Q1 2024 Ambarella Inc Earnings Call
Thank you for standing by and welcome to umbrella's first quarter fiscal year 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone.
If you'd like to remove yourself from the queue, simply press star 1 1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Lewis Gerhardy, Vice President, Corporate Development. Please go ahead, sir.
Thank you, Jonathan.
Good afternoon and thank you for joining our first quarter fiscal year 2024 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 first quarter of 2020.
subject to risk, 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. 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 SEC, including the annual report in Form 10-K , we filed on March 31, 2023 for fiscal year 2023, ending January 31, 2023. Access to our first quarter fiscal 2024 results press release.
outlook, and then we'll be available for your questions. Fermi? Thank you, Louis, and good afternoon. Thank you for joining our call today.
Our Q1 results were slightly ahead of our expectations, despite the significant headwinds from the ongoing semiconductor industry's technical downturn. We are not allowing this difficult environment to distract us from further developing our AI business.
Before I talk about the details of the quarter, with all the cross-currents in the market together, with all the exciting developments in the AI market.
I thought this would be a good time to review our strategic vision.
Simply put, our transformation into an AI company is well on the way, with AI already representing 45% our total revenue last year and an estimated 60% this year.
Now with our CV3 platform, we are expanding into a new phase of AI market development.
The AI market is at a very early stage. It is also dynamic with many technologies and vocation emerging. With all excitement about AI, the key to our continued success will be our focus and the degree to which we can leverage our unique core competencies.
Even with our focus, our current serviceable available market, or SAM, is sizable, exceeding $4 billion this year and approaching $10 billion in fiscal year 2028.
So what are we focused on? And BERRA is focused on deep learning AI processors and the software, which are replacing the legacy and the last powerful traditional machine learning approaches.
With the deep learning market, the AI processor market has been dominated by training processors using servers typically for the cloud.
Data Center or Enterprise.
Our focus is on AI inference, which is where AI models get deployed and are practically utilized by end users.
As the AI market begins to mature, most third-party research firms forecast the size of inference of AI to surpass training AI.
We have already demonstrated how we can leverage our rich heritage in human perception, also known as video processors, into AI. Our CV2 family was our first move into AI and it targets inference AI perception processing at the age where cameras are the principal sensing mobility.
We continue to expect the CV2 family to be approximately 60% total revenue in fiscal year 24 and represent a mature portion of our operating profit dollars.
The CV2-XOC integrates our camera perception expertise with our proprietary second-generation CV flow AI architecture.
The incremental processing to enable AI costs causes our CV2 blended average selling price ASP to be greater than two times a video processor.
This contributed to an over 20% increase in our firm-wide ASP in fixed-wheel 23.
This year, the CV2 family is expected to become the dominant driver of our revenue and remain a key driver for several years.
The solid string of operating power from video processors and the CV2 family of HAI processors
is now being reinvested into the significantly more powerful CV3 platform targeting mobility applications. Please see the complete disclaimer at https://sites.google.com/+PID-MGN-DQ
The CV3 platform builds upon our CV2 family experiences and utilizes our proprietary third-generation AI inference processor.
For a typical level 2 plus application, the CV3-ASOC provides the perception processing for all the camera and the radar sensors, as well as the processing required in the fusion and the planning layers. The significant amount of incremental processing expected to facilitate a CV3-ASOC ASP is estimated to be about 1.5 times the amount of data that is expected to be used by the sensor. The
to be five to 20 times higher than a CV to SoC.
It is also very important to understand CV3 is a platform.
as the SoC in the CV3 family can capture incremental value by running our own autonomous driving AED SOFR Stack IP and or RAID output selfing SOFR IP.
We aim to bundle this SOFR IP with our CV3 SoCs in a platform approach, providing our customers with the flexibility to pick and choose exactly what they need.
Regarding our autonomous mobility partnerships at Continental, I am pleased to share that we extended our partnership to Level 4 system development and confirm the first business award of our jointly developed stack as a complete Level 4 fallback system.
The system will be supplied to Continental for customers in the commercial vehicle industry.
To be clear, the CV3 platform is a major leap forward in terms of our value proposition, and it brings a new list of target customers automotive OEMs.
We are still in the early stage of building out the CV3 SoC portfolio and developing the market.
