Q3 2023 Ambarella Inc Earnings Call
Good day and thank you for standing by. Welcome to the Amborella's third quarter fiscal year earnings conference call.
At this time all participants are in a listen-only mode.
After the speaker's presentation, there will be a question and answer session.
And we ask that you ask one question and one follow-up question.
To ask a question on this during today's session, please press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Please be advised that today's conference is being recorded. I would like to turn the conference over to your speaker, Louis Gerhardy. Please go ahead, sir.
Thank you, Lisa.
Good afternoon and thank you for joining our 3rd quarter fiscal year 2023 financial results conference call.
On the call with me today is Dr. Fermi Wong, President and CEO , and Brian White, CFO .
The primary purpose of today's call is to provide you with information regarding the results for our third quarter of fiscal year 2023.
The discussion 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 four looking statements.
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 filed with SEC, including the annual report on Form 10-K that we filed on April 1, 2022, for Fiscal Year 2022, ending January 31, 2022.
and the Form 10Q filed on September 8th.
2022 for the second quarter of our fiscal year 2023.
access to our third quarter fiscal 2023 results press release transcripts.
Historical results, SEC filings and a replay of today's call can be found on the investor relations page of our website.
This representative engagement, a majority of which are based on our higher value <unk> provide.
Provide insight into the early and the continued success of our strategy in.
In Q4 alone we expect to ship close to 2 million units over CV truth family Associates.
And then the outlook for the <unk> two family remains very positive.
Now with the <unk> three of the <unk>, we are establishing.
Wishing new CD product cycles building upon our proven <unk> two family and further extending the functionality and the value or HP weaker.
Continental was early end of the first to validate that this new CV trend from Ambarella and in the next several quarters, we anticipate sharing more about our customer progress.
<unk> three of a single asos.
It seemed like just stickley pies older functionality Ambarella has established over the years.
Camera radar perception deep learning AI and the surface Tech IP.
He began 18 years ago, when we established our camera perception processing reputation and we are now attracting higher value add opportunities serving mega trends, such as a security safety and automation.
This is Mary Shang sensing opportunity are incremental and much larger than the human viewing this market.
So we see a very favorable secular opportunity in place we have the right strategy to address it and we're continuing to demonstrate early signs of success. We intend to continue to invest the majority of our R&D to fully realize these market opportunities leveraging our leadership position in the AI endpoint.
Market.
Flat, Brian will now provide our prepared financial comments.
Thanks, Charlie I will review the financial highlights for our fiscal third quarter.
To provide a financial outlook for our fourth quarter ending on January 31, 2023.
I'll be discussing non-GAAP results as they refer to todays 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.
Revenue for fiscal Q3 was $83 1 million.
In line with the midpoint of our prior guidance range up 3% from the prior quarter and down 10% year over year.
<unk> Iot and auto product revenue increased sequentially.
Kidney issue constraints improved however, customer inventory reduction actions resulted in sub seasonal revenue results as we had expected.
non-GAAP gross margin for fiscal Q3 was 63, 5% in line with our prior guidance range of 63% to 64%.
non-GAAP operating expense for the third quarter was $43 5 million a decrease of 1% from the prior quarter and below our prior guidance range of $44 million to $46 million.
The lower than forecasted Opex was aided by favorable FX and tax on our foreign spending.
Q3, net interest and other income was $1 4 million comprised of approximately 800000 of interest income plus 600000 of other income.
Our non-GAAP tax provision was $1 2 million or 11, 4% of pretax income.
This was higher than our original forecast and typical range, primarily due to taxable FX gains and foreign jurisdictions.
We reported non-GAAP net income of $9 5 million or 24 per diluted share.
Now I'll turn to our balance sheet and cash flow.
Fiscal Q3, cash and marketable securities increased $1 million to $199 million.
DSO increased from 43 to 54 days driven by the timing of revenue shipments and days of inventory decreased from 125 to 124 days.
Cash from operations was $6 million and capital expenditures for tangible and intangible assets were $5 million.
Free cash flow defined as cash from operations less capex was $1 million and.
Free cash flow on a trailing four quarter basis was 12, 5%.
