Valens Semiconductor Ltd. — FY 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; filed March 1, 2023. This is an annual report, not a quarterly filing. It does not provide a clear standalone Q4 2022 income statement or cash-flow figures, so the figures below are full-year unless stated otherwise. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars.
Business context
Valens is a fabless semiconductor company serving audio-video and automotive connectivity markets. Its products support HDBaseT audio-video connectivity and automotive connectivity, including MIPI A-PHY-compliant chipsets. Manufacturing is outsourced; the company says its silicon wafers are designed to be manufactured at TSMC. Audio-video remained the larger business, while automotive sales were growing from Mercedes-Benz programs and early VA7000 shipments.
Key financial metrics
Amounts are in millions of U.S. dollars except percentages and per-share data.
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $90.7 | $70.7 | +28.3% |
| Gross profit | $63.4 | $50.6 | +25.3% |
| Gross margin | 69.9% | 71.6% | -1.7 percentage points |
| Operating loss | $(28.4) | $(27.1) | Loss widened $1.3 |
| Net loss | $(27.7) | $(26.5) | Loss widened $1.1 |
| Net loss per ordinary share | $(0.28) | $(1.15) | — |
| Adjusted EBITDA loss (non-GAAP) | $(14.9) | $(16.1) | Loss narrowed $1.2 |
| Cash, cash equivalents and short-term deposits at year-end | $148.4 | $174.4 | Down $26.0 |
| Working capital at year-end | $163.7 | $183.3 | Down $19.6 |
| Net cash used in operating activities | $(22.1) | $(21.6) | Use increased $0.5 |
Audio-video revenue was $74.5 million, up 18.7%; automotive revenue was $16.2 million, up 105.2%. Automotive represented 17.8% of revenue, versus 11.1% in 2021. Segment gross margins were 78.4% for audio-video and 30.7% for automotive. Audio-video generated $22.0 million of segment operating profit; automotive recorded a $50.3 million segment operating loss, reflecting substantial development and commercial investment.
Research and development expense rose 24.2% to $58.2 million, sales and marketing expense rose 19.3% to $17.0 million, and general and administrative expense was broadly flat at $16.6 million. Stock-based compensation was $12.1 million. There was no conventional borrowing balance identified in the supplied financial statements; reported liabilities include operating lease liabilities of $3.4 million and a $1.8 million forfeiture-share liability. Total liabilities were $28.2 million. Current assets were $188.5 million and current liabilities $24.8 million.
Cash-flow statement figures show investing cash use of $11.7 million and financing cash provided of $0.8 million in 2022. Cash and cash equivalents ended at $20.0 million; short-term deposits were $128.4 million. The cash-flow statement reports a $36.8 million decrease in cash and cash equivalents. The filing’s summary table instead shows a $37.8 million decrease, an apparent inconsistency to verify. Inventory rose to $23.8 million from $9.3 million, contributing to operating cash use. Capital expenditures were $1.1 million.
Material changes and unusual items
- Revenue growth reflected higher unit sales and product price increases introduced in late 2021 that mainly affected 2022 shipments. Audio-video demand recovered in corporate, education and medical applications; automotive revenue increased with expansion of the Mercedes-Benz solution into additional models.
- Gross margin declined as automotive, a lower-margin business, made up a larger share of revenue; supply-chain costs increased; and VS3000 audio-video products were still ramping toward a more mature cost structure. The company said it passed supply-chain price increases on to customers and temporarily benefited from selling inventory produced at lower cost.
- The 2022 net loss included $12.1 million of stock-based compensation and a $4.3 million foreign-exchange expense, partly offset by $2.3 million of interest income and a $2.9 million gain from the change in fair value of forfeiture shares. Net foreign-exchange and other financial items were a $1.8 million expense, compared with $1.1 million of financial income in 2021.
- Inventory was built to secure constrained supply and support anticipated automotive growth. Management expected the inventory held at year-end to be consumed during 2023. Non-cancellable purchase obligations totaled $19.4 million to supply-chain vendors and $2.8 million to intellectual-property and development-tool vendors; most were due in 2023.
- The company adopted ASC 842 lease accounting in 2022, recognizing $4.9 million of operating lease right-of-use assets and corresponding liabilities at adoption. Comparative 2021 figures were not restated.
Outlook, management commentary and risks
Management provided no formal numerical revenue or earnings guidance in the supplied filing. It said cash, cash equivalents and short-term deposits of $148.4 million were sufficient for working-capital needs for at least 12 months from the report date. Management anticipated significant automotive revenue growth from 2022 to 2023 and continued investment in R&D, including VA7000 preparation for mass production and next-generation VA7100 development. It also reported more than 30 potential customers and partners evaluating VA7000 and RFIs from certain OEMs; these are not equivalent to production orders or guaranteed future revenue.
Key risks include semiconductor-industry cyclicality; customer order changes and concentration (the top three customers accounted for approximately 32% of 2022 revenue); dependence on design wins and lengthy automotive sales cycles; customer inventory adjustments; pricing pressure and lower automotive margins; and reliance on outsourced manufacturing, with wafers tied to TSMC. Supply constraints, longer lead times, component costs, yield issues, and geopolitical or trade disruptions—particularly involving Taiwan, China and Israel—could affect deliveries and profitability. The company also cites competition, technology and product obsolescence, cybersecurity, intellectual-property, regulatory and tax risks.
The independent auditor gave an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022; the auditor did not provide an opinion on internal-control effectiveness. The company reported no material pending legal proceedings and no off-balance-sheet arrangements. It has never paid cash dividends and does not expect to do so in the foreseeable future.
Important facts for investors to verify
- Obtain quarterly results to assess Q4 2022 performance; this annual filing does not clearly provide standalone Q4 figures.
- Reconcile the cash-flow statement’s $36.8 million cash decrease with the summary table’s $37.8 million figure, and distinguish cash from short-term deposits when evaluating liquidity.
- Track inventory conversion, customer demand, and the $19.4 million of supply-chain purchase obligations due in 2023; assess potential obsolescence and cash-flow effects.
- Monitor automotive design wins moving from evaluation kits and RFIs into production, customer timing, and realized margins; confirm the basis for management’s 2023 growth expectation.
- Assess whether pricing and cost actions can sustain gross margins as automotive revenue grows and supply-chain costs change.
- Consider dilution from outstanding warrants, options and RSUs, and the sensitivity of results to stock-based compensation and foreign-exchange movements.