Hello all, and a warm welcome to Valens third quarter 2021 earnings call. My name is Lydia and I'm your operator today. If you'd like to ask a question at the end of the presentation, you may do so by pressing Star followed by one on your telephone keypad. It's my pleasure to now hand you over to our host, Daphna Golden, Vice President of Investor Relations. Please go ahead when you're ready.
Thank you and welcome everyone to Valens third quarter 2021 earnings call. With me today are Gideon Ben-Zvi, Chief Executive Officer, and Dror Heldenberg, Chief Financial Officer. On a personal note, I'm excited to have joined Valens earlier this week, and I'm looking forward to working with the team and communicating with the investment community, investors and analysts. Earlier today, we issued a press release that is available on the investor relations section of our website under investor.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 registration statement on Form F-1 filed on October 20 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. With that, I will now turn the call over to Gideon.
Thanks, Daphna, and welcome to Valens. You definitely came to the right place. Thank you everyone for joining our first conference call as a public company. I would like to welcome our new shareholders and research analysts. Becoming a public company following the completion of our business combination with PTK Acquisition Corp. and listing on the New York Stock Exchange on September thirtieth is an exciting milestone in our corporate journey that will help us continue to push the boundaries of connectivity. Our team remains focused on execution to address the unfolding near and long-term opportunities in the large growing automotive and audio video markets that we serve. To that end, we delivered strong results in the third quarter which demonstrate solid execution and the continued momentum we are seeing across our business.
We reported record revenues of more than $19 million, record bookings, and ended the quarter with record backlog and with a fortress balance sheet that will support our continued growth. For those who may be new to Valens, I would like to take a few minutes to provide a brief overview of our company and the main reasons why we believe we are well positioned to create value for our shareholders. First, to put it as simply as possible, Valens is a company that sets industry standards for high-speed connectivity. We did it in the audio video market, and we are doing it again in the automotive market. Second, we operate in large and fast-growing addressable markets. Third, our business model offers a compelling financial model. I would like to address these three in greater detail, starting with our company's ability to set standards.
In our audio video business, we invented HDBaseT technology, which quickly became the leading industry standard for long-reach, high speed digital connectivity. We are the leader in this market today and enjoy a profitable business with significant growth opportunities across a variety of verticals. Our chipsets are deployed in products manufactured by technology leaders Crestron, Extron, Logitech, LG, Samsung, Panasonic, and many other consumer brands. Our audio video chipsets are embedded in a variety of end products, from video conference to home entertainment, outdoor TVs, projectors and cameras. We benefit from the video conferencing trend and started well before COVID-19 and significantly accelerated during the pandemic. Video conferencing and the peripheral audio video equipment is now expanding way beyond traditional business applications and is moving rapidly into the education, medical and entertainment industries.
I am sure you would all agree that video conferencing is now touching many more aspects of our daily lives. Valens' ability to extend high quality audio, video and USB with zero latency makes us a key enabler of what we call the new hybrid normal, a trend we believe is here to stay. In our automotive business, we have developed superior solutions for in-vehicle high-speed connectivity. Valens technology addresses critical needs for the advanced cars of tomorrow that will demand seamless connectivity for a growing number of sensors, cameras and displays. We are proud that our chipsets are already on the road in millions of Mercedes-Benz cars, providing best-in-class connectivity for infotainment applications.
In what we consider to be one of our automotive business most significant achievements to date, Valens technology was selected by the well-known standard organization, MIPI Alliance, as the base for its new high-speed in-car video connectivity standard, A-PHY. This standard was released by MIPI in September 2020, and shortly after, was fully adopted by the prestigious IEEE organization as one of their automotive standards. Obviously, Valens enjoys a first-mover advantage with MIPI A-PHY. We will begin shipping engineering samples of our standard compliance VA7000 chipset to select prospective customers and partners next month. We are working closely with leading OEMs, tier ones and tier twos on deploying our technology into the next generation car models in the coming years. To address our respective value proposition, I'd like to turn to our large and growing market opportunity.
We estimate that our serviceable available markets will grow to more than $9 billion in 2026 across our automotive and audio-video markets. This provides us the potential to drive our revenue growth over the coming years as our next generation connectivity solutions are widely adopted. Valens has established a track record of market leadership. We've exceptionally set industry standard in both of our businesses and then successfully translated our innovation into remarkable customer wins. Our digital signal processing-based connectivity technology is unmatched in speed, performance, distance, and resilience. This uniquely positions us to capture a substantial share of the rapidly growing automotive market, as well as to increase our foothold in our audio video business. Third, we have a compelling financial model. In automotive, considering the nature of the business, long design wins will ensure additional long-term contracts and secured revenues.
