Q3 2022 Ambarella Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Ambarella <unk> third quarter fiscal year 2022 earnings conference call.

At this time all participant lines are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please.

Please be advised today's conference is being recorded if you should require operator assistance Press Star then zero. It's now my pleasure to hand, today's conference over to Louis care Hardy Corporate development. Please go ahead Sir.

Thank you Holly.

Good afternoon, and thank you for joining our third quarter fiscal year 2022 financial results conference call for the three months ending October 31st 2021 with me on the call today is Dr. Fermi, Wang President and CEO, John Young VP of finance.

The primary purpose of today's call is to provide you with information regarding the results for the third quarter of our fiscal 'twenty two.

<unk> today and the responses to your questions will contain forward looking statements regarding our projected financial results financial prospects market growth and demand for our solutions. Among other things. These statements are subject to risks uncertainties and assumptions should any of these risks or uncertainties materialize or should.

Our assumptions prove to be incorrect, our actual results could differ materially from these forward looking statements.

And we're under no obligation to update these statements these risks uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are more fully described in the documents we file with the SEC, including the annual report on Form 10-K.

On March 31, 2021 for fiscal year 'twenty, one ending January 31st 2021, and the form 10 Qs filed on June eight and September eight of 2021 for the first and second quarters, respectively of fiscal year 'twenty two.

Access to our third quarter fiscal 'twenty two results press release historical results SEC filings and a transcript of our prepared remarks and a replay of today's call can be found on the investor relations portion of our website.

For me, we will begin the call with a business update John will review the financials and then for me John and I will be available for your questions with that I'll turn it over to Dr. Fermi Wang.

Thank you Melissa and aggressive everyone.

Before proceeding we saw Q3 peaks fiscal year 'twenty to call.

Who knows on November 9th we felt an 8-K, stating that our CFO Casey Eichler, we'll be taking a leave of absence for health reasons.

We have received many of your kind of thoughts and prayers, which will have a share it was casey and his family and we wish him a speedy recovery.

Meanwhile, Chung Yang VP finance has been named interim principal financial Officer, and principal accounting Officer, Julian Casey's absence.

On October 26, our strategic transformation into a deep learning AI O T processing company took another leap forward.

We announced the acquisition of alkali a provider events algorithms for imaging radar systems.

Oxo like enable us to not only capture incremental perception business, but most importantly feed our long term strategy to provide a more comprehensive AI Iot processing asos 612 customers.

I'm also pleased to report our market and our financial momentum was strong in Q3 with revenue slightly above the high end of our range of guidance.

64% year over year.

Driven by a richer mix of CVA sold six.

Selling price continue to rise contributing to strong positive operating leverage with non-GAAP operating margins, reaching 25% of revenue versus a 5% a year ago.

Supply dynamics remain a key challenge.

I hand, we.

Starting to see.

Specced at the recovery in supply from central as wafer fab in Texas.

However, the shortages of other companies' components has become a more significant end of gating factor to our results and outlook.

Despite this our cost trends we are on track to achieve record revenue this year with the C V representing more than 25% already.

During Q3, the number of unique CV customers in production grew sequentially and quadruple versus a year ago.

Although today on a cumulative basis, we have shipped more than five median C V asos, six including more than 1 million into the automotive market.

Automotive revenue funnel, expanding a year ago, we announced a six year discounted automotive revenue was down to about $600 million and they're using the semi pathology. This figure has approximately tripled.

We will provide more details on January 4th at our capital market day.

I will now provide you with some examples of progress in our target markets.

Yeah.

During the quarter all excited to see the median.

Martin County Electric vehicle maker started customer delivery of its all one tier truck.

But our TS driver plus features 11 camera filed redox and 12 trauma ultrasonic sensors to deliver true hands free driving assistance along with a full set of safety features.

The other one tier strive club assistant utilize multiple CV to Ecu see equal automotive asos six fleets AI vision processing order.

Additionally, the all once he also use ambarella is the C V 22, Ecu <unk> automotive <unk> for each of surround view camera processing and the giga or a security system.

The <unk> design highlights the use of bras AI lesion asos is essential is automotive and computing applications. These applications represent a major new ocular tier four and bras moving forward.

And during the quarter Chinese truck makers young chi enter into mass production with an Adas system, providing lend detection and forward collision warning features the system is based on Ambarella is C. V 22, ex automotive AIA Sophie and he's supplied by tier one follow on.

In the aftermarket automotive with dash camera market Europe European make market either next space announced a pilot program with Uber for is 232 GW dash camera.

But you camera design is based on Ambarella is a tau asos C and includes a cabin view camera. They use infrared night vision technology and the wide angle hungry 40 degree angle lens to provide an extra level of security.

Both drivers and riders.

Also even with Dash camera market Korean market leader I think were introduced its <unk> 7000 in two weeks P. 5500, H D. D designs based on Ambarella is H 'twenty, two and a 12 automotive <unk>.

<unk> 7000 includes a radar support mold that helps with prerecorded video tenancy cause before impact.

Both models upward Adas features including full closure warning for vehicles Star alert and the lane departure warning.

Okay.

In the professional IP security camera market, we continue to enjoy strong revenue growth based on the worldwide market expansion and our increasing market share outside of China.

In Europe market leader Axis, a unit of Canada announced its first camera if you use ambarella see before.

The new M series cameras offer great image quality, even in challenging light conditions and take advantage of analytics based on deep learning on the H.

We're caught up in the U S.

Is simplifying the management of video security our skills through it's a hybrid cloud approach and these latest C. D 62 full pay to home security camera features intelligence H based video analytics powered by Ambarella is a C V 22 asos.

Also industrial giant Johnson controls introduced its E booster are approaching four mini boom indoor and outdoor P. D C model with <unk>.

Resolutions up to eight Megapixels and based on our C V 22 <unk> with.

With the building AI based object classification, the camera enables event to be narrow to different classes, including person car bus and the multiple cycle.

In Korea, a market leader Hawkeye Quinn introduced multiple camera models spending tome bullet patent organic and the license plate recognition designs and library and browser CV too and the C. V 22 study for <unk>.

Also in Korea I. This introduced four new camera based on our C Street phase III Soc's, replacing high silicon designs, while seafood introducing so first okay camera based on <unk>.

And in November Chinese electronics giant Xiaomi introduced a new line that multi functional smart door locks with facial recognition using ambarella is AI vision Soc the.

The smart door locks few structured light and RGB camera technology, and AI based facial recognition software for hands free access while also incorporating other unlocking my third including fingerprint recognition and the near field communication.

Well this customer engagements.

Can see the breadth of AI applications emerging ranging from LTE plus Adas in Evs with a leader like Arabian to enterprise class security cameras with an industry giant like Johnson controls.

And the door locks with sensor fusion for the smart home and the enterprise market was a major company like Xiaomi.

This transaction can be traced back to the premium growth R&D investment that we have and well continue to make into camera radar perception technologies automotive functional safety, such as asos or D and next generation AI processor.

The nano meter manufacturing process node.

All optimized specifically for Iot endpoint applications.

In fact in the last three years Ambarella invested a 59% of revenue into R&D on a GAAP basis.

Level of FOP young a maintenance level youll see at most companies.

Of course, it is not just about the quantity of R&D investment, but the quality and as you know we consider our huizhou <unk> R&D to be the best out here.

Evidence supporting this continue to Mount Oh, do we successfully leveraged our will establish a video processing leadership into the computer vision AI Iot market.

This large growth R&D investment has been focused on post processing data collected a pharma lengths of camera with algorithm first approach now.

Now we have augmented this investment with the acquisition of alkali who use a similar it was our first approach for the high definition imaging radar market.

Radar perception is an incremental market for ambarella. However, we are most excited about the synergy with alkali who should we expect to be derived from two principal areas first we expect our combined the camera and the read our R&D investment to enable breakthrough levels of perception.

And economical price point.

Ambarella is now one of the very few semiconductor companies to have advanced camera and radar technology development under one roof.

Second through our CVA associated roadmap, we are able to provide the processing power not just for the prescription processing, but we targeted incremental processing for the fusion planning and control layers in a variety of key markets.

All of this is expected to drive more value, both higher selling price and improved market shares for ambarella and.

Stakeholders.

In summary during Q3, we demonstrated.

Progress on the strategic front with the acquisition of <unk> and our CV portfolio ramp continues.

Our financial results are providing an early look at how we intend to capitalize on an entirely new phase of the digital transformation of face where deep learning is not just executing service, but in our <unk> Soc platform designed for the unique needs of the H eight Iot endpoint market.

<unk>.

And I want to thank all of our stakeholders employees suppliers partners customers and shareholders for your continuous support.

With that John will now provide our prepared financial comments.

Thank you Fermi and good afternoon, everyone.

I will review the financials for the third quarter of fiscal year 'twenty, two ending October 31.

And provide a financial outlook for our fourth quarter of fiscal year 'twenty two ending January 31 2022.

I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results.

For non-GAAP reporting we have eliminated stock based compensation expense and acquisition related costs adjusted for the impact of taxes.

Our revenue of $92 $2 million was slightly above the high end of our guidance range, representing a sequential increase of 16% from Q2.

