We get started. Welcome, everybody, to day two of Needham's 27th Annual Growth Conference. My name is Quinn Bolton. I'm the semiconductor analyst for Needham. It's my pleasure to host this presentation from Valens Semiconductor. Valens is the premier provider of high-speed connectivity solutions to the automotive and AV industries. Valens' technology addresses the need for next-generation high-speed, high-bandwidth, error-free, and long-range connectivity in environments where performance and cost are critical. Valens chipsets power state-of-the-art audio-video installations, next-generation video conferencing, and enable the evolution of ADAS and autonomous driving. Joining me from the company is Guy Nathanzon, CFO. I'm going to hand the presentation over to Guy, and then we'll come back for Q&A at the end of the presentation. Guy, thank you.
Thank you. Hello, everybody. My name is Guy Nathanzon, and I'm the CFO of the company. I joined about a year ago with experience in other semiconductor companies and in publicly traded companies. So, Valens is the high-performance connectivity company. We're a fabless semiconductor, and our technology knows how to deliver video in a high-quality, low-latency over a long reach of cables. We provide the highest bandwidth, the longest reach, over the lowest error rate. We have been established in the year 2008. We've been publicly traded since 2021. We have 260 employees. We have sold to date a cumulated amount of more than 40 million units of chipsets. In 2023, we had $84 million of revenue. We are part of two global standards. We have 120 patents. We have hundreds of customers, and we address overall total market opportunity of $5 billion.
What are the pain points of wired connectivity? First of all, there are too many cables. I assume that all of you are aware of this trend in the office, at home, in the car. Distance limitation, which reduces the capability to transfer high-capacity video for long distance. Video resolution is becoming higher, and the capacity and the requirement for higher bandwidth. Rough environment, electromagnetic interference, challenges with the temperature changes and the aging of the cables. High cost of the infrastructure and installation complexity. Today, Valens is involved in different types of verticals and markets. In entertainment, we work with Panasonic and Sony in applications of video walls. In digital signage, we work with companies like Samsung and LG on applications like connecting screens from video to video resources that are located remotely or touchscreen for display purposes.
In the video conferencing market, we work with companies like Crestron, Extron that provide the full solution of video conferencing, with companies like Epson, Panasonic that provide projectors, with companies like Logitech and ViewSonic. In industrial, we work with companies like B&R or Beckhoff when we connect screens to industrial PCs. In the medical space, we work with companies like Siemens and Sennheiser and companies like Medtronic when we connect screens to MRI systems. And in automotive, we work with Mercedes-Benz in application related to multimedia systems. Our core technology is around the DSP, around the PHY. We have also developed unique algorithms that know how to handle noises in the channel. We have 120 patents today, and we invested a cumulated amount of $500 million in R&D expenses to date.
One of our key advantages is our capabilities to handle noises related to electromagnetic interference in the channel. We know how to do it 20 times better versus our competitors with these unique algorithms that are part of our technology, and the result is a safe and resilient solution of connectivity solutions to our customers. Our strategy to growth. The first element, we would like to continue and establish our leadership position in the professional audio-video market. The second, we would like to penetrate and to continue growth in other new markets like video conferencing, automotive, like industrial and machine vision, and in markets like the medical thing used endoscopy, and then we would like to support non-organic growth, starting from the professional audio-video market.
The professional audio-video market includes connectivity solutions of different devices like projectors, displays, or cameras to the screen in the other side of the room located remotely. We have advantage over 10 meters up to 100 meters when we can connect these devices over cables, CAT5, CAT6, or CAT7 cables. In addition, we have applications like the big screens in the airports, the display screens in the McDonald's of the world, and applications coming from other related worlds. We are part of a standard called HDBaseT, where among the founding partners of this standard, partnering with companies like Samsung, LG, and Sony Pictures, and actually, if you want to be qualified as HDBaseT, you need to work with Valens. We have significant dominance in this market. Significant portion of the professional audio-video market is around video conferencing systems.