In audio video, customers tend to use our solutions for a long period. They like our products because we offer an unmatched combination of best of breed of feature set and cost performance. Our business model is supported by high gross margins, near-term and longer-term revenue visibility. With that, I'll now turn the call over to Dror Heldenberg, our CFO, to review our key business milestones, third quarter financial results, and outlook.
Thanks, Gideon Ben-Zvi. I'll begin with a summary of our key business developments for the third quarter. Then I'll discuss our results and our outlook for the fourth quarter. We are continuing to see the automotive ecosystem unite around the MIPI A-PHY standard ahead of our scheduled shipment of this market's first A-PHY compliant chipset that is expected next month, we have a long list of more than 15 prospective customers and partners, including OEMs and Tier 1s, eagerly waiting for our VA7000 chip for evaluation and integration into their platform. I'd like to talk about the most recent indication of the growing interest in the MIPI A-PHY standard and the anticipation for our compliant chipset in the industry. In September, we announced a partnership with Sunny Optical, a leading manufacturer of automotive camera modules.
Sunny Optical is integrating our VA7000 transmitter chipset into their camera modules that enable advanced driver assistance systems known as ADAS, and surround view applications. The partnership also provide us a strong foothold in the vast Asian market. Another example of the growing market interest in A-PHY comes from our new partnership announced two days ago with LG Innotek for the supply of system-in-package modules for MIPI A-PHY compliant chipsets. Clearly, the addition of LG Innotek reflects the continued expansion of the MIPI A-PHY ecosystem, as another vendor has declared its intention to provide A-PHY-based products. In the audio video business, our latest addition, the Valens Scale Up product family, was released to the market earlier this year and has already been embedded by leading industry players.
We now have more than 30 customers in stages of product development and integration, and we expect to see multiple products per customer on the market by year-end. Now, I'll share some highlights from our third quarter financial results. Our Q3 results demonstrated once again the significant progress we are making to scale our audio video and automotive businesses. All comparisons are year-over-year, unless otherwise noted. We are very pleased to report record revenues of $19.1 million this quarter, which represents an increase of 48.8% from the third quarter of 2020. Broken down for business units, our audio video revenue increased 38.5% to $17.1 million.
Our automotive business contributed $2 million in the third quarter, an increase of over 300% from the year-ago quarter and representing more than 10% of our total revenue in the third quarter. While the automotive revenue numbers are still small, we are starting to see impressive growth in this part of the business as our products are on the road in mass production and are expected to be deployed in additional car models in the short term. Our gross profit increased from $9.5 million in the third quarter of 2020 to $13.8 million, and the gross margin was 72.4% compared to 74.4% last year, primarily due to the increase in automotive revenue, which have lower gross margin than our audio video products.
We achieved record bookings of $36 million during the third quarter, and our strong bookings translated into a book-to-bill ratio of 1.88 for the quarter, supporting our growth projections. We reported robust backlog, which reached a record of $73.4 million as of the end of September 2021. Operating expenses were $22 million, 18% higher than last year, mainly due to one-time issuance costs related to the business combination with PTK totaling $5.5 million. Our third quarter adjusted EBITDA totaled a loss of $2.7 million, improving from the loss of $7.2 million in the third quarter of 2020.
We calculate adjusted EBITDA, which is a non-GAAP measure as net profit or loss before the following items, financial income or expenses, income taxes, equity in earnings of investees, depreciation and amortization, and finally, excluding share-based compensation. Our net loss in the third quarter of 2021 was $8.5 million, compared to a loss of $8.8 million last year, and the loss per share was $0.94, better than the loss per share of $1.17 in the third quarter of 2020. The loss per share in the third quarter of 2021 was affected by several one-time factors. While they will not repeat in the subsequent quarters, they will still impact the calculation of the loss per share for the full year 2021. The non-GAAP loss per share for the third quarter was $0.19.
It is calculated as the $8.5 million, excluding the one-time issuance cost of $6 million, resulting in a non-GAAP loss of $2.5 million for the quarter, then divided by 13.164 million, which is the weighted average number of shares used in computing the net loss per ordinary share. We ended the third quarter with an extremely strong balance sheet with cash equivalents and short-term deposits of over $205 million and obviously no debt. This reflects $155 million of gross proceeds before payment of deal expenses from our SPAC transaction and positions us well to accelerate our growth and advance our already leading market position in the audio video and automotive markets.