And a 64% increase from the year ago quarter.

The previously anticipated wafer supply recovery from Samsung's Austin, Texas Fab helped sequential growth in the quarter.

<unk> and Iot camera revenue combined increased more than 10% sequentially and other revenue experienced seasonal growth.

Non-GAAP gross margin for Q3 was 63, 1% slightly above the 62, 8% in the preceding quarter and slightly above the high end of our guidance range.

The pricing environment for our products is stable our mix remained favorable and we are managing higher supply chain costs.

Non-GAAP operating expense for the third quarter was $35 $6 million compared to $36 $4 million for the previous quarter.

Our Q3 operating expense was below the low end of our guidance, primarily due to the timing of nonrecurring R&D expenses.

Other income of $408000 was higher than expected primarily due to the realization of gains on investments as they were sold to finance the acquisition of <unk>.

The non-GAAP net income for Q3 was $22 2 million or <unk> 57 per diluted share compared with non-GAAP net income of $13 1 million or <unk> 35 cents per diluted share in the second quarter.

Total head count at the end of the third quarter before the <unk> transaction closed with 824 up 8% from a year ago with about 82% of employees dedicated to engineering.

These engineers about 69% are developing software and algorithms.

Total accounts receivable at the end of Q3 were $44 8 million or 45 days of sales outstanding versus $38 3 million.

Or 44 days of sales outstanding at the end of the prior quarter.

Net inventory at the end of the third quarter was $47 million compared to $42 1 million at the end of the previous quarter.

Days of inventory increased to 118 days in Q3 from 115 days in Q2.

In Q3, our operating cash flow was a positive $8 3 million versus a positive $14 4 million in the prior quarter.

Cash and marketable securities were $457 $8 million up from $449 $2 million at the end of the second quarter.

We had 210% plus revenue customers in Q3, WT microelectronics, a fulfillment partner in Taiwan, who ships to multiple customers in Asia represented 63% of revenue.

And to Coney, a Taiwanese ODM, who manufactures for multiple customers was at 13%.

The Aqua and hike vision combined declined sequentially and represented a mid single digit portion of our total revenue.

In the professional security camera market market share shifts between some of our customers are becoming noticeable.

I'll now turn to our guidance for the fourth quarter of fiscal year 2022.

We completed the acquisition of ocular eye on November 5th and our fourth quarter guidance incorporates ocular results from operations from that point or about 12 of the 13 weeks in the quarter.

As reported by many of our customers underlying demand remains solid, but the supply side dynamics remain challenging.

In Q3, we began to experience the expected improvement in wafer supply following the shortfall from the Texas freeze.

However, shortages of other companies' components at our customers became more acute in Q3 and continues into Q4 as a result, our guidance contemplates that some of our orders may continue to be rescheduled to ship at a later date.

Based on these factors and our best judgment at the current time, we expect total revenue for the fourth quarter ending January 31, 2022 to be in the range of $88 5 million to $91 5 million revs.

Revenue from the automotive market is expected to increase sequentially with non auto Iot camera business expected to decline sequentially.

In Q4, we expect the revenue from <unk> and hike vision combined to decline to the low single digit percentage of our total revenue.

We estimate Q4, non-GAAP gross margin to be between 63% and 64%.

We are experiencing some higher costs to manage the supply chain, but a healthy customer and product mix together with a relatively stable price pricing environment are likely to enable our gross margin to continue to temporarily remain above the high end of our long term model of 59% to 62%.

Non-GAAP operating expense in Q4 is projected to be between 39 and $41 million due.

Due to higher Soc development expense increased hiring.

And the inclusion of <unk> operations.

The Q4, non-GAAP tax rate should be modeled in the 3% to 6% range.

We estimate our diluted share count for Q4 to be approximately $39 5 million shares.

Ambarella will be participating in Wells Fargo TMT Summit Tomorrow December one.

Imperial capital Security Investors conference on December 15th Needham.

Needham's growth conference on January 12, and Baird's vehicle technology and mobility conference in the last week of January.

Our capital markets day will be held on Tuesday January 4th from one P. M to four P. M at our CES hotel location in Las Vegas.

And we will be offering sell side analysts hosted tours of our demos on January 5th sixth and seventh please contact us if he would like to participate.

I'll now turn the call over to the operator for questions.

Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad once again star one to queue for a question.

And our first question is going to come from the line of Gary Mobley with Wells Fargo Securities.

Hey, guys. Thanks for Comdata need getting me in here early into Q end up wishing Casey.

A speedy recovery.

And I want to start off by <unk>.

Asking about the puts and takes is embedded in your December quarter guidance to what extent the seasonality play into it to what extent do extraneous supply chain factors factor.

Factor in here and if not for the extraneous factors that seemingly are constraining your.

Q4 guide.

Given the backlog that you have how many.

Quarter over quarter gains are sequential improvements in revenue can you see just based on your backlog support assuming all of the supply chain issues that you're dealing with now.

Work in your favor.

Right. This is affirming.

I think the seasonality is still there but hardware is reduced from the past if you look at the historical numbers in the last five years, our Q3 to Q4 on average had reduced by 11%, but we have kept our guidance much smoother and that's just reflecting that the mix of the product is changing and it's actually helping.

To reduce the magnitude of the seasonality however.

The other gating factor is really that the supply.

Supply chain issue of Allah compliment events for our customers.

We start seeing become a bigger problems. It is tough for us to size up the.

The degree of the impact to our revenue, but we do believe there is an impact to our revenue forecast. However, although the factor has been up.

Consider that when we provided 80 85 to 91 five revenue guidance.

Okay I appreciate that.

And hopefully I'm not catching you put up this question but.

Per your fourth quarter revenue guide, you're expecting roughly 49% to 50% revenue growth in fiscal year 'twenty two.

Given the increasing mix of C. D revenue, which I believe is going to be more than 25% of that fiscal year 'twenty. Two revenue can you give us a sense.

Of the unit growth versus the ISP.

The tailwind for the fiscal year.

Right. So I really think that the majority of the growth coming from the ASP and we continue to see a strong ISP growth.

We doubled our ISP in the past and we'll continue to see that the trend.

In our near future and are you. The number also grows we talk about CB <unk> total you'll see me units.

He is a fine mania accumulatively.

Since the beginning I think that's a significant number and also there including 1 million automotive silicon. So I think both sides that we see growth, but I think the ISP is a much bigger factor at this point.

I appreciate that color for me. Thank you.

And our next question is going to come from the line of Matt Ramsey with Cowen.

Hi, This is Josh buchalter on behalf of Matt. Thanks for taking my question and congrats on a strong quarter.

I was hoping we could dig into it.

Diversity and potential timeline of.

The funnel that you mentioned tripled are there any particularly large wins contributing and I realize it's early.

But is there any radar processing or ocular eye related revenue with embedded within that within that funnel.

Sure.

Yeah, Hi, Josh this is Louis.

We will go into a lot more detail on the funnel at our capital markets day in January for it but just to give you some of the high level parameters.

<unk> to be a six year funnel.

Uses the same methodology that we employed a year ago.

There is no radar in this final yet.

And.

Looking at the <unk>.

Two key elements that add up to the $1 8 billion there would be the one component which.

Which increased from 400 million a year ago to about $700 million in this current funnel.

And it's the pipeline portion of it.

It is now about $1 1 billion and the other thing that we can add to this funnel description characterizing the current funnel is that a vast majority of it.

As Cvs <unk> and.

In particular, the increase from a year ago.

The vast vast majority would be computer vision sse's.

Hopefully that gives you enough color and again will go into.

More details at the capital markets day.

Thank you for that Lewis.

That you've got the capital markets day coming up.

I was also hoping you could provide some more details about the review and when it seems like Youre doing.

More sensor.

And centralized processing than some of your other announced wins in data.

And is this the type of wins that youre looking to compete for.

Yeah.

Growing basis going forward, Thank you and congrats again.

Thank you all I, absolutely Arabian site, we talked about we have three silicones in there.

Hypotheticals in there the first type of CV to achy, where multiple <unk> in the <unk>, our anti <unk> car and the function of the <unk> <unk> is doing video perception. So that's definitely the key components that we want to shoot for in the future and you can see that the wheat definitely providing the majority of.

The perception.

In R&D car, the second type of silicon into the C V 22 Ecu.

<unk> provides the surround view as well as some security camera.

<unk> that.

R&D as I'm, a third type it was co P. Eight it's really served these pseudo hockey Sue on our chip.

Chip for the <unk> interface and those are three things that we provide to them.

<unk>.

Thanks, guys and best wishes.

Thank you. Our next question is going to come from the line of tore Svanberg with Stifel.

Yes.

Since all the solid results.

Question for you for me.

As it relates to alkali obviously, you talked about the rate of perception market being an opportunity itself, but you said longer term. Obviously this is much more about that creating a more.

More value Sse's with more integration could you elaborate a little bit on the timing of that.

When could we potentially see combined the products from the two companies in the marketplace.

Right so.

The product planning for between two integrate oculus software into our silicon.

Two steps the first step is that we are working on to integrate their software to our CV family and that's a project. We're working on we knew how to do it and we believe that that can be a product we start selling our K later next year.

