Good morning. My name is Yoni. I will be your conference operator today. At this time, I would like to welcome everyone to Valens Semiconductor's First Quarter 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 First Quarter 2023 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 with the SEC on March 1, 2023, 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 be in Tel Aviv and in London for investor conferences and meetings. If you are interested in meeting with us, please email me at investors@valens.com. With that, I will now turn the call over to Gideon.
Thanks, Daphna, and thank you all for joining our Q1 2023 call. In Q1 2023, Valens Semiconductor revenues reached a record of $23.9 million. We also achieved better than anticipated profitability metrics. We believe Valens Semiconductor is well-positioned for long-term growth in the markets that we serve for several reasons. We benefit from being an industry standard leader in both Audio Video and Automotive, and leverage our disruptive connectivity offerings across both our business segments. This includes our continued investment in new products to enhance our disruptive offerings for both markets. Starting with the Audio Video segment. We continue to invest in expanding our offering for Audio Video verticals.
Most recently, in Q1 2023, we taped out the VS6320 chipset, a key milestone for market readiness of this product, which is aimed as long-reach extension of USB 3.2. The increasing demand for higher bandwidth for USB peripherals is driving adoption of the USB 3.2 standard globally across verticals. Valens VS6320 is ideal for connecting the many remote USB 3.2 peripherals required in video conferencing, industrial, and medical applications. The VS6320 is extremely differentiated compared to other alternatives. It's a highly integrated single chip, hence dramatically smaller, less than half the power consumption, and yet still at a better cost. In corporate, video conferencing is broadly used in all sorts of meeting rooms, ranging from huddle rooms to small and large conference rooms.
Today, there are tens of millions of meeting rooms that still need high-speed audio video equipment to support the hybrid working world and drive productivity within organizations. The global video conferencing equipment market is projected to essentially double from about $7 billion in 2022 to more than $14 billion in 2029, or at an 11%-12% CAGR according to research firm Fortune Business Insights. The industrial market represents another important vertical for Valens Semiconductor. In addition to the continuously growing need to connect compute units with displays, we're also seeing an increasing demand to connect computers to various types of sensors, such as cameras. Cameras are essential for multiple industrial applications, including machine vision.
One example of a machine vision industrial application that is currently becoming dominant is quality and assurance, where connected cameras replace the human eye to visually inspect and identify faulty products. As connectivity in the industrial environment is challenging, the demand for distribution of massive amounts of data in a secure and efficient manner over long distances requires a robust connectivity technology. Industrial cameras leveraging a USB 3.2 interface can effectively deliver the high pixel depth of large-sized images. This is where our VS6320 comes into play, as it's perfectly designed to connect multiple extended USB 3.2 peripherals like high-resolution cameras. The global industrial camera market was $13 billion in 2021 and is estimated to grow at a CAGR of 5% to cross the $20 billion marked by 2031.
High resolution USB 3.2 cameras are also being used in medical. Extending the high quality images from the cameras to the video processing units and visual displays requires greater bandwidth, which creates more opportunities for USB 3.2 in healthcare. An example is high quality medical procedure recording. With the VS6320, customers will be able to extend content over simple, standard, low-cost cable at a distance up to 100 meters or 328 feet. One example is robotics assisted guided surgery, with training services before the procedure and recordings after, all done without breaking the sterile field as the processes can securely and accurately be done from a distance. Industrial and medical machine vision both deliver trusted and precise operations through system that have more data to be transferred, high resilience and increased bandwidth.
At the same time, faster communication interfaces must provide the highest standards of reliability, safety, and electromagnetic compatibility known as EMC. The new VS6320, like our other offerings, provides just that. Conversation with prospective customers for the VS6320 continue to progress. We expect relatively quick adoption by them. We anticipate first engineering samples to be shipped by the fourth quarter of this year. We believe our customers will introduce the new products embedding the VS6320 during the second half of 2024. We also continue to gain traction in audio video for multi-camera video conferencing applications, which we believe will be one of the fastest growth areas for audio video equipment. The VA7000, our chipset family originally designed for automotive, and the new VS6320 position us to benefit from this growing need in the video conferencing market. Turning to automotive.