However, we are not doing this alone, with leading tier 1s like Bosch and Continental porting their software to CV3, validating our superior efficiency, jointly marketing to auto OEMs using their scale and bringing more credibility to our CV3 market development efforts.
Additionally,
For the AI server inference market, we have already evaluated running large language model LLN on CV3-AD high, which has been sampled for nine months. And we believe the LLN performance on this existing SoC to be as good as NVIDIA A100.
with much lower power consumption and superior total system cost.
We are now establishing a software development effort as well as a business development program to engage with customers.
Turning to new products and customer engagement this quarter, in March at the I.C. West Security Show we announced our CV72S for Mainstream Enterprise and Public Class Security Cameras.
CV72 utilizes the same third generation CVFlow deep learning AI accelerator architecture utilized in the CV3 SoCs.
This CV3 derivative SoC brings to the IoT market the highest AI performance per watt, the fusion of radar and camera data, and it includes support for the latest transformer tissueisa. Lovely, solid, you know that work.
Furthermore, CV2S offers six times the AI performance of a CV2 family.
We are able to run Ambrosia's groundbreaking neural network-based image signal processing software for 4K color, night vision, and HDR with plenty of headroom for additional concurrent neural networks.
CV72S is now sampling to leading AOT camera companies.
In IoT, there were a number of new enterprise and public security cameras introduced, including
Motoya will introduce the H6-SL camera line based on CV-25 as well as the V700 body camera based on our H6-SL MSOC.
And the Vacaga introduced its TD52 video intercom featuring 5 megapixel camera based on our CV25.
IPRO, formerly Panasonic and Japan's largest security camera supplier, introduced multiple new product families based on our CV2, CV22 and CV25 including dual and quad multi-image models. On the European market leader axis.
Part of Canon introduces is a 3905 rugged dome model designed for surveillance on board vehicles.
introduced is a 3905 rugged tone model designed for surveillance on board vehicles, such as the buses held at awareness point of view and I am here to tell you howson says that
Also in Europe , Delmeyer introduced Domera E-Series camera which uses our CV22 AI SoCs to enable imaging in total darkness, internalizing adaptive IR illumination.
In the home monitoring market, Alon.com introduces ADC 780 battery powered doorbell based on how decent one can go with Menshi, the alarm Oh look a smart Air Canyon and math tiny Tier Tomahashi Dimensions.
I will now talk about the progress in the automotive market.
As mentioned earlier, our new CV72SSOC is an important CV3 derivative for the IoT market.
However, it is expected to also be an important derivative product for the automotive market and in April at the Shanghai Auto Show, we announced and demonstrated CV72AQ. This AOC targets multiple auto multiplication including level 2 plus.
and other applications with up to six cameras and five radars running on the SOSC. CV72AQ demonstration at the show included an ADAS Plus parking system with a five camera configuration including an 8 megapixel front camera.
and multiple 3MP fisheye cameras running Ulo V7 neural networks on each camera.
We also demonstrated versus a leading GPU solution, superior performance and lower power consumption of CV72 AQ running transformer networks.
We received very positive feedback on CV72AQ from Tier 1s and the OEM in China.
Also, as the Shanghai Auto Show, a number of other tier 1s demonstrated CV3-based assistance. This included Continental, which showed a 10-camera live demo with multiple neural networks running on each video stream.
And HyperView demonstrates its GT HyperMax platform featuring a sensor suite of 11 cameras plus one lidar and three radars in a car providing CT navigator on pilot advanced functions.
and leveraging the latest transformer network.
In March, China's GAC introduced its electric ion-wide younger L2 plus ADAS SUV with an intelligent 1V1R driving assistance system based on our CV22AQ AISOC.
And in April , G.V. Zieker introduced its Zieker X-Evectric SUVs with a face recognition access control system based on CV28-AXAISOC.
In summary, a majority of our new customer engagement activity continue to be our
to be our AI products. AI is expected to be a majority of our revenue for the first time in fiscal year 2024 and should continue to grow as a proportion of our mix.
To bring our AI strategy vision together, first with the CV2, and now again with the even more significant CV3 platform.
We have leveraged our core competencies, cumulative knowledge, and unique approach to establish strong presence in the AI deep learning domain.
Our investment yield differentiated products that are very different, are very efficient and on open platforms that are scalable and flexible.