We plan to use the proceeds from the transaction to further enhance the development and commercialization of Valens' next-generation products, and we expect them to fully fund our business through break-even. Now, I would like to move on to our guidance. For the fourth quarter of 2021, we expect revenue in the range of $19.4 million-$20.6 million. This guidance reflects an expected increase of our previous full year 2021 revenue guidance from $69 million to a range of $69.4 million-$70.6 million, which at midpoint represents a 23% year-over-year revenue increase. Gross margin for the fourth quarter are expected to be approximately 70%-72%. Please note that for modeling purposes, you should assume around 98 million shares for the fourth quarter.
To wrap up, our achievements in the third quarter of 2021, coupled with the business momentum we see as we enter the fourth quarter, support our confidence in Valens' continued success. I'll now turn the call back to Gideon Ben-Zvi for his closing remarks before opening the call for Q&A.
Thank you, Dror. To start off, at Valens, we operate two growing businesses with considerable opportunity to scale up in the future. The new market verticals we serve, the backlog at the end of the third quarter, and the momentum reflected in the pace of bookings, all provide us strong visibility with respect to our business. We look forward to continuing executing on our strategy and business model to create value for all our stakeholders.
I would also like to take this opportunity to thank our incredible team of more than 270 employees around the world for their dedication and execution. Operator?
Thank you. Our first question today comes from Suji Desilva of Roth Capital Partners. Your line is open.
Hello, Gideon, and hello, Dror. Congratulations on the first quarter and the record results here. I wanted to ask you about the visibility you have, the backlog. It seems very strong. We don't have maybe historical numbers to compare it to, but can you talk about the supply constraints in the industry and how those might be impacting that visibility, now versus maybe a typical environment?
Sure, Suji. So first, I wanna mention that we are very proud with the fact that during the third quarter, we were able to meet all our customers' commitments and deliveries, despite the global supply chain shortage. Now, in terms of the impact of the supply shortage on Valens, I would say that being part of the semiconductor industry, Valens is affected like all other companies. I would say that the influence is mainly in the following area. One, we see extended lead times that require Valens to increase the lead time to customers. The second, impact is that the supply chain vendors expect us to secure capacity by placing long-term binding purchase orders.
Third, another factor is that everyone is seeing price increases in our industry, and therefore, we too had to update our prices to customers. I would just end by saying that with respect to the fourth quarter, we are very confident with our ability to fulfill all the demand that we see from our customers, so supply should not be an issue for the fourth quarter.
Okay. Thank you, Dror. It's very helpful there. Then the standard adoption of A-PHY, you know, MIPIs and then IEEE adopting it. Can you talk about maybe getting the competitive landscape for standards here, maybe Ethernet and others? It sounds like you guys have a fairly dominant position, but I wanted to just get some clarity from you on that.
I guess actually you were asking about the MIPI A-PHY and the trends.
Correct.
with the MIPI A-PHY. Actually, I would like to highlight several factors about this and the potential momentum it creates for us. First, I am happy to say that more than 50 leading OEMs, Tier 1s, Tier 2s, are in different stages and eager to start testing of our solution. The second, that the recently announced partnership with both the Sunny Optical, I guess most of you know, it's a leading vendor of automotive camera from the Far East and very strong in the Asian market, adds to already existing partnerships that all of you are aware, Sony and Mobileye.
The third, a few, I think it was two or three days ago, where we announced that the LG Innotek developed a system in package, what's called SiP, that will expand the number of A-PHY sources in the market. Actually, you see the trend is expanding, people accepting it as a solution. If you look like intellectually on the technology, you see it's really the superiority and may I say a very easy demonstrable advantage.
Okay. No, it seems like a very strong position there. Maybe lastly on automotive, as it starts to grow in the mix here, can you give us some sense of what it might look like as a part of the mix in 2022, 2023? You know, how Daimler ramps, and when, and when does the VA7000 start contributing to revenue?
First, thanks for the question. I would say that at least in the next 2 years, the lion's share of the revenues will still come from our project with Daimler, okay? As we mentioned in the past, we are in very good shape with the project that we have with the truck company, and we anticipate mass production already in early 2023, which means for us that we'll start to see initial revenues already at the end of 2022. With respect to the VA7000, as we already mentioned, we intend to ship our samples to select customers and partners.
By the way, just to remind you that this VA7000 will be the first product in the market that is compliant with the MIPI A-PHY standard. We anticipate that they will start to evaluate this product as part of their integration process in their platforms. If everything goes well, we believe to start seeing this product in mass production somewhere around the beginning of 2025.