And in.

The idea is that that's going to be product, we used to target for the level two adas application as well as the non automotive applications.

And of course that for old all next generation chip well have well integrated.

Our technology into our silicon and so you should assume that every silicon that we're going to announce in the future. We will have our radar technology in there.

Yeah.

It's very exciting.

As my follow up question you talked about the.

The landscape for the security camera market kind of changing a little bit could you elaborate on that.

I think you did mentioned that you know when you talked about the two Chinese customers, but.

It sounds like there's some more specific things there, especially as those two customers will be very low percentage of revenues going forward. So if you could talk a little bit more about that that'd be great right.

Right, So I think.

Following momentum point of view outside of China, We're doing very well, we talk about almost all the major kuzma outside China, using our <unk> silica and in fact most of them into production already we mentioned access we mentioned.

Jonson control and automation of our South Korean company this time.

Inside China I think the top continues.

Continuing to use our CV chip, but if you look at what's.

What's the.

Hercules and thought well announced.

Announced in the latest quarter.

I think there are two things to notice one is they all talk about a slow Chinese market because the market the government spending is reduced.

And also they have a huge amount of inventory.

We think of one company has a 150 days worth of inventory.

And so I think those two things really contribute a weak performance of hydrogen batwa, but more importantly, I really think that we continue to see that there's a.

There's still a lot of inventory sitting in the channel and I think that.

Although it's been a while but I think we haven't seen the end of a high silicon chip yet.

Great. Congrats again, thank you.

Our next question is going to come from the line of Quinn Bolton with Needham <unk> company.

Hey, guys. Congratulations on the nice results and best wishes to Casey for a speedy recovery.

Just to come back to the $1 $8 billion pipeline I know you said it doesn't include any radar, but could you give us some sense as to what you think that radar opportunity might be as you look out several years I mean, I assume that that's probably an opportunity that could bring hundreds of millions of dollars of Tam to the company.

But hoping you might be able to size that.

Yeah.

This is lewis and the radar market today.

Automotive space only.

Is maybe 99 units and the occupied technology, let's call it <unk>.

Imaging radar is just beginning to penetrate the market.

And so if you consider two parts of their business. They have a licensing business and then they have a module business.

On the licensing basis, they can realize low single digit.

License fee per unit and at the higher end of that it could be up to $15 of license fee.

Ann.

On the module side.

Our expectations for the units in that market are much lower than what we would anticipate on the software licensing side, but the asps in that market on the other hand are quite high.

And say it ranges from $200 to $2000, depending on the type of module and the application of course the volume.

So those would be some of the parameters that you would want to consider and the key question is what's the penetration rate of this <unk> technology going to be into what's already a large existing market.

Got it thanks for that Lewis.

Next question I had is just.

You talked about some of the supply constraints of other components potentially affecting <unk>.

Shipments are causing shipments of <unk> devices to pushed into future quarters. Do you think any of the demand that's affected maybe perishable or would you expect anything that sort of slipped out of the January quarter would most likely be captured in.

The April or July quarters.

Yeah. This is Fermi I think part of the business is perishable for example, all of the consumer security, which is more like US holiday season sales I think those are perishable and.

For most of the automotive design I think push out to next year. So.

And we see that.

The show supply really impacts all of the.

Customer products, including security camera and automotive, obviously automotive got bigger hit than a security camera at this point, but I.

I think that there are.

We don't see any this gating factors.

<unk> bin.

<unk> anytime soon so we definitely continue to watch the progress and hopefully we can give you more guidance for next year.

In the CMT.

Great. Thank you Fermi.

And our next question will come from Andrew Buscaglia with Bamberg.

Hey, guys. Thanks.

Thanks for taking my question.

So I can follow up on.

Hey, I just wanted to follow up on you know if you could talk a little bit more about home security.

In this quarter and into Q4 and potentially if the momentum even into 2022 I know that that that second wave of broken supposed to be pretty strong.

Yes.

To hear more about.

Some of the factors influencing that Q4 guide.

It relates to that specific market.

Yeah, So I think the consumer security camera.

We do believe that the percentage of CV revenue goes up significantly from Q3 to Q4, and we'll continue to see next year, particularly we think there are a few customer will be in production.

In the near future. So we believe the second wave over the revenue will continue.

And.

The.

The significance of that business is really that people need to.

Justify how why you don't want to use a computer vision on the server side instead of trying to use the computer vision.

<unk> I think most of our customer realize that's a neat and you're just not taking them time for them to.

Optimize the product to treat the people to a customer so but I think that that trend continues and we don't see a problem that we are going to play a major.

Major or in that market.

Okay.

Got it and your comments on.

Some of your customers, having issues I know you've kind of touched on this in the last.

Question, a bit but specifically for auto.

Do you see this influencing any of the more recent design when do you expect to see converting to revenues.

Getting early next year, just given what youre hearing and all the all the headlines and the markets.

Suggest theres, maybe some delays.

Well I think the delay is not because it shows supply is really about how much volume can go into care can be delivered.

I think that the all of our customers sure their desire to take the product into a market as quickly as possible, but I think the number of a shipment.

The market will be limited by the supply situation and that's why we're it's hard to really size. It up so from a product television production delivery point of view.

I don't see much of a delay I think the biggest concern for all of us, including I think our customer is whether they can get enough supply to meet the OLED meant that they have.

Yeah, Okay. Thank you for me.

Our next question will come from Kevin Cassidy with Rosenblatt Securities.

Yes, Thanks for taking my question and congratulations on the great results.

For me it gave us a lot of information a lot of good updates one thing I just wanted to know if you have an update on the CV five progress.

Yes.

Thank you for the question.

Well, we didn't talk about <unk> at this time on the script, but I think first of all <unk> has been successfully simple too many many customer security camera automotive as well as some of the calls for their consumer products and both hardware and software simple has happened and I believe that CV firewall being put up.

<unk> second half of next year.

Okay, great and along with that you had mentioned the.

Three and four four and three nanometer.

R&D are happening now.

Can we expect something like that to happen is that two years out three years, yes, well I think we are focusing more on the three nanometer let at this point because three nanometer as a.

Central clean nanometer is the auto grade and Thats, where we focus on.

And the timing of what we using three nanometer is really depends on how fast the central can be matured and we definitely plan to kick off a test chip sometime next year to pass all of Ips and.

Engineering de Levered.

Element, but the products it really depends on how fast that we can get good yield out of screen nanometers, but during the meantime.

We're going to we're very confident and comfortable with the Central fact, five nanometer now and then we're going to see continue to see multiple project going through a central final winter next year.

Okay, great. Thank you.

Our next question will come from C. J D Silva with Roth capital.

Hi, everybody so.

You talked about supply chain shortages impacting your customers components did you specifically specify which end markets were being impacted or was it broadly across the end markets.

It's across the board in fact every customer we talk to.

They've got a different type of impact song wasn't just little but for almost all of our automotive customers are talking about different type of supply shortage microcontroller is probably the biggest one.

On the on the consumer security camera, even put most of the consumer security camera Wifi supply is a big big problem and so I think that is really causing poor at different levels.

Okay. Thanks for clarifying that and then I know you talked about you reaffirmed the 25% CV revenue contribution in 'twenty two I don't recall it in the past you've talked about where you think that might go next year 'twenty three or thereafter any color there would be helpful. Yes.

Yeah, we haven't addressed next.

Next year, yet, but I definitely think we.

We need to give you more guidance at the CMT time.

Okay. I look forward that same day I didn't provide some of that and then lastly, the follow up on <unk> you talked about the wins in the car has five cameras and 10 radars and I'm just curious if that's the kind of.

Proportion or maybe I got backwards 10 cameras and five radar and the proportion of that is consistent what you're going to see going forward and also with the chips you've sold the multiple chips are you know, causing other AI chips in the car to be <unk> spectra, perhaps replaced by this I'm trying to stand up our new and perhaps forward looking.

Design revenues.

So first of all yes, I think the ratio sounds right because first of all the radar five position for radar is really the one front in the four corners for radar and some of them stopped using a great internal perception also but that's a unique opportunity.

For camera wet processing customer going anywhere between 10 to 15 16 type of cameras in moving forward.

I think that ratio is probably stay there.

However from our point of view you can see that we're handling.

Quite a few cameras with only.

Truth.

I will say three combined CB towards senior 22 chips.

Moving forward I think that will be unified.

Domain controllers type of chip. So I definitely think this is the first generation.

Not working was Arabian I will say three years ago and it took three years to completion point and we do believe that the move.

Moving forward you will see a less much less number of digital single processing chip, but it's much more powerful to handle all of cameras and radars.

Okay. Thanks for the color.

And our next question will come from the line of Joe Moore with Morgan Stanley.

Great. Thank you I Wonder if you could talk about your progress in <unk>.

In passenger cars.

In the U S or even in the West and also in China do you see the biggest successes there coming from replacing.

The incumbent with single camera forward facing or would you anticipate that you get it it's things like radar or stereo vision that kind of.

The new technology shifts that brings ambarella into those win those sockets.

I think the biggest near term opportunity is to replace the incumbent.

For facing Adas market, because our current CB two functional safety chip is it suitable for that and now we can integrate radar solution into see me to functional safety chip and provide.