Our VA6000 chipset is in a wide range of Mercedes-Benz models being sold today. Mercedes has stated recently that they are fully focused on battery electric mobility for the future as they work towards truly sustainable mobility, and we are proud to be part of this initiative as our chips are being deployed also in their EV models. Stoneridge continue to promote the tractor-trailer rear view safety solution for fleets and drivers and has expanded their collaboration with partners to do so. In Q2, we expect to record initial sales of the solution to Stoneridge for the fleet operational customers who will be doing fleet-wide evaluations. We expect revenues to ramp up in 2024. Turning to the MIPI A-PHY nonsymmetrical automotive chipset family, our VA7000, which enables software-defined vehicles by providing the required resilient high-performance connectivity for advanced driver assistance systems known as ADAS.
Our team continues to promote our offerings for automotive and is currently at the AutoSens trade show in Detroit, where we are showcasing the benefits of the VA7000 product suite alongside companies supporting the expanding MIPI A-PHY ecosystem. The bids we're participating in with several automotive OEMs for the deployment of the VA7000 to provide sensor-to-compute unit high-performance connectivity are moving along well, and we remain on track to announce our first design wins this year. As a reminder, it typically takes a few more years following automotive design wins before generating initial revenues. At Valens, we continue to track the current macroeconomic headwinds. Rising inflation and interest rates present a new era unknown for decades, and the world is learning to adjust to this new reality. One of the implications is the slower than expected inventory digestion and purchasing of new materials across the semiconductor supply chain.
These new trends are driving some near-term uncertainty until the markets find the new equilibrium. As we keep following the trends in the semiconductor industry that may impact our business, we remain focused on what is in our control: technology-breaking innovation, our go-to-market strategy, and execution, including our goal of reaching adjusted EBITDA breakeven towards the end of 2023. I will now turn it over to Dror Heldenberg, our CFO, to review our Q1 2023 financial results and provide our financial outlook.
Thank you, Gideon. I'll start with our first quarter results and then provide our outlook for the second quarter and full year 2023. Starting with our first quarter 2023 results. We achieved record quarterly revenues of $23.9 million, an increase of $2.3 million or 10.5% from the first quarter of 2022, and an increase of 1.0% from Q4, 2022. Product mix drove an overall higher than expected gross profit and gross margin. First quarter 2023 gross profit was $15.8 million, slightly up from $15.4 million in Q1, 2022.
First quarter 2023 gross margin exceeded our expectations and reached 66.1% compared to 71.4% in Q1 2022. non-GAAP gross margin reached 67.2% compared to 72.1% in Q1 2022. The change compared to Q1 last year reflects a lower gross margin than our audio video business. Operating expenses in Q1 2023 totaled $22.9 million compared to $22.6 million in Q1 2022. Research and development accounted for 61% of the Q1 2023 OpEx, coming in at $14 million, similar to the $14.1 million in Q1 2022. Q1 2023 and 2022 R&D investments included expenses attributed to tape-outs of new audio video products.
Last year it was the tape-out of the VS3000, this year it is the tape-out of our new chipset, the VS6320. SG&A expenses were $8.9 million compared to $8.5 million in Q1 2022. Turning to net loss and adjusted EBITDA. Q1 2023 GAAP net loss was $5.4 million versus the $5.1 million dollar net loss recorded in Q1 2022. adjusted EBITDA in Q1 2023 was a loss of $2.9 million, better than the $4.1 million loss in Q1 2022. The substantially better-than-guided adjusted EBITDA loss in Q1 2023 was mainly due to a combination of several factors.
The better-than-anticipated gross margin, the strength of the US dollar that was very volatile during the first quarter of 2023 and positively impacted expenses paid in Israeli shekels, mainly for compensation to employees based in Israel. Rescheduling of some R&D qualification expenses for new products, which we now expect to spend over the next six months, mainly during Q3. After the completion of this final development phase, we expect to be ready for mass production. GAAP loss per share for Q1 2023 was $0.05, similar to Q1 2022. Non-GAAP loss per share in Q1 2023 was $0.03, better than the $0.05 non-GAAP loss per share in Q1 last year.
Removing the stock-based compensation of $3.8 million from the non-GAAP loss, offsetting it by the $1.5 million change in fair value of the forfeiture shares were the main reason for the delta between GAAP and non-GAAP loss per share. Turning to our balance sheet. We ended Q1 2023 with a strong balance sheet, which especially in today's macro environment, is a highly important asset. Cash, cash equivalents and short-term deposits totaled $139.7 million, and we had no debt. This compares to $148.4 million at the end of Q4 2022. Our working capital as we ended the quarter, was $161.4 million compared to $163.7 million at the end of Q4 2022.