Okay, thank you for that color. One last quick question, Dror. Perhaps, the OpEx, what trend do you expect for fourth quarter into next year from the OpEx you reported in the third quarter?
Obviously, we're going to see that the fourth quarter will not have the one-time issuance cost that, as you remember, in the third quarter included $6 million. Obviously, running as a public company means that we're going to see some increase in the operating expenses. We estimate it to be about $2 million a quarter. On top of that, there are always these expenses that you measure on an annual basis that are always absorbed in the fourth quarter. I would say that we don't see a significant increase compared to the third quarter.
Okay. Thank you so much. Congratulations again.
Thank you.
Thank you. As a reminder, if you'd like to ask a question to the team, please press star followed by one on your telephone keypad. Our next question today comes from Rick Schafer of Oppenheimer. Rick, your line is open. Please go ahead.
Oh, thanks, and congrats on solid results. You guys are off to a good start. If I could, maybe a question on auto. Would you guys be able to kinda provide a level set, you know, where your average dollar content is today, you know, in a vehicle or with Daimler, and what that looks like, you know, compared to when A-PHY is adopted and starts to ramp?
Sure, Rick, thanks for the question. As of today, I would say that on average, you can find between 3-4 chips in every Daimler's car that leave the manufacturing line, which means for us, revenue per car, this is a bit close to $20, okay? We believe that this trend will continue in the coming years. With respect to the deployment of the second generation of our products, what we call the VA7000, this is the ADAS product. Once we get in, the number of chips that will be deployed on average in a car really depends on the number of sensors that will be deployed in the car.
If we take as an average, something like 8-10 different links, high speed video links in the car, I would say that our content, our revenue per car can reach $70-$80. In cars where you will find our solution for infotainment combined with our solutions for ADAS, the budget per car or the revenue per car can easily reach $90-$100 per car.
That's great color. Thanks, Dror. Maybe as a follow-up on, since we're talking about A-PHY, I'm just curious since it's based on HDBaseT, have you guys ever given a sense of sorta what that means in terms of time to market advantage versus anybody else that's gonna try to develop A-PHY and compete with you? I mean, I understand today you compete with Ethernet and SerDes, but sort of a legacy connectivity. In terms of just time to market advantage, you know, versus anybody else that's gonna do A-PHY, what do you estimate that is for you guys?
First of all, let's distinguish between the HDBaseT and the A-PHY, okay? With respect to the HDBaseT, which mainly serves in the audio/video market. You know, I'm not sure that we're going to see lots of competition in the coming years in this area. Let's focus in a second on the A-PHY. The A-PHY is a technology that is now backed by a standard, the MIPI A-PHY. One of our missions is to increase the ecosystem of the players in this area, which means that we are more than welcome other semiconductor companies to join this A-PHY camp and to introduce their solution.
The fact that we are starting to see the initial partners. We mentioned in the earlier part, we mentioned Sunny Optical, we mentioned Sony, we mentioned LG Innotek, that just the deal that we just announced two days ago. The fact that we are starting to see more players joining into this A-PHY camp, it's good news for all the OEMs and the Tier 1. But you know, with the fact that we stand behind this standard, we believe that we are well-positioned to lead this camp and to capture significant premium that we'll see in this market.
Thanks, Dror. If I could sneak one more in. Back on backlog for a second. I mean, I think it's basically $75 million now. I think that's up around $20 million or so from just last quarter. So correct me if I'm wrong, but it seems like there's some pretty good momentum there. I didn't know if you could comment or give us any color on how much of that is shippable over sort of the next year. I'm just trying to and then maybe even within that, if we could get sort of a sense of how much of that backlog is AV versus automotive. Thanks a lot.
Thanks, Rick. With your permission, I will not refer to the second part of the question. With respect to your first question, about the allocation between the fourth quarter and next year backlog, I would say that we're very, very confident with our ability to meet our revenue targets for the fourth quarter, and I assume that you understand between the lines that we are well-positioned here. The remaining balance of the backlog supposed to support us to meet our revenue projections for next year, and that's the reason why we are so confident with our ability to meet these targets.
Great. Thanks, guys. Congrats.
Thank you. As a final reminder, if you'd like to ask a question to the team, please press star followed by one on your telephone keypad now. We have no further questions in the queue, so I will turn the call back to Gideon Ben-Zvi for closing remarks.
Thank you very much for attending and for listening to us. I would like to thank you for joining the first and our Q3 2021 call and for your continued support and interest in Valens. See you next time.