The CV2 family is already very profitable and we are well into the development phase with the CV3 platform.
In summary, there is still a lot of work left to execute to our strategy and the ongoing semiconducting industry cynical downturn pressure or near-term financials.
However, we are confident in the long term secular growth opportunity for age inference AI. We do not intend to.
straight from our strategy vision and we are continuing to invest in our differentiative AI strategy.
I will now turn it over to Brian to discuss the Q1 results and the Q2 outlook in more detail.
Thanks, Fermi. I'll review the financial highlights for the first quarter of fiscal year 2024. I'll also provide a financial outlook for our second quarter ending July 31, 2023.
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.
For fiscal Q1, revenue was $62.1 million, in line with the midpoint of our prior guidance range.
down 25% from the prior quarter, and down 31% year over year.
As expected, total automotive revenue was approximately flat sequentially, while IOT was down sharply driven by customer inventory reduction actions.
Non-GAP gross margin for fiscal Q1 was 63.1%, in line with the midpoint of our prior guidance range of 62 to 64%.
non-GAAP operating expense for the first quarter was $46.2 million, up to $200,000 from the prior quarter and below our prior guidance range of $47 to $49 million.
The lower operating expense was driven by continued expense management and the timing of spending between quarters.
We remain on track to our internal product development milestones.
Q1 net interest and other income was $1.3 million.
This was higher than our original forecast driven by a higher cash balance and returns on cash invested.
Our non-GAAP tax provision was $300,000 or minus 5.5% of pre-tax income.
This was slightly lower than our original forecast, driven by the mix of pre-tax income across tax jurisdictions.
We reported a non-GAAP net loss of $6 million, or a 15-cent loss per diluted share.
Now, turn to our balance sheet in Cashflow.
Fiscal Q1 cash and marketable securities increased $20.5 million to $227.4 million. DSO improved significantly from 57 days to 43 days.
as the timing of shipments throughout the quarter normalized after being back and loaded in the prior quarter.
Ending inventory increased slightly, up 1.8 percent.
However, days of inventory increased more significantly from 116 to 151 due to the sequential reduction in cost of goods sold on lower revenue.
Cash from operations was strong at $22 million.
driven by the decrease in accounts receivable.
And capital expenditures for tangible and intangible assets were $2.3 million.
Free cash flow defined as cash from operations less capex was 31.7% of revenue for the quarter and 6.4% on a trailing 12-month basis.
We had two logistics and ODM companies represent 10% or more of our revenue in Q1.
WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia came in at 49% of revenue.
Chaconne and ODM, who manufactures for multiple IoT customers, was 16% of revenue.
I'll now discuss the outlook for the second quarter of fiscal year 2024.
Customer feedback on end demand remains generally healthy. However, at the same time, customers also continue to aggressively manage down their inventory levels.
Considering these factors, we estimate that our fiscal Q2 revenue will be flat to Q1 and in the same range of 60 to 64 million that we guided for the prior quarter.
By end market, we expect that both automotive and IoT revenue will be approximately flat sequentially as well.
We expect non-GAAP gross margin to be in the range of 62.5% to 64.5% up slightly from Q1.
We expect non-GAAP OPEX in the second quarter to be in the range of $48 to $50 million.
with the increase compared to Q1 driven by higher R&D tied to new product development activities.
We estimate net interest income to be approximately $1 million.
our non-GAAP tax expense to be approximately $700,000.
and our diluted share count to be approximately 39.7 million shares. Amber Ella will be participating in TD Cowen's Technology, Media, and Telecom Conference on May 31 and June 1.
Bank of America's Global Technology Conference on June 6th, and Rosenblatt's Age of AI Conference on June 7th.
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 questions.
Thirdly, ladies and gentlemen, just as a reminder, if you have a question, please press star one one on your telephone. One moment for our first question.
And our first question comes from the line of...
Gary Mobley from Wells Fargo. Your question, please. Hey guys, thanks for taking my question.
I wanted to ask about inventory drawdown with customers. You mentioned that customer and demand appears to be healthy. Obviously, you're under shipping and demand. Could you give us a sense of by how much or how close we are to inventory going back down to a normal level? And then maybe you can comment as well, specific to China related demand.