<unk>.
We had two logistics and ODM companies represent 10% or more of our revenue in Q3.
WT microelectronics, a fulfillment partner in Taiwan that shifts to multiple customers in Asia came in at 62% of revenue.
Kony and ODM, who manufactures for multiple Iot customers was 11% of revenue.
I will now discuss the outlook for the fourth quarter of fiscal year 2023.
Q4 is typically seasonally slow.
Down in the high single digit sequentially.
But this year the alleviation of some supply constraints as it relates to pent up demand, which.
Which we expect to enable our revenue to remain approximately flat sequentially in the range of $81 million to $85 million.
Looking into next fiscal year <unk>.
Industry wide component availability is anticipated to improve further.
And as our lead times to customers continued to contract towards normal levels, we expect customers to continue reducing the amount of inventory they are willing to carry.
Macroeconomic concerns are also rising at our customers.
Considering the cyclical macro inputs.
We anticipate our fiscal 2020 for Q1 revenue.
To be down more than our normal seasonality would suggest.
Back to our fiscal Q4 outlook, we expect non-GAAP gross margin to be between 63% and 64% flat to the prior quarter.
We expect non-GAAP opex in the fourth quarter to be in the range of $46 million to $49 million.
With the increase compared to Q3, driven by the continued build out of new advanced <unk>, III, <unk> and CES marketing activities.
We estimate net interest and other income to be approximately 700000.
Our non-GAAP tax rate to be in the range of 5% to 10%.
And our diluted share count to be approximately 39 5 million shares.
Ambarella will be participating in our case future series Technology Conference on December 5th now.
<unk>, London Investor Conference on December 6th.
Imperial Capital Security Investor Conference on December 15th.
And Needham's growth conference on January 10th.
Sell side analysts are also offered in small group tours of our CES demos between January <unk>.
And January salad, and Las Vegas, please contact us for more details.
Thank you for joining our call today and with that I'll turn the call over to the operator for Q&A.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone.
As well one question and one follow up one moment, while we compile the Q&A roster.
Yes.
Okay.
Okay.
The first question that we have today is from Matt Ramsay of Cowen. Please go ahead. Your line is open.
Yes. Good afternoon. Thank you guys very much for taking my questions.
First of all our Permian crude yourself and our team congratulations on the continental deal.
Wanted to ask a few details about how that came together it seems like even in your pre silicon simulation results in all of those things that they had been evaluating the CB III platform for a while.
No doubt that they were one of the early sampled customers of <unk>.
You can walk us through how you went from <unk>.
Stimulated performance in power and capability metrics for CB three onto sampled product onto the <unk>.
Press release that they had.
Sort of the scope of the wins that you might have.
With Continental and then I guess on the detail side, you updated your automotive funnel up 28% from six.
$600 million to $800 million on one business.
How is the continental deal.
Customer wins from from that relationship contemplated in the changes to your automotive channel. Thanks.
Right.
Well.
First of all thank you I think that.
Definitely helpful.
I think the county, we have been working with county for a long time, even before.
Paypal and also produce our first generation CV till we start talking to currently.
As you can see this is a long process because really our clan of our CV to performance and power efficiency.
It's hard to Digest, if you don't see a real silicon and with CB two we proved to them.
The safety of our architecture, and we can deliver what we promised.
But as.
As you know <unk> is four eight at the level two car, but for the level two plus level three obviously they need to they need a multiple powerful chip like series III and we start talking to.
Forgot about CD three I would say two years ago with such as a powerpoint at our simulation and of course, because we see to fill.
So that we can really justify the how we achieve the performance Pollyfish ANSI with our CFO , sorry, silicon and plus our simulation.
But the deal is really closed.
Suncor, our CV chip ended up development platform to them and the verified all clubs on the performance and power efficiency and I think that's at that time that we really have a major breakthrough was county, and they totally convinced our clan and decided to move forward with.
Also this relationship.
And I think.
That's one reason the other reason is that I think we are.
While there are very few companies showing off on the or.
We have a solution for the very low end.
Right.
<unk>.
The driver monitor system to the E mirrors to a level two.
