Valens Semiconductor .(VLN) - 2025 Q2 - Quarterly Report

Condensed Consolidated Interim Financial Statements (Unaudited) Condensed Consolidated Interim Balance Sheet Total assets decreased from $172.15 million to $144.79 million, driven by reduced current assets and increased treasury shares, leading to a significant reduction in shareholders' equity Condensed Consolidated Interim Balance Sheet Summary | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Assets | | | | Total Current Assets | 127,331 | 153,903 | | Total Long-Term Assets | 17,462 | 18,249 | | TOTAL ASSETS | 144,793 | 172,152 | | Liabilities | | | | Total Current Liabilities | 21,333 | 20,327 | | Total Long-Term Liabilities | 6,965 | 9,137 | | TOTAL LIABILITIES | 28,298 | 29,464 | | Shareholders' Equity | | | | Total Shareholders' Equity | 116,495 | 142,688 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 144,793 | 172,152 | - Total Assets decreased by $27,359 thousand (15.89%) from December 31, 2024, to June 30, 2025, mainly due to a decrease in short-term deposits[5] - Total Shareholders' Equity decreased by $26,193 thousand (18.36%) primarily due to net loss for the period and share repurchases[7] Condensed Consolidated Interim Statements of Operations and Comprehensive Loss Revenues and gross profit increased for the six months ended June 30, 2025, with an improved net loss and per-share results Condensed Consolidated Interim Statements of Operations and Comprehensive Loss Summary | Metric (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Revenues | 33,887 | 25,156 | 17,059 | 13,597 | | Gross Profit | 21,417 | 15,159 | 10,835 | 8,344 | | Operating Loss | (16,845) | (20,699) | (7,389) | (9,410) | | Net Loss | (15,492) | (18,911) | (7,184) | (8,869) | | Basic and diluted net loss per ordinary share | (0.15) | (0.18) | (0.07) | (0.08) | - Revenues increased by 34.7% for the six months ended June 30, 2025, compared to the same period in 2024, reaching $33,887 thousand[9] - Net loss improved by 18.08% for the six months ended June 30, 2025, decreasing to $15,492 thousand from $18,911 thousand in the prior year[9] Condensed Consolidated Interim Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $142.69 million to $116.50 million, primarily due to net loss and significant share repurchases Condensed Consolidated Interim Statements of Changes in Shareholders' Equity Summary | Item (in thousands) | Six months ended June 30, 2025 | | :------------------ | :----------------------------- | | Balance as of January 1, 2025 | 142,688 | | Exercise of options and vesting of RSUs | 385 | | Repurchase of ordinary shares | (19,761) | | Stock based compensation | 7,941 | | Change in unrealized gains on cash flow hedges | 734 | | Net loss for the period | (15,492) | | Balance as of June 30, 2025 | 116,495 | - The company repurchased 7,500,298 ordinary shares for $19,761 thousand during the six months ended June 30, 2025[11] - Stock-based compensation contributed $7,941 thousand to additional paid-in capital for the six months ended June 30, 2025[11] Condensed Interim Consolidated Statements of Cash Flows Net cash increased, driven by investing activities, despite cash used in operating and financing, a shift from prior year Condensed Interim Consolidated Statements of Cash Flows Summary | Cash Flow Activity (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | (7,761) | (1,615) | (211) | (225) | | Net cash provided by (used in) investing activities | 38,121 | 8,754 | 15,531 | (10,355) | | Net cash provided by (used in) financing activities | (19,376) | 636 | (9,979) | 510 | | Increase (Decrease) in Cash and Cash Equivalents | 11,166 | 7,445 | 5,592 | (10,394) | | Cash and Cash Equivalents at the End of the Period | 46,589 | 24,706 | 46,589 | 24,706 | - Net cash used in operating activities increased significantly to $7,761 thousand for the six months ended June 30, 2025, compared to $1,615 thousand in the prior year[14] - Investing activities provided $38,121 thousand in cash for the six months ended June 30, 2025, a substantial increase from $8,754 thousand in the prior year, primarily due to maturities of short-term deposits[14] - Financing activities used $19,376 thousand in cash for the six months