Combined the sensor fusion I'll, let chip become even more powerful solution for our customer. So I really think for the near term. This is the biggest opportunity for us. However that I think you can based on the really and you can see that similar type of things that can be using the consumer vehicle, but I think for the high volume of calls from a vehicle you would require.

Much more integrated solution in terms of number of chips and are doing a video on the radar integrate into a single domain controller I think thats, probably IPO will fill it out for us.

Okay, and if I could just ask a follow up I mean, it seems like the case for stereo vision is pretty compelling you guys have been talking about it for a number of years.

And it seems like with the type of density and frame rate that you guys can pick up that you can do really good.

<unk> triangulation at speed.

What is the barrier is it just price is it just sort of time for your customers does this development.

What is it that kind of gets you into those wins longer term.

So first of all I think the stereo.

Stereo is really trying to.

Providing a different type of.

Uh huh.

Sensor modality against Lidar in the level four level three level four cars and in a level two when you're talking about smaller smaller number of cameras. The price is really become a sensitive so I think.

Most of the people who are evaluating adopting.

The stereo processing is really on the pick up they want to have.

Multiple sensors sensor to do.

You are providing that information so I think that's definitely the limit the number of applications.

<unk>.

Stereo processing, but however, I still believe this is a very powerful tool for us in fact, we do have.

Projects that we take.

Taking that into production and also that the weak in the near future. We can talk about more design wins that we have with you just take a little longer time.

Great. Thank you and congratulations on the funnel.

Thank you.

Thank you. Our next question is going to come from the line of David O'connor with BNP Paribas.

Great. Good afternoon, gentlemen, and thanks for taking my question maybe for me a couple on my side on the ocular.

<unk> and <unk>.

Firstly can you talk a small bit of our own positioning of ocular radar from the processing perspective versus he existed the existing radar processing guys, where do you see the microcontroller sitting behind the sensor.

And also then on the when you integrate them into the C V chip what type of gross margin upside are we kind of looking at there given the sulfur component to that.

And lastly, inoculate them do you plan to maintain the module business. There initially I'm just trying to understand the dis synergy there having that module business with the existing chip business and maybe one final one for John.

I'm not sure I joined the call a bit late so but did you quantify how much revenue you're leaving on the table. Given these are supply constrained. Thank you.

No.

First of all.

On the radar side, we do plan to continue with the module business because first of all it is.

Very well integrated product easy for any of our customers who want to evaluate all technology.

So that we can easily given module so they can understand how the akamai.

If it works and Trudeau evaluation, but more importantly, there are some small volume customers. So they probably will adopt our module and getting into mass production. So we do plan to continue to our module business.

Pharma.

Difference the differentiation between ocular and their competitors I think it really is for US is help with some company and <unk> unique AI algorithm.

What they do is they try to generate as we call intelligent transmit waveforms and that adapt based on the environment.

And then after that those away from gas send out and I'm only receiving side when we receiving those return signals we process moves inflammation close time, so that we can improve the resolution. So it's really about the signal processing algorithm Oculate DVT.

Delivered in the last several years.

Right.

Well.

Significantly improve the gradual evolution, both on the angular or or or horizontal but more importantly also on with that.

<unk>, So I think it's.

Very few company out there already not company LDR is focusing algorithms that you'll see a lot of company focusing on just full stop on the highway side pushed out with their transmitter number over transmitter and receiver. So that they can trust me that are more similar and talk with you all.

So it means a lot more expensive demanded a lot of the power consumption. So I think akshay I definitely have a unique approach to solve this resolution problem, which is important for radar.

David You also had a question in there about gross margins in the <unk> business and the reason, we're not ready and prepared to give guidance on that as you're correct. The licensing side of the story.

Would carry gross margins that are better than our long term model. However, when you start layering in the module business that can bring it back into our long term model and so until we understand that mix a little bit better.

I think it's appropriate to think of this blended as being in our long term model of 59% to 62%.

And then David just finally on your last question. The short answer is no we didn't quantify.

Q3 loss revenue.

As a result of the supply chain constraints.

Understood very helpful. Thank you.

And our next question.

Come from the line of Christian <unk> with Baird.

Hi, This is Tyler bomber on for Tristan. Thanks for taking my questions. First are you seeing a demand slowdown in China and is that possibly going to extend from consumer weakness into infrastructure spending there and then also do you how do you see automotive demand trends in China currently.

I think both for China I think.

In China, our focus is really on the security camera side is really professional security camera.

Work on the consumer security camera inside China.

For the professional security camera, we talk about how do we get.

A few more of the company that will start using our our CV solution.

So it's more of the.

Professional side of business on the automotive side I think is the.

The number of units.

I did see people kind of forecast will next year's I think China also on the forecast for China Chinese automotive market also reduce in terms of total numbers, but however, the trend of that more people will start using our computer vision.

For the advanced Adas solutions are increasing so I think that's kind of a washout in my opinion and we continue to.

Secure design wins in the Chinese automotive business focus on.

The EMS and the Adas like we announced today with Shaanxi <unk> application for the commercial vehicle, but I definitely think that we work hard to try to make penetrate.

Penetrate a customer vehicle as well.

Now with two plus applications.

Great and then for my follow up.

In China, our the surveillance camera Oems the professional lines.

Driven by government orders are they from the private sector.

I think both about however majority over there.

For example, hydrogen thought why has it been talk about a lot over their projects coming from government.

Some of them in projects and that's also the reason they show a weak Q4 guidance, because I think government spending reduced.

Q4, so I think that definitely.

The main reason that heidrick is doing very well in the last I would say 10 years is really about government treatment driving the whole security camera market in China.

Awesome. Thanks, so much.

Our next question will come from the line of Martin Yang with Oppenheimer.

Hi, Good afternoon. Thanks for taking my question My question is on <unk>.

<unk> is getting first ponca with CV design wins.

If I remember correctly, followed with the first program for three products coming out of <unk>.

With Cvs.

So now that those two major IP camera security are adopting <unk> do you see we reach a potential milestone where we see a much higher adoption of potential shipments at C. D.

In the professional security camera market.

The European market.

I think from the adoption point of view.

If you look at it from a company point of view of the coverage was very well for us, but however, if you look at the products. They use C. V. For now majority of them are still in the higher end side. So the it's.

It's really a high end product and converting CV first and we I believe that the biggest opportunity revenue come up totally for US moving forward is we're all customer gradually moving downward and putting more and more CV solution to the low end. So the products that we will start seeing more unit number.

To the.

Our revenue mix, but I think that.

Because we provide.

Very compatible Sdk's became a hot low end to high end CV chip, so anybody who does atlassian for they want to see me Pago. They can easily cover the product to a different type of product a different performance of price point. So I do hope that in a near future we're going to start seeing more product coming from all of those company.

Using our <unk> solutions.

Got it.

Follow up to that I think comparing to Motorola Hanwha Tech wind those two customers seems to have adopted CV professional security camera products much earlier.

Then the European.

Guys. So.

Is there any way you can tell from me.

Product design.

The way they are.

Early adopters are using CV chip, where you see kind of extrapolate the speed.

The migration from CV chip to the warhead and security camera products yeah.

Yeah, I think you are right. So for example, if you look at Motorola scrip.

The quarterly announcements they do.

Expanding our CV solution to many different part of their lives, which is faster than all the company that we're seeing so I think what all I would say definitely the most aggressive one trying to adopt our CV on the high end and quietly moving down to different part of lilac even for the <unk>.

Wearable device for security guards, but those kind of application is start using our CV chip too. So I think our motorized most aggressive about hybrid I do believe most of the company all their will follow because for.

For them to continue to compete in the market they need to have a similar offering for the.

So we're competing with all the companies.

Makes sense. Thank you for me.

Yes.

Thank you and our next question is going to come from the line of Derek <unk> with <unk> Securities.

Hey, guys.

So another question on this.

Curious what youre hearing from your customers, maybe it's customer specific.

But are any of them, giving you sort of a timeline for when they expect their customers or other customers were returned to normal.

There has been.

Sort of a decent amount of reporting around the auto chip shortage.

Just curious if.

Youre hearing anything like has anything gotten worse in recent months.

Color on that would be great.

You know I tried to talk to a lot of people in the industry to under center situation. The consistent message that I heard is that.

They don't expect the situation will improve until second quarter or maybe even third quarter next year the past.

However, we do start seeing signs that things changing a little bit we do see that some component catch up even yesterday I see some games about microcontroller situations in automotive improved so I do hope that the situation is not as bad as.

Everybody is thinking that the Q2 Q3, we'll see.

We will have to wait until Q2 Q3 next year to see some improvement but.

At this point the consensus, but I applaud the people I talk to is that.

This is continuing its going to be a problem for next few quarters.

Yeah.

Great. That's all for me thanks, guys.

Okay.

And with that I see no further questions I would like to turn the call to Dr. Fermi Wang for closing comments.

Thank you and we are excited to be coming to Las Vegas in January.

Host, both our capital market day, and the CES event and it will be demonstrating a wide range of automotive security access control and robotics technologies and offer right now.