From cameras to level, two plus level three level four we have a silicon roadmap to cover the whole space, but our customer want it with a single software base I think that's another reason that really I think our customer like clunky appreciate and that help us to secure this deal.
And also like Louis said.
Expecting continue to do more business development and we hope we can continue to give you updates in.
In the next quarter in terms of our <unk> business evolved in terms of potential. These are we I think because the concrete price press release, Dan talk about I'll leave that to answer this question, but I have to believe that with because countries as such a reputable and large customer.
And they have a credibility in front of the OEM customer that will definitely Katrina.
Here in the US we should be able to get more design with our Oems and Youre gradually show up in our sales funnel in the near future.
And thank you for all the detail for me.
Really appreciate it.
I guess.
Final clarification on my first question and then sort of a follow up for Brian . So just to clarify you guys raised.
Automotive revenue six year funnels.
One eight to $2 three and the one business from $600 million to $800 million.
Is the car T relationship contemplated in both of those numbers one of those numbers I'm just trying to.
If you could be a bit precise on what you guys are assuming in the funnel from that relationship and did it materially change when one of them.
The deal was announced and I guess my my follow up for Brian you talked about May.
It may be.
They're performing normal seasonality as you go into fiscal Q1.
Maybe the last couple of years have been very strange seasonally for the whole semiconductor space given shortages and all kinds of other things going on.
If you could.
Maybe give us a little bit of clarity about what youre, assuming normal seasonality is for fiscal Q1. Thanks guys.
I will take on the first question our plan to take on the second question. The first question is about the our Cao County play into the two numbers I think.
I think our counties contribution with our current funnel is little and there are some of the NPL. However, I think that.
We expect that this number of Congress impactful I'll follow up.
So it's showing up in <unk>.
Next follow on next year and also we expect to that.
We don't have any hung key.
Contribution in one business yet.
And related to your question on normal seasonality in Q1 of course normal though difficult to define but the way we looked at it is taking a five year average.
And in that case, the five year average for Q1, it would be a sequential decrease of 4%.
So as we sit here today, we think that the decrease going into Q1 will be greater than that number we don't have perfect visibility at this point to whether it will be but we want to provide as much.
Outlook as we cannot at this time.
Thanks, guys really appreciate it.
Thank you for your question the next question.
We will be coming up shortly one moment please.
And that question will be coming from David.
Kelly of Jefferies. Your line is open.
Hey, good afternoon, guys and thanks for taking my questions maybe to follow up on the funnel.
Alright discussion.
We announced.
A couple of pretty meaningful driver monitoring wins E mirror win as well so how should we think about.
Maybe framing it as the interior contribution to the auto funnel versus say, the Adas and autonomous contribution.
To that funnel growth.
So first of all as you can see for those to kind of design win the design cycles are much shorter than <unk> because that they are not really <unk> sensitive so that the four <unk> projects, we usually look at in.
In China more than two years development outside channels full year development for this kind of an internal designs. Usually you can think about 12 to 18 month cycle that you can get into production. So that's why you start seeing more of those design wins and that's definitely.
Area that we wanted to be.
Really having high market share and Thats why we are doing about.
That doesn't mean, we don't focus our Adas in fact on the contrary I believe that we are getting well into Adas as well as level, two plus and hopefully we can give you more design win activity in the future.
Yeah.
Okay got it thank you and maybe a quick follow up to your point on kind of the.
Timeline of adoption and specific to <unk> very early days as you demonstrate with them the customers, but any early thoughts on.
Timeline to eventual revenue contribution.
With this partnership are you seeing.
Oems push to accelerate <unk>.
<unk> meant to integration into production timeline faster and in Adas and autonomous as well.
Well.
First of all.
I'll leave counting to answer that.
Tangible revenue they can generate with this relationship but like we said before any <unk> design win will take three or four years together gateway revenue and I don't think that Tyler has changed.
Okay.
Got it. Thank you I appreciate you taking my questions.
Thank you for your question and one moment, while we prepare for the next questions.
The next question, we have will be coming from Joe Moore of Morgan Stanley . Your line is open.