ended June 30, 2025, mainly due to share repurchases, contrasting with cash provided in the prior year[14] Notes to the Condensed Consolidated Interim Financial Statements NOTE 1 - General Information and Geopolitical Risks Valens Semiconductor Ltd., an Israeli semiconductor provider, monitors geopolitical conflicts, with no material operational impact - Valens Semiconductor Ltd. was incorporated in Israel in 2006 and began trading on the NYSE under the symbol 'VLN' as of June 30, 2021[16] - The company is a leading provider of semiconductor products (chips) for Audio-Video and Automotive industries, known for its Physical Layer (PHY) technology and HDBaseT Technology[17] - Ongoing conflicts in Gaza, Northern Israel, Lebanon, Iran, and the broader region have not materially affected operations to date, but the company continues to monitor developments[17] NOTE 2 - Summary of Significant Accounting Policies Interim financial statements adhere to GAAP and SEC rules, with no material accounting policy changes; new pronouncements are being evaluated - Financial statements are prepared in accordance with GAAP and SEC rules for interim financial reporting, with all adjustments being normal and recurring[18][19] - No material changes in significant accounting policies since December 31, 2024[21] - The company is evaluating ASU 2023-09 (Improvements to Income Tax Disclosures) effective after December 15, 2025, and ASU 2024-03/2025-01 (Expense Disaggregation Disclosure) effective after December 15, 2026, for potential impacts[22][23] NOTE 3 - Business Combination (Acroname Acquisition) Valens acquired Acroname Inc. for $11.20 million, contributing $2.42 million in revenues and $1.20 million net loss for the period - Valens acquired Acroname Inc. on May 31, 2024, for a total consideration of $11,196 thousand[25][26] Consideration Transferred | Consideration Transferred (in thousands) | Amount | | :--------------------------------------- | :----- | | Cash payment | 9,160 | | Fair value of earnout liability | 2,036 | | Total consideration | 11,196 | - Acroname contributed $2,421 thousand in revenues and $1,197 thousand in net loss to Valens' consolidated results for the six months ended June 30, 2025[27] Acquired Assets and Assumed Liabilities | Acquired Assets and Assumed Liabilities (in thousands) | Amount | | :----------------------------------------------------- | :----- | | Total assets acquired | 12,184 | | Total liabilities assumed | (988) | | Net assets acquired | 11,196 | NOTE 4 - Inventories Total inventories increased to $11.50 million from $10.16 million, driven by finished goods, with significantly reduced write-downs Inventory Summary | Inventory Category (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Work in process | 3,851 | 4,547 | | Finished goods | 7,646 | 5,608 | | Total Inventories | 11,497 | 10,155 | - Inventories increased by $1,342 thousand (13.22%) from December 31, 2024, to June 30, 2025[32] - Inventory write-downs decreased substantially from $300 thousand in the six months ended June 30, 2024, to $9 thousand in the same period of 2025[32] NOTE 5 - Commitments and Contingent Liabilities Noncancelable purchase obligations decreased; a provision for a customer complaint regarding damaged chips is recorded, with reimbursement expected Commitments Summary | Commitment Type (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Open purchase orders | 6,058 | 8,044 | | Non-paid IP/license agreements | 1,029 | 2,349 | - The company is not a party to any material legal actions or investigations as of June 30, 2025, except for a customer complaint[36] - A provision for a customer complaint regarding damaged chips, amounting to $2,136 thousand, is recorded in other current liabilities as of June 30, 2025[37][38][40] The provision was decreased by $323 thousand during the three months ended June 30, 2025[40] NOTE 6 - Other Current Liabilities Total other current liabilities slightly decreased to $8.28 million from $8.38 million, with accrued vacation as a key component Other Current Liabilities Summary | Item (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Accrued vacation | 3,786 | 3,166 | | Estimated accrual for a certain batch production incident | 2,136 | 2,182 | | Derivative liabilities | 600 | 605 | | Accrued expenses | 1,536 | 1,738 | | Other | 186 | 662 | | Total | 8,277 | 8,384 | - Accrued vacation increased by $620 thousand (19.58%) from December 31, 2024, to June 30, 2025[40] NOTE 7 - Forfeiture Shares 359,375 ordinary shares remain subject to forfeiture due to unmet price targets, after 646,875 shares were forfeited in September 2024 - 1,006,250 Ordinary Shares were initially subject to forfeiture based on price targets or M&A transaction minimum price[41] - On September 30, 2024, 646,875 Ordinary Shares were forfeited[42] Forfeiture Shares Valuation Metrics | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Stock price | 2.63 | 2.60 | | Expected term (years) | 0.25 | 0.75 | | Expected volatility | 63.84% | 63.84% | | Risk-free interest rate | 4.41% | 4.20% | - The fair value of forfeiture shares remained at $1 thousand at June 30, 2025, and December 31, 2024[43] NOTE 8 - Earnout Liability Earnout liability decreased to $1.75 million from $2.41 million, resulting in a $0.66 million gain recognized in operations - Earnout payments of up to $7.2 million are contingent on product development completion and achievement of revenue, EBITDA, and cashflow targets in 2024 and 2025[45] Earnout Liability Valuation Metrics | Metric | June 30, 2025 | | :-------------------- | :------------ | | Discount rate | 20.7%-21.0% | | Expected term (years) | 0.50-1.00 | | Expected volatility | 45.89% | | Risk-free interest rate | 4.29% | Earnout Liability Activity | Earnout Liability Activity (in thousands) | Six months ended June 30, 2025 | Year ended December 31, 2024 | | :---------------------------------------- | :----------------------------- | :--------------------------- | | Fair value at the beginning of the period | (2,413) | - | | Initial recognition of earnout liability | - | (2,036) | | Change in fair value of earnout liability | 663 | (377) | | Fair value at the end of the period | (1,750) | (2,413) | NOTE 9 - Derivatives and Hedging Valens uses foreign currency forward contracts for risk management; non-designated hedges resulted in a $0.62 million net loss, designated hedges impacted expenses - The company uses foreign currency forward contracts to mitigate foreign currency exchange rate fluctuations, not for trading or speculative purposes[50] Non-Designated Hedges Summary | Non-Designated Hedges (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Notional amount (ILS/USD) | 5,069 | 20,038 | | Fair value of derivatives assets | 28 | 1 | | Fair value of derivatives liabilities | 600 | 605 | - Non-designated hedges resulted in a net realized and unrealized loss of $619 thousand for the six months ended June 30, 2025, recognized in financial income, net[52] Designated Hedges Summary | Designated Hedges (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Notional amount | 13,436 | 20,061 | | Fair value of derivatives assets | 1,335 | 601 | - For designated cash flow hedges, $614 thousand of gains were reclassified from accumulated other comprehensive income into profit or loss for the six months ended June 30, 2025, impacting cost of revenue, R&D, sales & marketing, and G&A expenses[54] NOTE 10 - Treasury Shares Valens initiated two share repurchase programs, acquiring 3,302,194 shares for $10 million and 4,823,786 shares for $11.4 million - The company initiated a share repurchase program of up to $10 million on December 27, 2024, repurchasing 3,302,194 shares for $10 million as of June 30, 2025[62] - A second share repurchase program of up to $15 million was initiated on February 11, 2025, with 4,823,786 shares repurchased for $11.4 million as of June 30, 2025[62] NOTE 11 - Stock-Based Compensation Stock-based compensation totaled $7.94 million for the six months ended June 30, 2025, with significant grants of stock options and RSUs Stock-Based Compensation Summary | Stock-Based Compensation (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Total stock-based compensation (Options) | 661 | 1,582 | 278 | 690 | | Total stock-based compensation (RSUs) | 7,279 | 5,917 | 3,496 | 3,045 | - Unrecognized compensation costs for unvested stock options were $1,466 thousand as of June 30, 2025, expected to