This difference of $2.3 million is mainly related to the adjusted EBITDA loss incurred during Q1 2023, which was offset by close to $1 million gained from stock option exercises. As expected, our inventory as of March 31st, 2023 was $23.6 million, slightly lower than the $23.8 million at the end of Q4 2022. We expect our inventories to go down in Q2 2023. This inventory level adjustment is affected by a few factors. First, the macro environment is negatively impacting customer demand and sales, especially those intended for initiation of new projects. This is leading to inventory digestion that is taking longer than many anticipated. Second, higher interest rates are driving the cost of inventories up, so customers are more cautious in placing orders and stocking up their warehouses with new inventory.
Lead times for materials appear to be shortening in the semiconductor industry. Companies, including ourselves, are being more diligent about their inventory and utilization. I would like to provide our guidance. For the second quarter of 2023, we expect revenues in the range of $23.9 million-$24.1 million. We expect Q2 gross margins to be in the range of 61%-62%, reflecting the projected product mix to include a higher portion of revenues from our automotive business. Adjusted EBITDA loss in the second quarter is expected to be in the range of $4.3 million-$3.7 million. As of March 31st, 2023, shares outstanding totaled 101.5 million, excluding of course, approximately 1 million shares that are subject to forfeiture. For the full year 2023, our guidance remains unchanged.
We keep following the trend in the semiconductor industry and are closely monitoring our booking backlog and the pace of inventory digestion. Starting Q3, our business model assumes that during the second half of 2023, the Israeli shekel will be stronger versus the US dollar, expecting it to impact our expenses paid in Israeli shekels. We expect 2023 revenues to rank between $97 million and $100 million. While we're not currently providing specific guidance for Q3 revenue, we are now expecting them to be lower than Q2. Full year 2023 growth margins are expected to be in the range of 62% to 62.7%. Adjusted EBITDA for the full year is expected to be a loss in the range of $15.4 million to $13.6 million.
We remain on track to reach adjusted EBITDA breakeven by the end of 2023, which means that in 2024, we expect the company will reach cash flow profitability. I'll now turn the call back to Gideon for his closing remarks before opening the call for Q&A. Thank you, Dror. We believe we will continue the progress into another successful quarter in Q2. Looking at the remainder of 2023, we expect to secure new design wins, including our initial awards for the VA7000 by automotive OEMs. The level of uncertainty at this time is higher than what we have seen through the past couple of quarters, we remain focused on those elements in our control.
Valens Semiconductor will continue to innovate, leverage our core technology across our business segments in audio video and automotive, and deliver new disruptive products to address market needs. We will continue to focus on executing our long-term growth strategy while driving financial discipline and operational excellence and are emphasizing opportunities that we believe will deliver value to all stakeholders. Finally, before opening the call for questions, I want to thank all our stakeholders, including our incredible and talented team of employees around the world, for their dedication and execution towards Valens' continued success. Operator, I would now like to open the call for questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Please ask your question in a loud and clear voice. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Rick Schafer of Oppenheimer. Please go ahead.
Thank you, guys, congrats on a solid quarter in a challenging environment out there. If I could, I heard you all very clearly, you guys held your 23 outlook unchanged. I guess my question is really just at a high level, how do you reconcile, you know, sort of what you guys are seeing and your ability to hold your outlook for the full year versus, you know, TSMC, for instance, and some of your peers talking about a weaker second half in auto. I mean, is it as simple as you know, Valens share and content gains are enough to offset, or are there some other moving parts in there?
Hi, Rick. Thank you for the question. You asked many questions in one question. Let's start with the fact that, you know, today we provide our guidance for Q2 and for the full year 2023. Since we assume that the Q3 revenues will be lower than the Q2 numbers, we share this projection today with you guys. You know, today we see the market dynamics and companies are more cautious with respect to their inventory levels. This is the reason why we mention again and again that we see slower than anticipated inventory digestion. We also see that. We recently received some requests for pushouts from Q3. That's the reason why we provide this indication to you today. I think that you asked about TSMC.