Great. Thank you.
I Wonder if you could.
<unk>.
The pace at which that funnel start to turn to revenue.
I think it's a six year kind of timeline that you've talked about.
And thats pretty backend loaded given the ear.
The numbers are so much bigger than what you're shipping now, but can you just give us a sense for how quickly that revenue can roll in and then.
How much of that is still underway.
I don't be too precise, but I know theres a probability weighting on some of it can you talk to.
How how much of that we should think of as being.
Probability weighted event.
Hey, Joe.
So the methodology behind the funnel and how we discount both won and pipeline doesn't change from our prior practice.
And with regards to the distribution of the revenue through the six years of the funnel. It is not linear as you can imagine it's exponential in shape.
<unk> to six year is much higher than the first year and the reason for that would be the time to revenue that for me was just describing in a prior question.
But it's also very significantly driven by increased tenant penetration rates of these new technologies and then most importantly.
So at a higher ASP.
The products that we'll be selling in each of these six years for example, <unk> contributes revenue in years five and six we expect the ASP per chip is much higher than it would be for say, a dms CMS wins, where the CV 25 products. So those are the factors that caused it to be.
Exponential in shape not linear.
Yes.
Great. Thank you.
Thank you for your question and one moment, while we prepare for the next question.
Okay.
The next question that we have is coming from Kevin Wong.
Of Stifel. Please go ahead.
Okay.
Hello Your line is open.
Hi can you hear me.
Yes.
Sorry, this is Jeremy Kwan, calling in behalf of Tory from Stifel.
I guess.
Maybe a question first on the ESG needs.
Can you give us any more color in terms of where they stand today and I understand <unk>.
We started to accumulate.
Even more significantly but can you help us just give us more details on where they are today and where you see that.
And we said it's going to grow 20% this year. This.
This fiscal year.
Thanks.
Yes, I think the comments for this fiscal year. It was at the high single digits and now I think some PR about $10 ASP right now and the major contribution come Fong.
The increase of sales of our computer vision chip and in fact, that's probably the biggest items, which help us to continue.
Higher asps.
<unk>.
<unk> five really getting into a ramp up in production and we saw some putting CVT three I also expect that our asps.
Tier two this uptrend.
Great. Thank you.
And I guess, a quick question on the Opex.
I understand some of that is yes for next year.
Starting in January .
I guess, excluding fees, what kind of run rate should we think about as we look to your fiscal 'twenty four thank you.
Sure, we're still bottoming out on our Opex budget for next fiscal year.
But I guess the way I would think about it at this point is consider the exit velocity of our guidance for our fiscal Q4, which at the midpoint was about $47 5 million.
Going into next fiscal year, we're going to have additional.
Chips in development that would cause that number to increase so you've got two things to consider number one opex has been increasing throughout fiscal 'twenty three and so even if opex remained flat.
Q4 forecast level it would be up on a year over year basis, and then in addition to that we will have some additional spending requirements.
That's about where I can give you at this point in next quarter's call I think we can provide some more insight.
Great. That's very helpful. Thank you.
Thank you for your question one moment, while we prepare for the next question.
Yes.
The next question that I have is coming from Kevin Cassidy of Rosenblatt. Please go ahead. Please.
Yes, Thanks for taking my question and congratulations on the continental win.
And on the Continental win are there expectations for them to use the scalability of CB three.
We have a low end solution than the high end or maybe three different solutions.
Yes first of all thank you and also I believe youll read as rate in fact in their press release Fay to talk about one of the reason they chose the Cvs III family is it because they can use a SaaS software structure to apply from low end to high end product line.
And.
It is the ocular or now ambarella radar solution included in the in the overall design or is it still to be determined.
In the press release with you and talk about radar so I'll keep that.
We'll give you more update when we have.
The right to talk about the potential radar collaborations.
Okay, great well congratulations again.
Thank you.
Thank you for your question why Momma, while we prepare for the next question.
The next question that I had was coming from Tory Swanberg a FIFO your line is open.
Yes.
Yes. Thank you I had a follow up question on the continental win and again congratulations on that.
Maybe you could just expand a little bit on sort of the.