We expect that this market will have a total available market potential for Valens of $350 million by the year 2029, with 8.5 million devices. The continuous growth in the video conferencing market is expected because of the hybrid work and hybrid education. We see trends that are supporting this growth. For example, companies like Microsoft Teams and Zoom are doing certifications for video conferencing systems, which are hardware, which is not typical for certain companies because they understand the importance of having one complete solution in order to improve the quality of the video conferencing meeting. In addition, we see AI-based applications in the room. For example, multiple cameras in the room that know how to concentrate on the one that is now talking or other applications like auto-summary of what has been discussed in the room.
All these applications improve the user experience and support the growth of the video conferencing market. Recently, we've released our fourth generation of product to this market, the VS6320. It has USB 3.2 connectivity, and it is a very important product because that will allow us to increase our footprint in the video conferencing market. Today, we are concentrated mainly on the high-end of the market, and you will find our solutions embedded in the more expensive video conferencing system in the biggest meeting room in every office. Now, with this product, which has a USB 3.2, you're familiar with the word USB Type-C, which becomes like kind of universal standard in the industry, we'll be able to increase our footprint, and you will find our solutions in more meeting rooms in a typical office, for example, in the mid-size room, in the huddle rooms, and so on.
For example, in my own office, I can connect my laptop with one cable, the USB Type-C, transferring data and electricity over the same cable to the docking station and from the docking station with HDMI through the wall to the screen in the other side of the room. That means we will be able to increase our revenue in this market with this product. This product was introduced to the market in mid-2024, already announced on 50 customers that started design of their own products based on this chip, and we expect launch of their products in the second half of 2025. Automotive. Our main focus in automotive is on ADAS application, autonomous driving systems, and here is the use case. A child is crossing the street.
The camera or the sensor in the front of the car will capture the video picture, will transfer it over the cables to the centralized computing system in the car. Then there will be analysis of the picture, and the centralized system will tell the car to stop immediately. This whole process will take a few milliseconds. We have the perfect solution for this application. We know how to deliver high-quality video at a low latency, which is very important for safety systems, over a long reach of cables, and the killer application that we know how to handle the electromagnetic interference in the car significantly better versus all the other solutions, and this is very important because there are a lot of noises in the car related to the electricity, to the engine, and to elements outside of the car, like, for example, cellular antennas.
We know how to handle this interference, and we can allow the connectivity to continue while in other solutions there is a risk for disconnectivity. And this is, again, a critical safety system. We have recently announced on the first three design wins with ADAS applications from leading, a well-known European OEM. We cannot disclose the name. We have been able to win in three different brands under the same OEM. Initial revenues are expected from 2026, ramping up 2027 and beyond. It should be noted that the ADAS is going to be fully deployed beyond the year 2030 in the world. Today, we're in evaluation process with several other well-known OEMs in different territories in the world. And our goal that in the next 12 to 24 months is we will be able to announce on more design wins on ADAS-based applications, ramping up from 2028 and beyond.
We're already generating revenue in automotive from one specific application, unique opportunity that we had with Mercedes-Benz for multimedia system when we deliver multi-gigabit over unshielded cables we currently installed in most of the models of Mercedes. This opportunity generated more than $20 million revenue last year in 2024, and we had initial revenue from this application in the year 2021. Another application related to automotive is with a partner called Stoneridge. It is a connectivity of a rear seat camera, a rear seat video for safety reasons from the back of the truck to the front using the very same cables that transfer the electricity. So you do not need to use any new cables, and that reduces the cost of the cables in the truck. We expect commercialization of this product starting from the end of 2025.
It's not going to be huge, but it's going to be a very profitable business. Today, in the automotive connectivity space, a significant portion of the solutions are proprietary solutions of companies like Analog Devices or Texas Instruments. We have decided to be part of a standard called MIPI A-PHY. We are chosen by the standard, and we are the basis for the standard. We are the first one to propose connectivity solution under this standard. We have significant advantage over the legacy products, especially around our ability to handle electromagnetic interference in the car, but we also know how to transfer higher bandwidth versus the legacy products. There is a newcomer to the market, a new standard, ASA. There are newcomers, but they don't have a solution yet. They definitely do not have a design win yet.
