deposits should fund working capital needs for at least 12 months from the report date.
Material changes versus FY2022
- Audio-video weakness, attributed to lower customer demand and slow inventory digestion, more than offset automotive growth.
- Automotive revenue rose with expanded Mercedes-Benz deployments, including additional models and EVs; the company reported record VA6000 sales in 2023.
- Gross margin fell as overall shipment volume declined and automotive represented a larger share of sales; automotive products have lower margins than audio-video products.
- Operating expenses decreased 13.4% to $79.5 million. R&D fell 17.2%, partly following a workforce efficiency plan completed in Q3; G&A fell 15.5%, including lower D&O insurance premiums.
- Book-to-bill declined to 0.64 from 0.84, indicating orders received were below reported revenue under the company’s stated measure.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no numeric revenue, earnings or margin guidance. Management expects continued R&D investment and says R&D expenses may increase in future periods to support growth. It expects year-end inventory to be consumed over coming quarters, while describing macroeconomic headwinds and semiconductor demand weakness as ongoing.
- Products and opportunities: Valens launched the VS6320 USB 3.2 Gen1 extension chipset in 2023 and shipped engineering samples. More than 30 potential customers and partners had received VA7000 evaluation kits. Automotive design wins remain subject to lengthy evaluation, qualification and production cycles; evaluations do not assure future sales.
- Unusual financial items: 2023 included a $1.1 million inventory write-down, compared with $23,000 in 2022. Financial income was $5.6 million, versus financial expense of $1.8 million, mainly reflecting $6.7 million of deposit interest income and lower foreign-exchange losses. A $1.7 million gain from a decrease in the fair value of forfeiture shares also reduced the reported loss. Stock-based compensation was $15.0 million.
- Operating and geopolitical risks: The company cites semiconductor cyclicality, customer inventory adjustment, pricing and margin pressure, customer concentration, outsourced manufacturing and wafer reliance on TSMC. Its three largest customers represented about 36% of 2023 revenue. The October 2023 Israel conflict had not materially affected operations or results by year-end, according to the filing, but workforce call-ups and disruption could delay development. The company also identifies foreign exchange, cyber, export-control, IP and regulatory risks.
- Other disclosures: Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023; the auditor did not provide an ICFR attestation. The filing reports no material pending legal proceedings and no off-balance-sheet arrangements. Valens has never paid cash dividends and does not expect to do so in the foreseeable future.
Important facts for investors to verify
- Review the audited statements and notes for the quality and sustainability of cash generation, especially the extent to which the lower 2023 operating cash outflow depended on inventory reduction.
- Track audio-video demand recovery, customer inventory digestion, book-to-bill, and the impact of product mix on gross margin.
- Confirm whether VA7000 evaluations convert into automotive design wins, production programs and recurring revenue, and assess the timing and economics of those programs.
- Assess customer and foundry concentration, including exposure to the top three customers and TSMC, as well as the company’s ability to manage supply commitments and inventory obsolescence.
- Evaluate stock-based compensation, outstanding equity awards and potential dilution; verify the treatment and remaining conditions of the 1,006,250 forfeiture shares and 18,160,000 warrants disclosed at year-end.
- Monitor liquidity against operating cash burn, contractual commitments and management’s stated 12-month liquidity assessment; separately assess the Israel-related workforce and business-continuity risks.