How the sales strategy works, there because obviously, you're you're providing some functionalities, but obviously maybe some other companies will provide other so is this like a full a reference platform.
And until is offering.
Just you know I.
I had a little bit of context on how your go to market specifically with all the all the parts that are part of that particular solution.
Yes.
<unk> of all <unk>.
<unk> three will be the domain controller for the system, but we are talking to <unk> about.
And.
The goal is that there is no other major processing chips on the assistant and the <unk> III will take in.
Multiple difference sensory modality and perform not only just the perception, but also all the higher level of software functions Pat.
As provided by.
By County.
Great. Thank you and a follow up question on CVT three.
It sounds like you're starting to.
At least thinking about leveraging that platform into non auto applications. I was just wondering both from a sort of.
Capacity and also from a timing perspective, when CVP it could start to venture into other non auto applications and I guess the reason I ask the questions. Because you obviously have a lot going on here in the auto space.
So I'm just wondering if you have enough resources to go after non auto applications for CBRE.
So first of all.
Using <unk> three in the robotic application is definitely.
Strategy that ambarella is implementing and like you said, we are a small company that have limited resource therefore, we need to target and be focusing on strategy accounts in <unk>. Obviously <unk> is the first one there are a few more.
But in the robotic space definitely our strategy is to have a target customer holster has already.
Some products in the market and as well as they really need performers like Cvs III family chips doesn't matter, who is high and low end.
Because if you look at the <unk>.
A lot of robots out there.
There are multiple processing, so it kind of in that robot today definitely they can't use some kind of domain controller like Cvs III to integrate those functions together and provide not only the better cost, but also better system design as well as the power efficiency. So I think that's definitely.
The market will continue to work on.
Yes I'll.
Ill just add its a good question because.
Mobile robotics applications are not part of our automotive funnel. So that is something that's separate and not reflected in that funnel with communicated.
Great. Thank you for all the information I appreciate it.
Thank you for your question one moment, while we prepare for the next question.
The next question I have here is coming from.
Susie.
<unk> of Roth. Please go ahead.
Hi, Fermi, Brian Lewis I'll add my congratulations on the continental win.
Quick question, perhaps for Fermi I think you hinted at this in Alaska and inventories question, there, but the software development that's involved to get CVT 300 production how much of that is the continental and its customers versus ambarella. It sounds like it almost maybe almost all continental and if so is there an incremental effort that needs to be happening for every customer that adopt CVT three thereafter or is there.
Any leverage from the first one.
So first of all I think.
Our role in this relationship is we our strategic tier two.
<unk> County, and we are providing support to the two one the support needed to provide <unk> porting their software onto our Cvs III, which we are.
I've been talking about this strategy for many years and we believe we are the one I really focus Elizabeth model versus our competitors and I think this is.
<unk> is really about setting up a group people, helping our customer reporting software and that it has.
We have factored that into our headcount planning as well as our engineering development. So I think thats not a concern for us and in fact, we expect that we need to continue to do this kind of service for all of the potential customers.
Okay that helps for me and then a question for Brian Perhaps Brian got you guided the first quarter next year as well as this year.
Sure.
Are there lingering supply chain posts getting constraint issues factored into your below seasonal guidance for <unk> or are those kind of behind us at that point and is that purely a statement about softening demand.
So we think that the supply chain issues are for the most part behind us.
Something that we don't anticipate to impact our Q1 revenue significantly while we do see is continued shortening lead times.
Desire on the part of customers to reduced inventory levels. So that's that's really the impact that we're contemplating as we think about Q1 at this point.
Okay. Thanks, Brian Thanks, guys.
Thank you for your question one moment, while we prepare for the next question.
And the next question that I have here is coming from David O'connor of Dee Ann Your line is open.
Great. Thanks for taking my question.
Well from my side on the TV penetration affirm you mentioned or reiterated 45% for this year. Just wondering can you give us any update on what the exit run rates of this year would be so as to kind of baseline for next year.
A follow up.
Yes, David we haven't disclosed the.
<unk>.