We have relative advantage in many aspects, including the electromagnetic interference over this solution. There is a whole ecosystem around the MIPI A-PHY, starting from platform vendors, companies like Mobileye, Intel, and Black Sesame from China, companies that provide cameras and radar solutions like LG, Samsung, onsemi, OmniVision, and companies on the silicon side like Valens, Sony, and others. The MIPI A-PHY Alliance is big and strong, and we are proud to be part of this alliance, and we hope to ramp up when ADAS will ramp up with this partnership. In terms of market size, the automotive represents amazing and huge opportunity. We believe $4.5 billion market opportunity in the year 2029. With the deployment of ADAS, we expect to see more requirement for connectivity solutions, more requirement because there would be more sensors and more cameras in every car.
We expect to see 95 million new cars in this year. We expect to see an average of 12 sensors per car, and we expect to charge around $4 per link per car, bringing the overall opportunity to $4.5 billion market opportunity in 2029, which means that even if we could capture even a small portion of the market, that still could be very much significant. We've recently started addressing new markets, the industrial and the machine vision. Actually, we already had some working application in commercialization on the industrial side. For example, in the industrial PC, we're working with companies like B&R and Beckhoff connecting screens to industrial PCs. In the medical imaging market, we're working with companies like Siemens and Sennheiser and Medtronic connecting MRIs to the screen in the other side of the room. We already have two commercialized products of Valens.
The first one is the VS6320 with USB connectivity, and the other one is the VA7000 from the automotive with the CSI-2 connectivity. Both of them have an interface that is very much relevant to the industrial world. We've recently identified a new potential market, which is the industrial cameras. From our perspective, we're talking on a new set of customers that until today we didn't meet, and the use case is very simple. Imagine a manufacturing machine of small parts. In the end of the line, there are two cameras that do visual inspection for quality purposes of the line. They need to take a video picture, transfer it over a long reach of cables in the industrial environment. You cannot use wireless because of the electromagnetic noises in this environment to a computer located remotely.
In the computer, there is an AI-based application that knows how to analyze this video and tells the machine which parts should be disqualified for quality purposes. Again, we know how to support this application because we know how to deliver high-quality video in low latency over a long reach of cables. This is exactly a very good product market fit. In addition, specifically, the VA7000, which is an automotive product, has a very small form factor, low power consumption, and it knows how to handle electromagnetic interference very well, which makes this product a perfect fit for integration inside these industrial cameras. So we have recently assembled a dedicated sales team, a go-to-market approach, and in October, we launch our presence in this new vertical for Valens in October in Stuttgart.
We see a very positive and good market feedback, and we believe that in next year, in 2025, we'll be able to capture design wins in this market that will start commercialization in 2026 and beyond. Industrial. It's not a fast market, and we expect this market could be a very interesting and significant market for the company in the future. This market represents, by 2029, a $460 million market opportunity with 16 million potential devices in this market. Another market that we've recently discovered is the single-use endoscopy. This is more like a long-term market. It is not in the numbers yet, and we are in initial stages of evaluation. Today, there are 250 million endoscopy procedures every year.
The FDA recently announced that it wants to encourage the providers of the endoscopy equipment to remove from multi-use to single-use in order to eliminate the risk for infection in this market. We have a perfect fit for this market because, again, we have the VA7000 with a small form factor, low power consumption, and we know how to handle the electromagnetic interference in the surgery room. So currently, we are talking with the different players and the stakeholders in this market. It's going to be long-term because there is a need to go through the whole regulatory process in this market. But again, the market opportunity is huge, above the $600 million a year, still long-term and not in the numbers. So we have the full set of products that cover all these verticals that I've just described.
We have four families of products for the professional audio video, two families of products for the automotive, and two products with overlapping also to the industrial and machine vision world. We've recently decided to start going actively looking for potential acquisitions in order to grow the business in a non-organic way. With a strong cash balance, end of September 2024, we had $133 million in the bank. We are looking for companies with a high level of synergy, especially around the professional audio video and around the industrial and machine vision markets. We are looking for companies generating revenue with the line of sight to profitability. We have just completed the first acquisition in the second quarter of 2024.
It was a company called Acroname from Boulder, Colorado, an amazing team of 20 people that specialize in the development of small systems like hubs in the USB world, a very specialized team, excellent products. It's like integral integration, and there is a high level of synergy also in terms of the customers, customers from the audio video, customers from the industrial space, like a complementary product for our customers. We have paid for this company $8 million in upfront payment, and there is another potential of up to $7 million on top of it against achieving certain milestones. The company contributed $7 million, can contribute around $6 million a year. Over a period of seven months in 2024, they contributed $3 million to the company of revenue, and they can continue and grow with a high level of synergy.