Thomas vehicles, and also provide our first demonstration of actualized radar software. So we really hope that we can see all of you there in person and thank you for your attention today Goodbye I will talk to you next time.

Once again, we'd like to thank you for participating on today's conference call you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the Ambarella third quarter fiscal year 2022 earnings Conference call.

At this time all participant lines are in a listen only mode.

The speaker's presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone.

Please be advised today's conference is being recorded if you should require operator assistance press Star then zero.

Pleasure to hand, today's conference over to Louis care Hardy Corporate development. Please go ahead Sir.

Thank you Holly.

Good afternoon, and thank you for joining our third quarter fiscal year 2022 financial results conference call for the three months ending October 31st 2021 with me on the call today is Dr. Fermi, Wang President and CEO and John Young VP of finance.

The primary purpose of today's call is to provide you with information regarding the results for the third quarter of our fiscal 'twenty two.

Discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results.

Cancel prospects market growth and demand for our solutions. Among other things. These statements are subject to risks uncertainties and assumptions should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect. Our actual results could differ materially from these forward looking statements.

And we're under no obligation to update these statements these risks uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are more fully described in the documents we file with the SEC, including the annual report on Form 10-K filed on March 31.

2021 for fiscal year 'twenty, one ending January 31st 2021, and the form 10 Qs filed on June eight and September eight of 2021 for the first and second quarters, respectively of fiscal year 'twenty two.

Access to our third quarter fiscal 'twenty two results press release historical results SEC filings and a transcript of our prepared remarks and a replay of today's call can be found on the investor relations portion of our website.

For me, we will begin the call with a business update John will review the financials and then for me John and I will be available for your questions with that I'll turn it over to Dr. Fermi Wang.

Thank you Louis and aggressive everyone.

Before proceeding with our Q3 fiscal year 'twenty to call out.

Who knows on November 9th we filed an 8-K, stating that our CFO Casey Eichler, we'll be taking a leave of absence for health reasons.

We have received many of your kind thoughts and prayers, which would have a shared was Casey and his family and we wish him a speedy recovery.

While Chung Yang VP finance has been named interim principal financial Officer, and principal accounting Officer, Julian Casey's absence.

On October 26, our strategic transformation into a deep learning AI Ot processing company.

Leap forward, when we announced the acquisition of <unk> a provider of events algorithms for imaging radar systems.

Also like enable us to not only capture incremental perception business, but most importantly feed our long term strategy to provide a more comprehensive AI ot processing Soc to our customers.

I'm also pleased to report our <unk>.

Market and our financial momentum was strong in Q3 with revenue slightly above the high end range of guidance and up 64% year over year.

Driven by a richer mix of CVA saucisse are averaging selling price continue to rise contributing to strong positive operating leverage with non-GAAP operating margins, reaching 25% of our revenue versus a 5% a year ago.

Supply dynamics remain a key challenge on one hand, we are.

I started to see a <unk>.

Specced at the recovery in supply for stem cells wafer fab in Texas.

However, the shortages of other companies' components has become a more significant indicating a factor to our results and outlook.

Despite this our cost trends.

Are on track to achieve record revenue this year with the C V representing more than 25% of our revenue.

During Q3, the number of unique CV customers in production grew sequentially and quadruple versus a year ago.

Although today on a cumulative basis, we have shipped more than 5 million CVA saucisse, including more than 1 million into the automotive market.

Automotive revenue funnel, extending a year ago, we announced a six year discounted automotive revenue.

About $600 million and they're using the semi pathology. This figure has approximately tripled.

We will provide more details on January 4th at our capital market day.

I will now provide you with some examples of progress in our target markets.

During the quarter, we excited to see the median.

American electric vehicle maker started customer delivery of its <unk> truck.

The our TS driver plus features 11 camera fiery dos and 12 Alpha.

Alpha Sonic sensors to deliver true hands free driving assistance, along with a full set of safety features.

The <unk> strike clause assistant utilize multiple CV to Ecu CB flow automotive asos 640 to AI vision processing.

Additionally, the hour and she also use ambarella is the C. V 22, Ecu <unk> automotive Soc for its a surround view camera processing and are geared to our security system.

The Libyan design highlights the use and broth AI lesion asos. These essential is automotive and computing applications. These applications represent a major new opportunity for ambarella is moving forward.

And during the quarter Chinese truck makers young sheet enter into mass production with an Adas system, providing lane detection and forward collision warning features the system is based on Ambarella is C. V 22, ex automotive Aia's Oc and the supplied by tier one follow on.

In the aftermarket automotive dash camera market Europe European make market either next space announced a pilot program with Uber for is 232 GW dash camera.

But you camera design is based on <unk> <unk>.

And includes a cabin view camera they use infrared night vision technology and the wide angle hundred 40 degree angle lens to provide an extra level of security for Uber drivers and riders.

Also on the Dash camera market Korean market leader I think were introduced as of Q, <unk> 7000, and <unk> 5500, H D. D designs based on Ambarella is 892 and <unk> automotive <unk>.

<unk> 7000 includes a radar support mode that helps with pre recorded video of 10 seconds before impact.

Both models offer Adas features including full collision warning for vehicles Star alert and lane departure warning.

Okay.

In the professional IP security camera market, we continue to enjoy strong revenue growth based on the worldwide market expansion and our increasing market share outside of China.

In Europe molecule, either axis, a unit of canon announced its first camera ought to use ambarella <unk> Soc.

The new M series cameras offer great image quality, even in challenging light conditions and take advantage of our analytics based on deep learning on the age.

Ricardo based in U S.

He is simplifying the management of video security our skills through it's a hybrid cloud approach and these latest CD 62 full <unk> security camera features intelligent H base video analytics powered by Ambarella <unk> Soc.

Also industrial giant Johnson controls introduced its it loose draw approaching four mini boom indoor and outdoor P. D Z model with resolutions up to eight megapixels and based on our <unk> Soc.

With the building AI based object classification, the camera enables events to be narrow to different classes, including person car bus and the motorcycle.

In Korea, a market leader, how opex when introduced multiple camera models spending tome bullet panoramic and the license plate recognition designs and library and broader <unk> and the <unk>.

Also in Korea I. This introduced a full new camera based on our CB Street Ace III L Soc's, replacing high silicon designs, while central introducing the first <unk> camera based on our <unk> 2000 <unk>.

And in November Chinese electronics giant Xiaomi introduced a new line that multi functional smart door locks with facial recognition using ambarella is AI vision Soc.

The smart door locks few structural light and RGB camera technology, and AI based facial recognition software for hands free access while also incorporating other unlocking method, including fingerprint recognition in the near field communication.

From this customer engagements you can see the breadth of AI applications emerging.

<unk> from L T plus Adas in Evs with a leader like Arabian to enterprise class security cameras with an industry giant like Johnson controls and the door locks with sensor fusion for the smart home and the enterprise market was a major company like Xiaomi.

This transaction can be traced back to the premium growth R&D investment that we have and well continue to make into camera radar perception technologies automotive functional safety, such as <unk> and next generation AI processor on three nano meter manufacturing process node.

All optimized specifically for Iot endpoint applications.

In fact in the last three years Ambarella invested a 59% of revenue into R&D on a GAAP basis.

<unk> young a maintenance level youll see at most companies.

Of course, it is not just about the quantity of R&D investment, but the quality and as you know we consider our huizhou AI R&D to be the best out there.

Evidence supporting this continue to Mount as we successfully leverage our well established video processing leadership into the computer vision AI Iot market.

This large growth R&D investment has been focused on plus processing data collected a pharma lenzo camera with algorithm first approach now.

Now we have augmented this investment with the acquisition of alkali who use a similar error was our first approach for the high definition imaging radar market.

Radar perception is an incremental market for ambarella. However, we are most excited about the synergy with <unk>, who should we expect to be derived from two principal areas first we expect our combined the camera and the radar R&D investment to enable breakthrough levels of perception.

And economical price point.

Ambarella is now one of the very few semiconductor companies to have advanced camera and radar technology development under one roof.

Second through our CVA associated roadmap, we are able to provide in processing power not just for the perception processing, but we targeted incremental processing for the fusion planning and control layers in a variety of Iot markets.

All of this is expected to drive more value, both higher selling prices and improved market shares for ambarella and.

Stakeholders.

In summary during Q3, we demonstrated.

Progress on the strategic fronts with the acquisition of <unk> and our CV portfolio ramp continues.

Our financial results are providing an early look at how we intend to capitalize on an entirely new phase of the digital transformation phase where deep learning is not just executed in service, but in our <unk> Soc platform designed for the unique needs of the H AI Iot endpoint market.

<unk>.

And I want to thank all of our stakeholders employees suppliers partners customers and shareholders for your continued support with that John will now provide our prepared financial comments.

Thank you Fermi and good afternoon, everyone.

I will review the financials for the third quarter of fiscal year 'twenty, two ending October 31.

And provide our financial outlook for our fourth quarter of fiscal year 'twenty two ending January 31 2022.

I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results.

For non-GAAP reporting we have eliminated stock based compensation expense and acquisition related costs adjusted for the impact of taxes.

Our revenue of $92 $2 million and slightly above the high end of our guidance range, representing a sequential increase of 16% from Q2.

