20-F: Valens Semiconductor Enhances Corporate Governance with Board Nomination Agreement and Files Annual Report

Valens Semiconductor enters into a board nomination agreement with Value Base and files its annual report, outlining key financial information, risk factors, and strategic initiatives.

Summary

• Valens Semiconductor has entered into a Board Nomination Agreement with Value Base, appointing Tal Yaacobi to the Board as a Class I director and member of the Nominating, Governance and Sustainability Committee.
• Value Base currently owns 19,477,830 ordinary shares of Valens, representing approximately 18.51% of the outstanding shares.
• The agreement includes a standstill provision limiting Value Base's ownership to 24.99% of outstanding ordinary shares.
• Value Base agrees to vote its shares in favor of the Board's nominees at shareholder meetings through 2026.
• The document also includes Valens Semiconductor's annual report on Form 20-F for the fiscal year ended December 31, 2024.
• The annual report details the company's business overview, risk factors, financial performance, and corporate governance practices.
• Valens operates in a fabless model with two main business units: Cross-Industry Business and Automotive.
• The company faces risks related to the cyclical nature of the semiconductor industry, global economic uncertainty, and competition.
• Approximately 63% of Valens' total net sales in fiscal year 2024 were generated by its cross-industry products, and 37% by its automotive products.
• Valens is subject to various laws and regulations, including those related to privacy, data protection, and anti-corruption.
• The company's ability to raise capital in the future may be limited, which could prevent it from executing its growth strategy.
• Valens is exposed to a variety of financial risks, including currency risk, interest rate risk, and credit risk.
• The company's internal controls over financial reporting may not be effective, which could adversely affect the accuracy and reliability of its periodic reporting.
• The company's principal offices are located in Israel, and its business may be affected by economic, political, and military conditions in Israel.
• The company's amended and restated articles of association provide that the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between the Company and its shareholders under the Companies Law and the Israeli Securities Law.
• The company has received Israeli government grants for certain research and development activities, which impose restrictions on the transfer or license of related know-how outside of Israel.
• The company is an emerging growth company and takes advantage of certain exemptions from disclosure requirements.
• Value Base Ltd. beneficially owns a significant amount of our shares, and its interests may conflict with ours or yours in the future.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive developments like the Board Nomination Agreement and design wins, the financial results show a decline in revenue and profitability, and there are numerous risk factors to consider.

Positives

• Appointment of Tal Yaacobi to the Board could bring valuable insights and expertise.
• The standstill agreement limits Value Base's ability to exert undue influence on the company.
• The company is taking steps to improve its operational efficiency.
• The company is expanding its position in the industrial market with the acquisition of Acroname.
• The company is collaborating with key industry players to expand the A-PHY based connectivity solutions ecosystem.
• The company has achieved three automotive design wins from leading European OEMs for its MIPI A-PHY chipsets.
• The company is certified for ISO 26262 (Road Vehicle Functional Safety).
• The company is certified for ISO 27001, enhancing data security and trust with customers and partners.
• The company has a strong intellectual property portfolio.
• The company has a proven management team.

Negatives

• The company experienced a decrease in demand for its semiconductor products in both the Cross Industry Business segment and the Automotive segment.
• The company's customers entered into 2024 with high inventory levels and were more careful with their inventory building.
• The company's financial performance is subject to global political and economic uncertainty, including China-Taiwan relations.
• The company faces competition in the semiconductor industry and must introduce new technologies and products in a timely manner.
• The company's ability to adequately obtain, maintain, protect, defend and enforce its intellectual property rights is crucial.
• The company is subject to governmental regulations related to privacy, data protection, and anti-corruption.
• The company's ability to attract, motivate, and retain executives and other key employees is essential for its success.
• The company's ability to raise capital in the future may be limited, which could prevent it from executing its growth strategy.
• The company is exposed to a variety of financial risks, including currency risk, interest rate risk, and credit risk.
• The company's internal controls over financial reporting may not be effective, which could adversely affect the accuracy and reliability of its periodic reporting.
• The company's principal offices are located in Israel, and its business may be affected by economic, political, and military conditions in Israel.
• The company's amended and restated articles of association provide that the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between the Company and its shareholders under the Companies Law and the Israeli Securities Law.
• The company has received Israeli government grants for certain research and development activities, which impose restrictions on the transfer or license of related know-how outside of Israel.
• The company is an emerging growth company and takes advantage of certain exemptions from disclosure requirements.
• Value Base Ltd. beneficially owns a significant amount of our shares, and its interests may conflict with ours or yours in the future.