Yeah, this is Fermi. I think like Brian said, we haven't seen a huge change from the customer side. For example, last quarter we talked about customer that has healthy growth based on our silicon, but our sequence revenue from there is down 15-20% year over year.
And that situation continues and I think the customer continues to confirm that their growth and the continuous forecast lower revenue this year. So I think from that point of view, I think the situation is very similar to last quarter and we have not seen anything, any indication that this inventory correction will end. So I think what we are looking for is really that.
the ramping up of new orders consistently from different customers, that will probably give us an indication that it's recovered. We haven't seen that yet.
Just a follow-up I wanted to ask about your wind that you captured in conjunction with Continental. Is that an automotive grade wind? Maybe give us a sense of where other automotive grade winds may stand.
Right, so that's automotive grade wind. And like I said, it's a level four car and it's going to be auto grade chip and it's going to be its first design wind that we work with after we announce and with working with Continental. And in this design wind involves not only our four different townhouses, but five different
CV3 SoC, but also our SOFR IP, the SOFR stack that we are currently co-developing. So I think it's a combination of SOFR and the SoC win. We are working on other design wins. For example, we talk about
First of all, we'll continue to work with Tier 1s like County and Bosch on any potential design wins. At the same time, we also mentioned that in China, I think we saw a lot of opportunities in level 2 Plus cars and especially at the Shanghai Auto Show, we introduced a CV72AQ.
It makes us believe that we have plenty of opportunity there and we are optimistic that we're going to close on design win this year there and also the time to revenue is much faster with those potential design win in China.
Thanks, Ben.
Thanks, Ben. Thanks, Ben. Thank you one moment for our next question.
And our next question comes from the line of Ross Seymour from Deutsche Bank. Your question, please.
Hi guys, thanks for helping me ask a question. Furi, you mentioned that you haven't seen any signs of the end of the inventory digestion that's going on and that growth would really resume when some of the new products kick in. Can you, I guess, dive a little bit deeper into that? And so the two part question would be, where do you believe the revenue level would be for your company versus this?
current inventory correction when they finish, the existing product line will come back to life and it will go back to the original level. So we are not counting on new product design win to fix this inventory correction problem.
And for your first question in terms of level, last quarter when we looked at just one example of a customer, we think that we are probably like 25-30% below the real estate level. So I think we still believe that's the level the differences we're looking at. And hopefully when the inventory correction finished and all the customers went back to normal.
I think that should give you indication where we think the normal level of revenue is. Got it. And I guess for my follow-up on the automotive side specifically, it's good to see the design one with Conti turned into products, etc. Yeah, that business has been basically flat sequentially, I think for four quarters now.
three quarters of reported and it looks like you're guiding it relatively flat. When's the timing where we should start to see that business picking up? You guys have talked about this investment. I know it's a longer term strategy for the company, but it seems like one that should yield some pretty strong tailwinds off the size company you're currently running at.
So just wondered on the timing that we should look for and what the drivers of that growth should be.
Well, I definitely think that the flat, if you look at there are a few quarters before the inventory correction and now you're comparing to the inventory correction period. So I think the last two quarters definitely been impacted by inventory correction in the auto multi-section. So I also believe that as soon as inventory correction finish, which auto should show which copies they'll show, you know, I believe you can even see more looted and traditionally
some revenue growth from that point of view. But like you said, the really big auto growth should come with the ADAS market and also the level 2 plus market when that goes into production.
Thank you. Thank you one moment for our next question.
Thank you one moment for our next question.
And our next question.
comes from the line of Tristan Guerra from Baird. Your question, please.
Hi, good afternoon. I just wanted to have a follow up on the inventory correction and also try to tie this with market share shift. So. It's no secret that some Chinese companies have tried to diversify away from US supply.
But you still have exposure in automotive. So I wanted to know if there is any signs that perhaps the wrap in China is not expected at the pace that you thought would happen a year ago. Are you getting any feedback? And also just to the extent that the inventory correction that you are describing.
In terms of the geopolitical situation, I think for auto multi-market, it's much less severe than security. Security is really being viewed as the safety of the country. That's why I think...
people trying to avoid US components. But in automotive, in fact, if you look at the middle and high end, all the components in Chinese market today, all of them are US components. So I think that's because in automotive processing, I think that our solution among other US components still have better performance efficiency and we haven't seen a similar impact on the Chinese government on mandating the...
the US Chinese automotive OEM use exclusively the Chinese component. So I think that the two things add together. I think I still believe that we won't see a severe downturn on the Chinese automotive business.