And a 64% increase from the year ago quarter.

Previously anticipated wafer supply recovery from Samsung's Austin, Texas Fab helped sequential growth in the quarter.

Automotive in AI, and Iot camera revenues combined increased more than 10% sequentially and other revenue experienced seasonal growth.

Non-GAAP gross margin for Q3 was 63, 1% slightly above the 62, 8% in the preceding quarter and slightly above the high end of our guidance range.

The pricing environment for our products is stable our mix remained favorable and we are managing higher supply chain costs.

Non-GAAP operating expense for the third quarter was $35 $6 million compared to $36 $4 million for the previous quarter.

Our Q3 operating expense was below the low end of our guidance, primarily due to the timing of nonrecurring R&D expenses.

Other income of $480000 was higher than expected primarily due to the realization of gains on investments as they were sold to finance the acquisition of <unk>.

The non-GAAP net income for Q3 was $22 2 million or <unk> 57 per diluted share compared with non-GAAP net income of $13 1 million or <unk> 35 per diluted share in the second quarter.

Total head count at the end of the third quarter before the <unk> transaction closed with 824 up 8% from a year ago with about 82% of employees dedicated to engineering.

Of these engineers about 69% are developing software and algorithms.

Total accounts receivable at the end of Q3 were $44 8 million or 45 days of sales outstanding versus $38 3 million or <unk> 44 days of sales outstanding at the end of the prior quarter.

Net inventory at the end of the third quarter was $47 million compared to $42 1 million at the end of the previous quarter.

Days of inventory increased to 118 days in Q3 from 115 days in Q2.

In Q3, our operating cash flow was a positive $8 3 million versus a positive $14 4 million in the prior quarter.

Cash and marketable securities were $457 8 million up from $449 2 million at the end of the second quarter.

We had 210% plus revenue customers in Q3, WT microelectronics, a fulfillment partner in Taiwan, who ships to multiple customers in Asia represented 63% of revenue and Ciccone, a Taiwanese ODM, who manufactures for multiple customers was at 13%.

Aha and hike vision combined declined sequentially and represented a mid single digit portion of our total revenue.

In the professional security camera market.

Market share shifts between some of our customers are becoming noticeable.

I will now turn to our guidance for the fourth quarter of fiscal year 2022.

We completed the acquisition of <unk> on November 5th and our fourth quarter guidance incorporates <unk> results from operations from that point or about 12 of the 13 weeks in the quarter.

As reported by many of our customers underlying demand remains solid, but the supply side dynamics remain challenging.

In Q3, we began to experience the expected improvement in wafer supply following the shortfall from the Texas freeze however shortages of other companies' components that our customers became more acute in Q3 and continues into Q4 as a result, our guidance contemplates that some of our orders may continue to be rescheduled to ship at a later date.

Based on these factors and our best judgment at the current time, we expect total revenue for the fourth quarter ending January 31, 2022 to be in the range of $88 5 million to $91 5 million.

Revenue from the automotive market is expected to increase sequentially with non auto Iot camera business expected to decline sequentially.

In Q4, we expect the revenue from <unk> and hike vision combined to decline to the low single digit percentage of our total revenue.

We estimate Q4, non-GAAP gross margin to be between 63% and 64%.

We are experiencing some higher costs to manage the supply chain, but a healthy customer and product mix together with a relatively stable price pricing environment are likely to enable our gross margin to continue to temporarily remain above the high end of our long term model of 59% to 62%.

Non-GAAP operating expense in Q4 is projected to be between 39 and $41 million due to higher Soc development expense increased hiring and the inclusion of <unk> operations.

For Q4, non-GAAP tax rate should be modeled in the 3% to 6% range.

We estimate our diluted share count for Q4 to be approximately $39 5 million shares.

Ambarella will be participating in Wells Fargo TMT Summit Tomorrow December one.

Imperial capital Security Investors conference on December 15th.

Needham's growth conference on January 12, and Baird's vehicle technology and mobility conference in the last week of January.

Our capital markets day will be held on Tuesday January 4th from one PM to four P. M at our CES hotel location in Las Vegas.

And we will be offering sell side analysts hosted tours of our demos on January 5th sixth and seventh please contact us if you would like to participate.

I will now turn the call over to the operator for questions.

Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad once again star one to queue for a question.

And our first question is going to come from the line of Gary Mobley with Wells Fargo Securities.

Hey, guys. Thanks for accommodating fitting me in here early into Q end up wishing Casey.

Speedy recovery.

And I want to start out by <unk>.

Asking about the puts and takes is embedded in your December quarter guidance to what extent the seasonality play into it to what extent do extraneous supply chain factors factor.

Factor in here and if not for the extraneous factors that seemingly are constraining your Q.

Q4 guide.

Given the backlog that you have how many.

Quarter over quarter gains are sequential improvements in revenue can you see just based on your backlog support assuming all of the supply chain issues that you are dealing with now.

Work in your favor.

Right. This is affirming.

I think the seasonality is still there the hardware is reduced from the past if you look at the historical numbers in the last five years.

Q3 to Q4 on average reduced by 11%, while we have kept our guidance much smoother than that reflecting that the mix of the product is changing and that's definitely helping to reduce the magnitude of the seasonality. However, the the other gating factor is really that the.

So supply chain issue of Allah compliment events for our customers, which we start seeing become a bigger problems.

Half was to size up the.

The degree of the impact to our revenue, but we do believe there is an impact to our revenue forecast. However, although the factor has been up.

Consider that when we provide this 88, 5% to 91, 5% revenue guidance.

Okay I appreciate that.

And hopefully I am not catching your flat footed with this question but.

Per your fourth quarter revenue guide Youre expecting roughly 49%, 50% revenue growth in fiscal year 'twenty two.

Given the increasing mix of CV revenue, which I believe is going to be more than 25% of that fiscal year 'twenty. Two revenue can you give us a sense.

Of the unit growth versus the ISP.

The tailwind for the fiscal year.

Right. So I really think that the majority of the growth coming from the Asps and we continue to see a strong ASP growth.

We doubled our asps in the past and we'll continue to see that the trend.

In our near future and a unit number also growth we talk about CV CV total unit Simi units.

Is a fine mania accumulatively.

Since the beginning I think thats, a significant number and also there, including 1 million automotive silicon. So I think both sides that we see growth, but I think the ASP is a much bigger factor at this point.

I appreciate that color for me. Thank you.

And our next question is going to come from the line of Matt Ramsey with Cowen.

Hi, This is Josh buchalter on behalf of Matt. Thanks for taking my question and congrats on a strong quarter.

I was hoping I could dig into it.

Diversity and potential timeline of.

The funnel that you mentioned tripled are there any particularly large wins contributing and I realize it's early.

But is there any radar processing or ocular related revenue with embedded within that within that funnel.

Yeah, Hi, Josh this is Louis.

We will go into a lot more detail on the funnel.

At our capital markets day in January for it, but just to give you some of the high level parameters.

It continues to be a six year funnel.

It uses the same methodology that we employed a year ago.

There is no radar in this final yet.

And.

Looking at.

The two key elements that add up to the $1 8 billion there would be the one component.

Which increased from 400 million a year ago to about $700 million in this current funnel.

The pipeline portion of it.

<unk> is now about $1 1 billion.

And the other thing that we can add to this funnel description characterizing the current funnel is that a vast majority of it.

Cvs <unk> and <unk>.

In particular, the increase from a year ago.

The vast vast majority would be computer vision ssds.

Hopefully that gives you enough color and again, we'll go into.

More details at the capital markets day.

Thank you for that I appreciate that you've got the capital markets day coming up.

I was also hoping you could provide some more details about the review and when it seems like Youre doing.

More sensor.

And centralized processing than some of your other announcements.

Okay and is this the type of wins that youre looking to compete for.

Growing basis going forward, Thank you and congrats again.

Thank you all I, absolutely Arabian side, we talked about we have three silicones in there.

Type of Silicon seeing there the first type C V two acre where multiple <unk> in the <unk>, our anti <unk> car and the function of the CV to Aq is doing video perception. So that's definitely the key components that we want to shoot for in the future and you can see that we definitely providing the majority of.

The perception.

In R&D car, the second type of silicone <unk>.

<unk> provides.

Surround view as well as some security camera.

<unk> that.

R&D as I'm, a third type it was.

<unk> is really serve these serial T zero, our chip for the <unk> interface and those are three things that we provide to the Orange County.

Thanks, guys and best wishes.

Thank you. Our next question is going to come from the line of tore Svanberg with Stifel.

Yes.

Congratulations on the solid results.

First question for you for me.

It relates to <unk>, obviously, you talked about the radar perception market being an opportunity itself, but you said longer term. Obviously this is much more about creating a.

More value Sse's with more integration could you elaborate a little bit on the timing of that.

When could we potentially see combined the products from the two companies in the marketplace.

Right so.

The product planning for between two integrate ocular sulfur into our silicon come two steps. The first step is that we are working on to integrate our software to our CV family and that's a project. We're working on we knew how to do it and we believe that that can be a product we start selling.

I will say later next year.

And the idea is that that's going to be a product we used to target for the level two adas application as well as the non automotive applications.