Risks

• The cyclicality of the semiconductor industry could negatively affect demand for Valens' products.
• Global political and economic uncertainty, including China-Taiwan relations, could impact operations.
• Competition in the semiconductor industry requires continuous innovation and timely product introductions.
• Failure to adjust supply chain volume or estimate customer demand could lead to inventory issues.
• Disruptions in relationships with key customers or suppliers could adversely affect the business.
• Inability to adequately protect intellectual property rights could harm the company's competitive position.
• Cyber-attacks or other disruptions to information technology systems could damage reputation and business.
• Changes in tax laws or regulations in Israel, the United States, and other jurisdictions could increase tax liabilities.
• Failure to comply with export control laws and regulations could limit the ability to sell products.
• Changing foreign exchange rates may have an adverse effect on financial results.
• The market price and trading volume of Valens ordinary shares may be volatile and could decline significantly.
• Conditions in Israel, including the recent attack by Hamas, may adversely affect the business.
• The company may be a passive foreign investment company (PFIC) for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. investors in Valens ordinary shares or Valens warrants.

Future Outlook

Valens anticipates growing demand for AI-enabled intelligent meeting solutions and plans to capitalize on its high-speed connectivity solutions. The company also expects to expand its serviceable market in automotive with its VA700R for long vehicle sensor connectivity.

Industry Context

Valens operates in the highly competitive semiconductor industry, facing constant technological change, short product life cycles, and evolving standards. The company's success depends on its ability to develop new technologies and products that are successful in the market.

Comparison to Industry Standards

• The document does not provide a direct comparison to industry standards.
• However, it mentions that Valens' technology forms the basis for new global standards, such as MIPI A-PHY, indicating a leadership position.
• The document also mentions that Valens is the incumbent provider of HDBaseT chipsets, compliant with the HDBaseT standard, offering several lines of HDBaseT products tailored to meet evolving market demands.
• The document mentions that Valens chipsets offer a number of important advantages in the industrial market, including support for high resolution video, standardized solutions, and strong resilience for Electromagnetic Interferences (EMI).

Management Changes

Corporate Governance

Legal Proceedings

• In March 2024, Valens received a complaint from a customer regarding allegedly damaged chips due to a certain batch production incident.
• The company has recorded expenses of $2.2 million related to this incident and is discussing the matter with the customer and insurers.

Related Party Transactions

• Valens entered into a Board Nomination Agreement with Value Base, a major shareholder.
• Valens has entered into employment agreements with its executive officers.
• Valens has granted options to purchase Valens ordinary shares and RSUs to its executive officers and directors.
• Valens Amended and Restated Articles of Association permit it to exculpate, indemnify and insure certain of its officeholders.
• Valens entered into indemnification agreements with its directors and executive officers.

Stakeholder Impact

• Shareholders: The Board Nomination Agreement and financial performance may impact shareholder value.
• Employees: The company's ability to attract, motivate, and retain employees is essential for its success.
• Customers: The company's ability to meet customer quality requirements and deliver products on time is crucial.
• Suppliers: Disruptions in relationships with key suppliers could adversely affect the business.
• Creditors: The company's ability to access capital and manage financial risks is important for its financial stability.

Next Steps

• Continue to expand in and open up new markets that have vast business potential, including industrial machine vision and medical endoscopies.
• Continue to invest in causing the market to adopt A-PHY as the automotive connectivity solution of choice.
• Continue to make progress with many other leading players across the automotive ecosystem, including, OEMs, Tier 1s, and System on Chip (SoC) vendors, cameras, radars, and lidars, in the evaluation of our A-PHY-based solutions and the pipeline of opportunities continued to expand.
• Continue the collaboration with key industry players to expand the A-PHY based connectivity solutions ecosystem.
• Continue to invest in optimization, accuracy and reliability of our products and other technological improvements to support and drive operational efficiency.

Key Dates