It's really changed between the different markets. We also indicated this in our prepared remarks. We mentioned that in automotive, we still see resilience, that the market is resilient. The numbers are strong as anticipated. The softness that we see today is more on the Audio-Video side that is more correlated to the macroeconomics. All in all, at this point in time, we reiterate our 2023 full year guidance. You know, I think, and that will be my last sentence, I think that it's also fair to say that 2023 will not be or is not a representative or typical year, and definitely not the behavior quarter to quarter, and the growth patterns between the quarters.
Again, I think that if we look on the general trends that we see in Valens for the mid and the longer terms, I think that the, they remain intact, and in the long run, we will not be affected from what we see in the market today.
If I could ask a follow-up, Dror. Thanks for all that color. Just on the Pro AV, can you give any more specifics on how channel inventory compares with normal? Or maybe give a sense of how much you're under shipping consumption at the moment. Do you have a sense of that? Thanks.
It's a question that we are trying to monitor all the time. Obviously the behavior of the inventory across the channels is something that is different from one geography to the other. There are some geographies where we see a much faster consumption and much faster inventory digestion. In other geographies, it's a bit more problematic or slower than anticipated. I think that today's indication that we received from the market is that they are not going to see the same pace of consumption like we've seen in the past in 2022. They tell us that it's a temporary issue. They see it in Q3. They believe that in Q4 they will be back to normal.
Okay, thanks for all the color.
The next question is from Suji Desilva of Roth MKM. Please go ahead.
Hi, Gideon. Hi, Dror. Congratulations on the progress here in a tough environment. Can you talk about what the revenues for the quarter were AV versus auto? If you can't provide that detail, can you talk about the AV revenue in particular? Is that mostly USB today or other standards and trying to understand the opportunity for the USB 3.2, as that ramps.
Okay. First, thanks for the question, Suji. The first thing is I think that you know that, we provide detailed P&L by segments, once a year. To refer to your question, you know, if you remember our March guidance for the full year 2023, at that point, we indicated that we expect automotive to contribute between 27%-29%. If I look now on the rest of the year, you know, Q1 and the rest of the year, I think that we're on track to meet this target. That's with respect to, for the first, question that you asked. With respect to the automotive revenue, today it's all based on the, VA6000, which is a symmetric solution or first generation product automotive, the symmetric solution.
as you probably remember, most of the lion's share of the revenues that we have today from this VA6000 is coming from the Mercedes-Benz project.
Okay, great. For the VA7000 evaluations, the OEMs doubling, congrats on that. Are you seeing any impact to the customer's schedule and plans, tracking versus, what you expected based on macro uncertainty at this point? Or are those unimpacted relative to, you know, what you're seeing with inventories and so forth?
Hi, it's Gideon. Thanks for the question. We don't see a significant impact on new models and new developments of the companies. Yes, of course, the atmosphere in the market is the macro economy impacts everyone, but not in the sense of how eager they are to have new models, have new technology, and we don't see the impact on their R&D development at the moment.
Okay, great. Thanks, guys.
The next question is from Brian Dobson of Chardan. Please go ahead.
Hi. Good morning. Thanks for taking the question. What are your automotive OEM partners telling you that they're seeing for, call it, the back half of this year and perhaps a little bit longer term in terms of sensor adoption and putting new sensors on cars? Has that outlook changed at all since we spoke about it last?
Thanks for the question. You know, let's distinguish between the business that we have today with the VA6000 and the business and the outlook for the VA7000. This is the new device that we have for the ADAS application. When we talk about the VA6000, as mentioned before, today, we're deployed in most of Mercedes-Benz cars, including their EV cars. In a way, the growth pattern, the growth rate of the VA6000 is driven by the growth rates of Mercedes-Benz cars. You know, I think that if based on what we heard recently from Mercedes-Benz in the earnings call, they don't see any change between the first quarter and the rest of the year.
More or less, it's going to be a flat sale, which means for us, we understand that the pattern of consumption with respect to this product. Talking about the VA7000, I assume you remember that at this point in time, we are engaged in several bids by some OEMs. Today, I can tell you that these bids progress according to plan, and we're on track to announce our initial design win this year as we communicated in the past.
Great. Thank you very much.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. There are no further questions at this time. Mr. Ben-Zvi, would you like to make your concluding statement?
Yeah. I want to thank you everyone for joining today. Have a great day. I hope you enjoyed it as we did, and, have a good rest of the day. Bye-bye.
Thank you. This concludes the Valens Semiconductor first quarter 2023 results conference call. Thank you for your participation.