We're very pleased with this first acquisition, and we hope to get similar deals in the future. Getting to the financials. In 2019, we had $60 million revenue, mainly from the audio video. In 2020, a slight decrease to $56 million. It was the first year of the COVID, mainly around audio video and initial sales, $2 million to Mercedes-Benz, to the automotive. In 2021, an increase in the audio video to $62 million, and the first year of mass production with Mercedes, $8 million, totaling $71 million revenue in the year 2021. 2022 was a peak year, $91 million of revenue. The audio video business grew significantly to $74 million. Now we know that it was kind of a post-COVID effect due to the supply chain issues and the long lead times.
Our customers were afraid that they will not have enough inventory and bought much more than they needed. In addition, the automotive business doubled to $60 million, bringing the overall revenue to $91 million. In 2023, the audio video got back to the normal levels of $57 million. Automotive continued to grow, full ramp-up for $26 million, bringing the overall revenue in this year to $84 million. In the year 2024, we have a rebound effect for the year 2022. In the audio video, in the beginning of the year, a customer had a very high level of inventory, high level of interest rate, which makes it very expensive to hold this inventory. Lead time got back to normal, like in pre-COVID.
On top of it, our customer had weakness in their markets because many companies invested a lot of money in building new video conferencing systems after the COVID. In 2024, it's like a relief year for them. That means that in the revenue from the audio video in 2024, we reduced significantly to $33 million approximately, and in the automotive to more than $20 million, bringing the overall revenue in 2024 to $57 million. We expect getting back to growth in 2025. We provided guidance that we expect to have anywhere between $71-$76 million of revenue in 2025, where we see initial signs to recovery, especially in the audio video customers. On a quarterly basis, you could see that in Q4 of 2023, we had $22 million revenue dropping to $12 million in the first quarter of 2024.
But ever since, we were able to grow on a quarterly basis to $13.6 in Q2, $16 million in Q3, and in Q4, $16-$16.3 million revenue. In 2023, we had $84 million of revenue, 62.5% gross margin. It should be noted that the gross margin of the company is heavily impacted by the ratio between the automotive business, which has around 35% gross margin, and the audio video business, which is much more profitable, around 70% gross margin. We had negative EBITDA of around $10 million in 2023. 2024 is expected to be around the $57 million revenue, gross margin above 58%, and adjusted EBITDA loss of anywhere between $21-$22 million. We have a strong cash balance, $133 million end of Q3 of 2024. We've started the year with $142, and we also paid $8 million for the acquisition of Acroname.
We announced a buyback of our shares in December this year, and this is about our cash balance. Inventory level went in the right direction from $24 million end of 2022 to $12 million end of September. Now, getting to the future. Recently, we had Investor Analyst Day here in New York and also in Tel Aviv when we set our expectations for the next five years. We set revenue goals growth from $57 million in the year 2024 to revenue of $220 million-$300 million in the year of 2029, within five years, meaning average annual growth of anywhere between 30%-40% year- over- year during this five-year term. In the short term, we expect growth coming from the professional audio video market.
We should see at least partial recovery of the inventory digestion cycle, and we hope to see deployment and commercialization of those 50 customers that already adopted the VS6320 with products in video conferencing markets starting from the second half of 2025. Our goal for the professional audio video for 2029 is growing the business from $33 million to $90-$100 million a year, and the $60 million is where we used to be in the past. And the additional revenue should come from the new product that should increase our footprint in the video conferencing market and allow us to penetrate to new rooms that should bring the growth from $60 to the $90-$100 million in this specific vertical. The second market, industrial and machine vision, today we sell $1 million with almost no efforts.
Now we have a dedicated sales team, go-to-market approach, two new products dedicated for this market. So we believe we can bring in five years $35-$50 million of revenue, ramping up from $26-$27, and beyond. This could be an amazing opportunity for the company in the long term. It is a very interesting and big market for the company. We set a goal of $30-$40 million of revenue by 2029 coming from new acquisitions and automotive. Automotive is more for the long run. We expect ramping up the automotive starting from $26 and beyond once the new design wins of the ADAS will be commercialized. Real commercialization of most of the new models with ADAS will be in 2027, 2028, and beyond. And we set a goal of $65-$110 million by the year 2029.