And of course that for old all next generation chip will have while integrated.

Radar technology into our silicon and so you should assume that every silicon that we're going to announce in the future. We will have our radar technology in there.

That's very exciting.

As my follow up question you talked about the.

The landscape for the security camera market kind of changing a little bit could you elaborate on that.

I think you did mention that when you talked about the two Chinese customers, but.

<unk>.

It sounds like Theres, some more specific things there, especially as those two customers will be very low percentage of revenues going forward. So if you could talk a little bit more about that that'd be great.

Right, So I think.

Following momentum point of view outside of China, We're doing very well, we talk about almost all the major Cosmo outside China, using our CV silica and in fact most of them into production already mentioned access we mentioned.

Jonson control and automation, a south Korean company this time.

Inside China, I think that that continues.

Continue to use our CV chip, but if you look at.

<unk> announced in the latest quarter.

I think there are two things to note is why is that.

I'll talk about a slow Chinese market because the market. The government spending is reduced and also they have a huge amount of inventory. We think of one company has a 150 days worth of inventory.

And so I think those two things really contribute a weak performance of hydrogen to outwork, but more importantly, I really think that we continue to see that Oh.

There's still a lot of our highest week of inventory sitting in the channel and I think that.

Although it's been a while but I think.

We haven't seen the end of a high silicon chip yet.

Great. Congrats again, thank you.

Our next question is going to come from the line of Quinn Bolton with Needham <unk> company.

Hey, guys. Congratulations on the nice results and best wishes to Casey for a speedy recovery I'm wondering just to come back to the $1 8 billion pipeline. I know you said it doesn't include any radar, but could you give us some sense as to what you think that radar opportunity might be as you look out several years I mean I assume.

That's probably an opportunity that could bring hundreds of millions of dollars of Tam to the company, but but hoping you might be able to size that.

Yes.

This is lewis and the radar market today.

In the automotive space only.

Is maybe 99 units.

And the <unk> technology, let's call it <unk>.

Imaging radar is just beginning to penetrate the market.

And so if you consider two parts of their business. They have a licensing business and then they have a module business and on the licensing basis. They can realize low single digit life.

License fee per unit and at the higher end of that it could be up to $15 of license fee.

And on the module side.

Our expectations for the units in that market are much lower than what we would anticipate on the software licensing side, but the asps in that market on the other hand are quite high.

And say it ranges from $200 to $2000, depending on the type of module and the application of course the volume.

So those would be some of the parameters that you would want to consider and the key question is what's the penetration rate of this <unk> technology is going to be into what's already a large existing market.

Got it thanks for that Lewis.

Next question I had is just keep your talks about some of the supply constraints of other components potentially affecting <unk>.

Shipments are causing shipments of <unk> devices to push into future quarters. Do you think any of the demand that's affected may be perishable or would you expect.

Or anything that sort of slipped out of the January quarter would most likely be captured in.

The April or July quarters.

Yeah. This is Fermi I think part of the business is perishable for example, all of the consumer security, which is more like US holiday season sales I think those are perishable and I think for most of the automotive design I think push out to next year. So.

And we see that the.

The show supply really impacts all of the cost.

Customer products, including security camera and automotive, obviously automotive got bigger hit than the security camera at this point, but I.

I think that we.

We don't see any this gating factors.

<unk>.

Reduce anytime soon so we definitely continue to watch the progress and hopefully we can give you more guidance for next year, when we talk to EMA CMT.

Great. Thank you Fermi.

Sure.

And our next question will come from Andrew Buscaglia with Bamberg.

Hey, guys.

Thanks for taking my question.

So Angela on Hey.

Hey, I just wanted to follow up on.

Could you talk a little bit more about home security.

In this quarter and into Q4 and potentially if the momentum.

Even into 2022, I know that that that second wave of brokers are supposed to be pretty strong.

I'd like to hear more about.

Some of the factors influencing that Q4 guide as it relates to that specific market.

Yeah, So I think the consumer security camera.

We do believe that the percentage of CV revenue goes up significantly from Q3 to Q4 and you'll continue to see next year, particularly we think there are a few customer will be in production.

In the near future. So we believe the second wave of revenue will continue.

And.

The.

The significance of that that business is really that people need to.

Justify how why you don't want to use a computer vision on a server cycle instead of trying to use the computer vision.

H side I think most of our customer realize that's a neat and you're just not taking them time for them to optum.

Optimizing the product to deliver to our customer so, but I think that that trend continues and we don't see a problem that we are going to play a major.

Major or in that market.

Got it.

And your comments on.

Some of your customers, having issues I know you've kind of touched on this in the last.

Question, a bit but specifically for auto.

Do you see this influencing any of the more recent design when do you expect to see converting to revenues.

Again early next year, just given what Youre hearing all the all the headlines and the markets.

Suggest theres, maybe some delays.

Well I think the delay is not because of show supply is really about how much volume can can go into can be delivered.

I think that the all of our customers Shaw with their desire to take the product into a market as quickly as possible, but I think the number of a shipment.

The market will be limited by the supply situation and that's why we're it's hard to really size. It up so from a product television production and delivery point of view.

I don't see much of a delay I think the biggest concern for all of us, including I think our customer is whether they can get enough supply to meet the OLED minutes they have.

Yeah, Okay. Thank you for me.

Our next question will come from Kevin Cassidy with Rosenblatt Securities.

Yes, Thanks for taking my question and congratulations on the great results.

For me it gave us a lot of information a lot of good updates one thing I just wanted to know if you have an update on the CV five progress.

Yes.

Thank you for the question.

Well, we didn't talk about <unk> at this time on the script, but I think that first of all <unk> has been successfully simple too many many customer security camera automotive and as well as some of the consumer consumer products and both hardware and software assemble has happened and I believe that CV firewall being put up.

<unk> second half of next year.

Okay, great and along with that you had mentioned the three and four four and three nanometer.

R&D happening now.

What can we expect something like that to happen is that for two years out three years, yeah, well I think we are focusing more on the three nanometer let at this point because.

<unk> nanometer is.

Central separately nanometer is the auto grade and Thats, where we focus on and the <unk>.

Timing of what we using three nanometer is really depends on how how fast the central can be matured and we definitely plan to kick off a test chip sometime next year to pass all of Ips and.

And engineering.

Development by the products it really depends on how fast that we can get good yield out of three nanometers, but in the meantime.

We are very confident and comfortable with the Central fact, five nanometer now and are we going to see continue to see multiple project going to a central final winter next year.

Okay, great. Thank you.

Our next question will come from <unk> <unk> with Roth capital.

Hi, everybody so.

You talked about supply chain shortages impacting your customers components did you specific specify which end markets were being impacted or was it broadly across the end markets.

It's across the board in fact every customer we talk to.

Different type of impact sound wasn't just little but for almost all of our automotive customers are talking about different type of supply shortage microcontroller is probably the biggest one.

On the on the consumer security camera, even profile most of the consumer security camera Wifi supply is a big big problem and so I think that is really caused the board at different levels.

Okay. Thanks for clarifying that and then I know you talked about you reaffirmed the 25% CV revenue contribution in 'twenty two I don't recall it in the past you've talked about where you think that might go.

Next year 'twenty, three or thereafter, any color there would be helpful. Yes.

Yeah, we haven't I'll address next.

Next year, yet, but I definitely think we.

We need to give you more guidance at the CMT time.

Okay. I'll look forward that same day I didn't provide some of that and then lastly, the follow up on <unk> and you talked about the wins in the car has five cameras and 10 radars I'm just curious if that's the kind of.

Proportion or maybe I got backwards 10 cameras radar and the proportion of that is consistent what youre going to see going forward and also with the chips you've sold the multiple chips are you know, causing other AI chips in the car to be despect or perhaps replaced by this I'm trying to stand up our new and perhaps forward looking.

Design readiness.

So first of all yes, I think the ratio sounds right because first of all the radar the <unk> position for radar is really the one from the four corners for radar and some of them start using a great internal perception also but that's a unique opportunity.

For camera processing customer going anywhere between 10 to 15 16 type cameras in moving forward.

I think that ratio is probably stay there.

However from our point of view you can see that we're handling.

Quite a few cameras with only.

Truth.

I will say three combined CB towards CD 22 chips.

Moving forward I think that that will be unified tour.

Domain controller type of chip. So I definitely think this is the first generation.

Working with Arabian I will say three years ago and took three years to completion point and we do believe that the move.

Moving forward that you will see less much less number of digital single processing chip, but it's much more powerful to handle all of cameras and radars.

Okay. Thanks for the color.

And our next question will come from the line of Joe Moore with Morgan Stanley.

Great. Thank you I Wonder if you could talk about your progress in <unk> in passenger cars.

In the U S and in the West and also in China do you see the biggest successes there coming from replacing.

The incumbent with single camera forward facing or would you anticipate that you get it it's things like radar or stereo vision that kind of.

The new technology shift that brings ambarella into those win those sockets.

I think the biggest near term opportunity is to replace the incumbent.

For facing Adas market, because our current CB two functional safety chip is suitable for that and now we can integrate radar solution into seeming to functional safety chip and provide.