The run rate as well as the next year forecast, but I can say that we expect to the CV continue to become a bigger portion of our total revenue for many reasons are one is that they are enabling new market. The LOI is their asps piece of course that portion of our CV growth come from replacing our existing R V.
CDO process of business, but I think that.
The.
Very excited about the new application that we talk about our previous video processor chip cannot address and particularly CV <unk> opportunity. We're talking about today is really a new opportunity we can address.
Okay got it thanks for that and maybe as a follow up one for Brian on the.
The sub seasonal Q1, when you talked about inventory being reduced or customers can we expect or do you expect an exit in Q1.
Inventory that youre seeing their customers should be tiered. Thank you.
Hey, that's a great question I think it's one that we don't have great visibility to so I'm not going to speculate on that.
We certainly in the near term anticipate that there will be impacts within that time period, and that's why we wanted to provide some visibility but in terms of.
When things bottom and so on and when those issues go away I don't think we have a good feel for that at this point.
Understood. Thank you.
Okay.
Thank you for your question one moment, while we prepare for the next question.
And the next question.
Coming from Richard Shannon of Craig Hallum. Your line is open.
Hi, guys. Thanks for taking my questions as well maybe I'll ask you a question on the on the Iot side of the business here maybe for me. If you can talk bigger picture here over the last year, how the penetration Cvs gone into.
Maybe both sides of the security business and where do you think that will go over the next year or two.
That'd be great great perspective, or over that time. Thanks.
Alright, So I think that's a great question, we continue to see strong Iot design wins in our all of the market, we're talking about professional security and consumer security and also others.
Sure.
I think.
Like I said before has driven some of that driven by new application that we talked about today. Examples also.
Sure.
<unk>.
The xiaomi.
Xiaomi introduced a new lock, which was using <unk>.
<unk> identified face and also we're talking about other applications like video conferencing, which is.
Really new market enabled by our CV product line. So I think for Iot space outside of China, We are doing quite well, but same time I want to highlight a candidate with a new U S. Regulation, we have basically zero play in China in the Iot, a particular security camera space.
That's something I want to highlight and we talk about aggregate dialogue will be.
<unk> revenue for Us next year.
Okay perfect. Thanks for that update my second question is on on Continental here looking at from what angle you mentioned, both today and in past calls regarding having a solution that really addresses all.
Our vision related opportunities, both within and without the car here as I look through the Continental press release from whatever a week or two ago I didn't see any mention of kind.
Indoor use cases, there maybe I, maybe I scanned too quickly, but is that being contemplated here or is that something you can discuss and or do you see other Oems coming through the funnel here that you will have both interior and external use cases, because you have that full offering others don't.
Alright, so for the county price release, they basically focus on only one application which is adas.
On the Adas, mainly is for external use.
I do believe that they appreciate that we offer a complete roadmap echo pharma external to internal and I will just say I want to say that the press release is targeted only for one application one possible opportunities between <unk> and us.
Okay Fair enough. That's all from me guys. Thank you.
Thank you for your question one moment, while we prepare for the next question.
The next question I have is coming from Ross.
Deutsche Bank.
Your line is open.
Hi, guys. This is DJ Sebastian on behalf of Ross Seymore first off thanks for letting me ask a question here, but I was just hoping to get some color on sort of the revenue split between your Iot and auto segments, both for the reported quarter and be quite got it. Thanks.
The approximate split would be about $75 25 Iot versus automotive.
Cool and just.
A quick follow up how should we sort of think about that going into next year. I mean, do you guys see that dynamic changing significantly or are we still kind of right. It's sort of the same split for the foreseeable future.
Well.
We haven't given any guidance for next year, but like I said, we expect auto percentage will continue to increase because of that.
Followed our building and that should be the trend of where we are expecting.
Awesome. Thank you so much and congrats.
Thank you for your questions and that concludes today's Q&A session I would like to turn the call over to Dr. Fermi Wang for closing remarks. Please go ahead Sir.
Thank you and thank you all for your time and consideration we hope to see you at CES or one of the other coming events. Thank you and goodbye.
This concludes today's conference call you all may hang up and everyone have a great rest of your day.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
Okay.
[music].