be recognized over 1.97 years[60] - Unrecognized compensation costs for unvested RSUs totaled $23,931 thousand as of June 30, 2025, expected to be expensed over approximately 2.50 years[66] Stock Options 11,765,601 stock options were outstanding as of June 30, 2025, with 1,689,425 granted and 476,431 exercised during the period Stock Option Activity | Stock Option Activity | Six months ended June 30, 2025 | | :-------------------- | :----------------------------- | | Options outstanding as of December 31, 2024 | 10,569,170 | | Granted during the period | 1,689,425 | | Exercised during the period | (476,431) | | Forfeited during the period | (16,563) | | Options outstanding as of June 30, 2025 | 11,765,601 | | Options exercisable as of June 30, 2025 | 9,934,550 | - The weighted-average fair value of options granted during the six months ended June 30, 2025, was $2.31 at the grant date[64] - The total intrinsic value of options exercised during the six months ended June 30, 2025, was $829 thousand, a decrease from $1,821 thousand in the prior year[64] Restricted Stock Units 10,644,869 RSUs were outstanding as of June 30, 2025, with 4,583,634 granted and 2,515,132 vested, resulting in $7.28 million in expenses RSU Activity | RSU Activity | Six months ended June 30, 2025 | | :-------------------------------- | :----------------------------- | | RSUs outstanding at the beginning of the year | 8,827,092 | | Granted during the period | 4,583,634 | | Vested during the period | (2,515,132) | | Forfeited during the period | (250,725) | | Outstanding at the end of the period | 10,644,869 | - The weighted average grant date fair value of outstanding RSUs at June 30, 2025, was $2.72[66] - RSU expenses increased to $7,279 thousand for the six months ended June 30, 2025, from $5,917 thousand in the prior year[68] NOTE 12 - Net Loss Per Ordinary Share Basic and diluted net loss per ordinary share was $(0.15), an improvement from $(0.18), with anti-dilutive securities excluded Net Loss Per Ordinary Share Summary | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Net loss (in thousands) | (15,492) | (18,911) | (7,184) | (8,869) | | Weighted average common shares and vested RSUs | 104,403,869 | 104,563,467 | 103,551,779 | 105,079,508 | | Basic and dilutive net loss per common share | (0.15) | (0.18) | (0.07) | (0.08) | - The weighted-average number of shares used in computing net loss per ordinary share remained relatively stable year-over-year[70] - Options (11.17 million), Restricted Stock Units (9.74 million), Private Warrants (3.33 million), Public Warrants (5.75 million), and Forfeiture Shares (0.36 million) were anti-dilutive and excluded from diluted EPS calculation for the six months ended June 30, 2025[70] NOTE 13 - Financial Income, Net Financial income, net, decreased to $1.46 million from $1.77 million, due to derivative losses and reduced interest income Financial Income, Net Summary | Item (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Foreign currency exchange differences | (157) | (1,271) | (17) | (745) | | Realized and unrealized losses on derivative instruments | (619) | - | (823) | - | | Interest income on short-term deposits | 2,322 | 3,061 | 1,088 | 1,294 | | Other | (83) | (16) | (23) | (9) | | Total financial income, net | 1,463 | 1,774 | 225 | 540 | - Realized and unrealized losses on derivative instruments amounted to $619 thousand for the six months ended June 30, 2025, compared to none in the prior year[71] - Interest income on short-term deposits decreased by $739 thousand (24.14%) for the six months ended June 30, 2025[71] NOTE 14 - Segment and Revenue by Geography and by Major Customer CIB revenues significantly increased, Automotive revenues slightly decreased; Hong Kong and Portugal grew, while Hungary and the US declined a. Operating Segments (CIB and Automotive) CIB segment revenues grew substantially to $24.58 million, while Automotive revenues slightly decreased to $9.31 million - Valens operates in two segments: Cross Industry Business (CIB) and Automotive[72][73] Segment Performance | Segment Performance (Six months ended June 30, 2025, in thousands) | CIB | Automotive | Consolidated | | :------------------------------------------------- | :----- | :--------- | :----------- | | Revenues | 24,576 | 9,311 | 33,887 | | Gross profit | 16,821 | 4,596 | 21,417 | | Segment operating loss | (5,450)| (11,395) | (16,845) | - CIB revenues increased by 61.19% for the six months ended June 30, 2025, compared to the same period in 2024[76][77] - Automotive revenues decreased by 6.03% for the six months ended June 30, 2025, compared to the same period in 2024[76][77] b. Geographic Revenues Hong Kong, China, Portugal, and Japan showed significant revenue growth, while Hungary and the United States experienced declines Geographic Revenues Summary | Geography (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :----------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Israel | 193 | 431 | 129 | 178 | | Hong Kong | 5,094 | 1,574 | 3,279 | 841 | | China | 4,574 | 3,507 | 2,353 | 1,987 | | United States | 4,329 | 4,462 | 1,652 | 3,013 | | Portugal | 4,556 | 3,098 | 2,318 | 1,207 | | Hungary | 4,710 | 6,129 | 1,830 | 4,082 | | Japan | 3,011 | 2,036 | 1,682 | 837 | | Other | 7,420 | 3,919 | 3,816 | 1,452 | | Total | 33,887 | 25,156 | 17,059 | 13,597 | - Hong Kong revenues surged by 223.63% for the six months ended June 30, 2025, compared to the prior year[79] - Hungary revenues decreased by 23.15% for the six months ended June 30, 2025, compared to the prior year[79] c. Supplemental data - Major Customers Customer A's accounts receivable share increased to 25%, while Customer D's dropped to 0%; Customer A and C maintained or increased revenue Accounts Receivable by Major Customer | Customer | Accounts Receivable (% of Total) June 30, 2025 | Accounts Receivable (% of Total) December 31, 2024 | | :--------- | :--------------------------------------------- | :------------------------------------------------- | | Customer A | 25% | 14% | | Customer B | 20% | 18% | | Customer C | 10% | 16% | | Customer D | 0% | 14% | Revenues by Major Customer | Customer | Revenues (% of Total) Six months ended June 30, 2025 | Revenues (% of Total) Six months ended June 30, 2024 | | :--------- | :--------------------------------------------------- | :--------------------------------------------------- | | Customer A | 13% | 12% | | Customer C | 9% | 7% | | Customer D | 8% | 14% | | Customer E | 4% | 10% | | Customer F | 4% | 10% | | Customer G | 2% | 10% | - Customer A's accounts receivable percentage increased from 14% to 25%, while Customer D's decreased from 14% to 0% from December 31, 2024, to June 30, 2025[80] d. Long-lived assets by Geography Total long-lived assets slightly decreased to $10.61 million, with the majority located domestically in Israel Long-lived Assets by Geography | Geography (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Domestic (Israel) | 9,082 | 9,482 | | China | 273 | 314 | | USA | 1,003 | 931 | | Other | 248 | 286 | | Total | 10,606 | 11,013 | - Long-lived assets in Israel constitute the largest portion, totaling $9,082 thousand at June 30, 2025[82] NOTE 15 - Related Party Transactions Valens granted 789,425 stock options and 549,654 RSUs to executive officers and Board members, with a total fair value of $2.08 million - 789,425 stock options were granted to executive officers and Board members during the six months ended June 30, 2025, with a weighted average exercise price of $2.36[83] - 549,654 RSUs were granted to executive officers and Board members during the six months ended June 30, 2025[84] - The fair value of granted stock options was $857 thousand, and granted RSUs was $1,222 thousand, both to be recognized over 1-4 year vesting periods[85] NOTE 16 - Subsequent Events Valens completed its Second Buyback program by purchasing an additional 1,327,439 Ordinary Shares for $3.6 million and is assessing the OBBBA tax reform impact - Between July 1, 2025, and July 21, 2025, Valens purchased an additional 1,327,439 Ordinary Shares for $3.6 million, completing its Second Buyback program[86] - The United States enacted the One Big Beautiful Bill Act (OBBBA) in July 2025, allowing for immediate expensing of U.S. R&D and certain capital expenditures, among other tax changes[87] - Valens is currently assessing the impact of the OBBBA tax reform on its future consolidated financial statements[87]