Combined the sensor fusion I'll, let chip become even more powerful solution for our customer. So I really think for the near term. This is the biggest opportunity for us. However that I think you can based on the really and you can see that similar type of things that can be using the consumer vehicle, but I think for the high volume consumer vehicle you would require.

Much more integrated solution in terms of number of chips and doing a video on the radar integrate into a single domain controller I think thats, probably a little further out for us.

Okay, and if I could just ask a follow up I mean, it seems like the case for stereo vision is pretty compelling you guys have been talking about it for a number of years.

And it seems like with the type of density and frame rate that you guys can pick up that you can do really good distance triangulation at speed.

What is the barrier is it just price isn't just sort of time for your customers does this development.

What is it that kind of gets you into those wins longer term.

So first of all I think the.

Stereo is really trying to.

Providing a different type of work.

Sensor modality against Lidar in a level four.

<unk> three or level four cars and in a level. When you were talking about smaller smaller number of cameras. The price is really become a sensitive so I think for.

Most of the people who are evaluating adopting.

The stereo processing is really big.

They want to have multiple a sense of sensor.

You are providing that information so I think thats definitely the limits the number of applications.

Requires a stereo processing, but however, I still believe this is a very powerful tool for us in fact, we do have.

Projects that we take that into production and also that the weak in the near future. We can talk about more design wins that we have with stereo you just take a little longer time.

Great. Thank you and congratulations on the funnel.

Yes.

Thank you. Our next question is going to come from the line of David O'connor with BNP Paribas.

Great. Good afternoon, gentlemen, and thanks for taking my question maybe for me a couple on my side on the ocular.

<unk> and firstly can you talk a small bit of around the positioning of ocular radar from the processing perspective versus the.

The existing radar processing, guys, where do you see the microcontroller sitting behind the sensor.

And also then on the when you integrate them into the C V chip what type of gross margin upside are we kind of looking at there given the software component to that.

And lastly, inoculate them do you plan to maintain the module business. There initially I'm just trying to understand.

The synergy there having that module business with the existing chip business and maybe one final one for John.

Im not sure I joined the call a bit late so but did you quantify how much revenue you're leaving on the table given the the supply constraint. Thank you.

So first of all on.

On the radar side, we do plan to continue with the module business because first of all.

Yes.

Very well integrated product easy for any of our customers who want to evaluate our technology.

So that we can easily given module. So they can understand how the akamai elbows and so if it works and Trudeau evaluation, but more importantly, there are some small volume customers. So they probably will adopt our module and getting to mass production. So we do plan to continue to our module business.

Florida.

Difference the differentiation between <unk> and their competitors I think it really is for US is algorithm company and <unk> unique AI algorithm and they what they do is they try to generate as we call intelligent transmit waveforms and adapt based on the environment.

And then after that those away from gas send out and on the receiving side. When we receiving also return signals we process those inflammation cost time, so that we can improve the resolution. So it's really about the signal processing algorithm.

<unk> DVT.

Delivered in the last several years.

But quite soon.

That's going to improve the resolute resolution, both on the angular or or horizontal but more importantly also on with that.

<unk>, So I think it's.

Very few company out of your OLED company LDR is focusing algorithms youll see a larger company focusing on just full stop on the highway side pushed out their transmitter at number of a transmitter and receiver so that they can transmit allow more similar and which also means a lot more expensive will demand a lot of the power consumption. So I think oculus.

We have a unique approach to solve this resolution problem, which is important for radar.

David You also had a question in there about gross margins in the <unk> business and the reason, we're not ready and prepared to give guidance on that as Youre correct. The licensing side of the story.

Would carry gross margins that are better than our long term model. However, when you start layering in the module business that can bring it back into our long term model and so until we understand that mix a little bit better.

It's appropriate to think of this blended as being in our long term model of 59% to 62%.

And then David just finally on your last question. The short answer is no we didn't quantify.

Any Q3 loss revenue.

As a result of the supply chain constraints.

Understood very helpful. Thank you.

And our next question will come.

From the line of Tristan <unk> with Baird.

Hi, This is Tyler bomber on for Tristan Thanks for taking my questions.

First are you seeing a demand slowdown in China and is that possibly going to extend from consumer weakness into infrastructure spending there and then also do you how do you see automotive demand trends in China currently.

I think both for China I think.

In China, our focus is really on the security camera side is really professional security camera, we do more work on the consumer security camera inside China.

For the professional security camera, we talk about aggregate dollar.

More the company that will start using our our CV solution.

So it's more of the.

Professional side of business on the automotive side I think is the.

The number of units.

If you look at the forecast for next year's I think China also on the forecast for China Chinese automotive market also reduce in terms of total numbers, but however, the trend of that more people will start using our computer vision.

For the advanced <unk> solutions are increasing so I think thats kind of washout in my opinion and we continue to.

Secure design wins in the Chinese automotive business focus on.

Dms and the Adas.

We announced today with Shaanxi that is Adas application for the commercial vehicle, but I definitely think that we work hard to try to make pet.

Penetrate the consumer vehicle as well as.

The network to client server applications.

Great and then for my follow up.

In China, our the surveillance camera Oems the professional lines.

Driven by government orders are they from the private sector.

I think both about however majority of them.

For example, hydrogen power has been talk about a lot over their projects coming from government.

Some of them in projects and that's also the reason they show a weak Q4 guidance because I think government spending is reduced.

Q4, so I think that definitely.

The main reason that hydrogen are doing very well in the last I would say 10 years is really about government driven driving the whole security camera market in China.

Awesome. Thanks, so much.

Our next question will come from the line of Martin Yang with Oppenheimer.

Hi, Good afternoon. Thanks for taking my question. My question is on your <unk>.

<unk> first product with CV design wins.

If I remember correctly, followed with the first ponca offer three products coming out of <unk>.

With Cvs.

So now that those two major IP camera security are adopting CV do you see we reach a potential milestone where we see a much higher adoption of potential shipments of CV.

In the professional security camera market.

For instance in the European market.

I think the adoption point of view.

If you look at it from a company point of view of the currently very well for us, but however, if you look at the products. They use Cvs will now majority of them are still in the higher end side. So the it's really high end product and convert to CV first and we I believe that the biggest opportunity revenue opportunity for us.

Moving forward is where our customer gradually moving downwards, and putting more and more <unk> solution to their low end salute the products that we're starting more unit number two the.

Our revenue mix, but I think that because.

We provide a sulfate compatible sdk's between our hot low end to high end CV chip, so anybody who.

<unk> for the one <unk> product they can easily cover the product to a different type of product a different performance.

Point, so I do hope that in the near future starting more product coming from all of those company using our <unk> solutions.

Got it.

So as a follow up to that I think comparing to Motorola Hanwha tech when those two customers seems to have adopted <unk> professional security camera products much earlier.

Then the European.

Guys. So.

Is there any way you can tell from me.

Product design or all the way.

The early adopters are using CV chip, where you see kind of extrapolate the speed.

The migrations of CV chip to the warhead and security camera products.

I think you are right for example, if you look at Motorola scrip.

Quarterly announcement, they do start expanding our CV solution to many different product lines, which is faster than all the company that we're seeing so I think multiple I would say definitely the most aggressive one trying to adapt our CV on the high end and quite really moving down to different part of the lilac even further.

Wearable device for security guard those kind of application is start using our CV chip too. So I think our motorized most aggressive for hybrid I do believe most of the company our there will follow because.

For them to continue to compete in a market they need to have a similar offering for the tour.

So we compete with all the companies.

Yes, it makes sense. Thank you for me.

Okay.

Thank you and our next question is going to come from the line of Derek <unk> with <unk> Securities.

Hey, guys.

So another question on this.

Curious what youre hearing from your customers, maybe it's customer specific.

But are any of them, giving you sort of a timeline for when they expect their customers or other customers were returned to normal.

There has been.

Sort of a decent amount of reporting around the auto chip shortage just curious if.

Youre hearing anything like has anything gotten worse in recent months.

Any color on that would be great.

You know I tried to talk to a lot of people in the industry to under center situation.

Consistent message I heard is that they.

I don't expect the situation will improve.

Bill.

Quarter, or maybe even third quarter next year, the past I think.

However, we do start seeing signs of things changing a little bit alright, we do see that.

One component catch up even yesterday I saw some news about microcontroller situations in automotive improved so I do hope that the situation is not as bad as.

Everybody is thinking that the Q2 Q3, you will see.

We will have to wait until Q2 Q3 next year to see some improvement but.

At this point the consensus.

On the people I talk to is that.

This is continuing to be a problem for next few quarters.

Yeah.

Great. That's all for me thanks, guys.

Okay.

And with that I see no further questions I would like to turn the call to Dr. Fermi Wang for closing comments.

Thank you and we are excited to be returning to Las Vegas in January.

Hosts both our capital market day, and the CES event and it will be demonstrating a wide range of automotive security access control and robotics technologies in the upper right and I'll, let level four autonomous vehicles and also provide our first demonstration of our <unk> radar software.

So we really hope that we can see all of you there in person and thank you for your attention today Goodbye I will talk to you next time.

Once again, we'd like to thank you for participating on today's conference call you may now disconnect.