But starting from 2030, when there is a full deployment of ADAS in the world, we expect significant ramp in the revenue coming from ADAS to hundreds of millions of dollars because we believe that we can achieve significant market share in this $4.5 billion market opportunity in automotive. Automotive basically creates a huge opportunity for the company. In addition, another huge potential could come from the single-use endoscopy, which again, it's a long-term play and is dependent on passing the regulatory process with the FDA. Our target gross margin for the year 2029 is 50%-60%, and our target EBITDA margin is 15%-20%. The company can be EBITDA positive at annual run rate of revenue of $110-$120 million. This assumes a 60% gross margin like today and the same level of OPEX of $80 million like we have today.
We cannot say when it's going to happen at this stage because of the limited visibility on the recovery of the market, but this is in a nutshell the ballpark of the profitability. Our goals for 2025: revenue $71-$76 million, getting back to growth 25%-33%. In the professional audio video, our goal is at least partial recovery from the inventory digestion cycle, and we hope to see commercialization of the VS6320 products in the second half of the year. Our goals for the industrial and machine vision is to announce new design wins in this space that will be commercialized in the years 2026, 2027, and beyond. Our goals for automotive: announcement on new design wins that will be commercialized in 2028 and beyond, and we would like to close at least one new deal by SADM&A.
So to summarize, we have an aggressive revenue growth goal for the next five years, grow the business 30%-40% every year. We have diversification in terms of markets and applications. The design win business model creates good visibility and long-term engagement with the customers. It's very hard to get in, but very hard to get out. There is a lot of stickiness in this market. We have a profitable business model above the 50% gross margin and above the 15% EBITDA margin. And we have a strong cash balance in order to execute both the organic and the non-organic growth opportunities for the company. Thank you.
Can I maybe just a question on the 2025 outlook for the $71-$76 million? How much of that do you have sort of today in backlog that's supported by customer forecasts? How comfortable are you with that outlook?
So we are comfortable. We have a relatively good backlog at this stage. We did not disclose the numbers, but we have a right backlog. And we are in the market, talking a lot with our customers, have visibility in their inventory level. So we're able to see that their inventory level we're getting back to the normal levels when they should be. We hear from the ecosystem that the market is getting back. I'm talking both on our customers and on their customers. And there are very many positive signs that we see right now. So we do have a high level of confidence in the guidance. And if you look at the guidance for 2025, how much cash would you burn roughly at those levels, low 70s? So we do not provide the guidance for the cash burn for natural reasons.
Generally speaking, I would say on the cash that currently we do not anticipate any requirement to raise more money today. So it looks like that in terms of cash, again, unless we do significant acquisitions, which is not the assumption here, but we might do if we have the right opportunities. But at this stage, we do not anticipate any significant cash needs in the, let's say, at least what we know for today.
I mean, if I just think about that, so revenue in the low 70s, gross margin around 60%, resulting in gross profit in the low 40s. And you said $80 million of OpEx. So just ballpark number, burning $30-$40 million of cash potentially this year, or are there offsets? There are some offsets from different reasons, for example, interest income and others.
So I'll be very cautious about providing the guidance for the cash, and I'll be very cautious on these numbers. But again, we don't see any risk at the moment.
Okay. But you're pretty comfortable that even at that level, the balance sheet supports.
Yes.
Run rate to break even plus some additional M&A opportunities.
Yes. And we are going to be very responsible with our cash. We're not going to do stupid things.
Yeah. And audio visual, who is your main competition?
So in the specific vertical of the video conferencing, typically there are three options when you want to connect, for example, a projector to the other side of the screen. You can use CAT5, CAT6, or CAT7 cables where we play. You can use an overall solution of AV over IP, and you can use an overall solution of connectivity via fiber.
We work only in the first market. We do not have AV over IP technology, and we do not have fiber technology. So it's in the technology level, not in the chip level.
I see. And your competitors there?
We don't have another specific direct competitor. There was one company called Icron that was acquired by Analog Devices in the past. But again, we don't see them a lot. We have a significant advantage, especially with USB 3.2, which is a very important requirement in this market. And the evidence came with 50 customers that once this product was released, started development of new products based on this chip.
What about the industrial vision business? Are those sockets that are already there, or are these just new requirements that you've designed products for that you don't have to displace competition?
So it's a new product.
From our perspective, this is a market that we did not address so far. We had some sporadic opportunities around industrial PCs and medical, but specifically in the cameras, industrial cameras, it's a relatively new market for us. There are some other solutions today. We have a significant advantage in a few terms, in terms of the bandwidth, in terms of our ability to transfer over a long reach, and our ability to handle electromagnetic interference. In an industrial environment, this is a big problem. So we expect now we have started our journey in this market. We have very positive initial feedback from our customers, but we were not able to secure design wins yet in this specific vertical of the industrial cameras. This is our goal for the year 2025 to secure a few design wins that will be commercialized in the year 2026 and beyond.
Okay.
For the automotive outlook to your 2020-2029 plan of $65-$110 million, how much of that comes from Mercedes? How much of it comes from the three design wins you've previously announced? How much would have to be from new designs that you still have to win?
Okay. So we did not provide the numbers, but I will try to answer as follows. Mercedes, we are ramping up in Mercedes. It's a multimedia system. We are fully ramped up. In 2024, it was above the $20 million revenue. You should not expect significant changes on that specific vertical. It's a one-time event, and we don't expect any significant. It has a long life because the product lifecycle in these kinds of markets is very long, very hard to get in, very hard to get out. But there are no significant changes.
A significant portion of the revenues that we mentioned for 2029 are relying on new design wins, some of them already being achieved and announced, and some of them have not been achieved yet. We're currently in the evaluation process with several well-familiar OEMs for models that are expected to be commercialized in the year 2028, and I think that even if we'll be able to capture only a few of them, it's going to be significant, and that could even drive these revenues and support these revenues for 2029,
so if you've got three wins, you've got Mercedes saved, say, in about $20 million. It sounds like maybe each win could be, I don't know, $5, $10-ish million, so you've got some of that covered. You need more to get to the range, but.
Yes.
We already announced that the first three design wins will contribute more than $10 million a year. This is only a few models. We can expand in the very same OEM to more models if it will be successful. On top of it, we are now in the evaluation process with new OEMs, again, big names, that each one of them could potentially be very much significant. By definition, the automotive industry can capture significant revenue, but the cycles are extremely long and very hard to achieve. Very hard to get in, very hard to get out.
Any other questions for Guy?
Yeah, just last one. Can you talk about the gross margins across segments? I know you said there's a vast difference between AV and automotive. I guess trying to figure out why there's such a large difference.
Yes.
Audio-video, the initial market of audio-video is not a very large market with very limited competition. We have a dominant position in the market because we are part of the founding partner of the standard of the HDBaseT. So basically, we could continue and keep a very high gross margin. It's not a big market, not a very big market, but we have a very dominant position in this market, and this is why we could keep above the 70% gross margin. This is not the case for automotive. It's the opposite. Automotive, it's a very diversified market, very fragmented. In the market, there are already well-established players like Analog Devices and Texas Instruments. So we need to find our position in the market. We're a relatively small player at this stage in the market, and this is why the margin is significantly lower.
On the other end, the volume in the automotive could be amazing. So the opportunity is amazing.
What is the margin?
Sorry?
What is the gross margin?
Above the 35% in the automotive. And we said that we expected by 2029, our gross margin goals would be 35%-45% in automotive, 65%-75% in the professional audio video, and industrial and machine vision will be 55%-65%. This will be the combination. And now it depends on the ratio of the revenues between each vertical. Sorry, you said 35-45 per auto? For auto, yes. 35-45. And for audio video, 65-75. Industrial machine vision, 55-65.
I guess, what is it going to take to get the gross margin in auto to that level?
I know you talked about that back camera on the truck being more profitable than other auto opportunities. Can you just expand on that?
Yes. So first of all, it's not going to be a huge opportunity on the trucks. It's a relatively small portion of the market. The vast majority of the market are the typical models of the well-familiar OEMs. This is a unique opportunity on the trucks. And this is why the vast majority of the volume is going to be more in the 35%-45% gross margin.
Okay. Thank you very much. Thank you.