OK, great and then as my follow up questions. Obviously you've made that software acquisition. You have the sensor fusion ship. So do you think you have all the pieces you need to move into L2 plus and.
L3 application. Are you getting any feedback about customers looking at your company size versus a larger supplier or is it purely based on chip performance where obviously you excel? Is there any other consideration that you have to consider?
and how you in terms of getting design wins and how you would address that. And that question will also tie to the product roadmap and whether customers are kind of wondering where will you be five years out in terms of product roadmap.
Right. So I think from the product roadmap point of view, I think for level 2+, level 3 car, I think we have all the contents that we need to go after this market. Of course, from the hardware and software point of view, I think we can offer a complete solution. But from the strategy point of view, as we said before, we are not bundling hardware and software together. We are trying to offer...
a software platform that customers can pick and choose and we can help our customers to build their own software stack and working with counties is probably the best example. And in terms of scale, it's always a problem. I try to compete with a bigger company is always a disadvantage for us. But I think that's the reason we continue to try to work with bigger tier ones.
and using with their skill and with their expertise, that will help us partially to address this problem. Great, and clearly the county and Bush are designing to that effect. Thank you very much, very useful.
with their skill and with their expertise that will help us partially to address this problem. Great. And clearly the county and bus should design when you speak to that effect. Thank you very much. Very useful. Thank you.
Thank you one moment for our next question. And our next question comes from the line of Torrey Sundberg from SPIFO. Your question please. Yes, thank you. My first question, Fermi, could you just talk a little bit about the main difference between the CB3-AD and the CB3-AQ, you know, whether it's functionality or ASPs or, you know...
and CV72AQ is designed for the system level auto grade. So I think that's the main difference. So I think for example CV72AQ is definitely a target for Chinese market where people willing to accept system level ASOS system.
versus chip-level resources, and that's the main difference. Very good, thanks for clarifying that. And my follow-up question, you announced the design win for the software IP modules. Again, I was just hoping you could elaborate a little bit more on that.
think that's, you know the.
It's surprising to me when I hear Sofa IP Marginal, right, because that big hardware and software. So it's like, how exactly is the accounting for this particular design? So what we are interested in, I think I see as we announced, this is Sofa partner with County. So basically, the idea is that we are contributing a portion of Sofa's solution and we work with us to cooperate on these products. So I think it's a26 is basically saying that we didn't make a design process.
you know, auto-grade system software. So I think that's where we see that we can leverage both sides of a strength and build a software stack based on, you know, leveraging the both side strength. So I think that's an approach that was different than the customer.
And also for OEMs, if there's anybody who wants to do a similar business model, we are open to that too.
And on the sort of revenue accounting for is I mean if this is a marginal sale or IP revenue?
Oh, I see. That's a basic software revenue split. We need to decide how to share the software revenue together.
I see. That's a basic software revenue split. We need to decide how to share the software revenue together. Understood. All right. Thank you very much.
Thank you one moment for our next question. And our next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your question, please.
Yes, thanks for taking my question. You know, maybe a similar question to what Tristan had about automotive, but in the AI server, as you move to the adjacent market, AI server inference, and you said you have about the same performance as Nvidia A100, but much less power.
Can you say, like, do you have all the tools you need to move into this server market or into the cloud inference market? Right. So obviously, you know, the similarity between our current automotive market and the new AI server market is they are really running a new network on our chip. So from two points of view, they are really all going to be rapid from from central Tokong market. They will also promote the newELL network, those that control the size of your ago market and other connections.
that we only develop many, many software tools to help our customers to port a neural network onto our chip. But obviously LLM is a different beast because they are much larger than the typical neural network that we are working with. So definitely there is an optimization cycle we need to work on. But the reason we decide and we think we have a great opportunity here is, first of all,
we have a working silicon can demo. Two, we have a bunch of expertise and the software tools available that we build for other market. Three, we just need to fine tune and optimize the current software for this LLM to achieve the best possible performance that we can get. So I think from that point of view, the Afro flaws...
is limited and also I think that we also believe that in the market very few people can claim what I just said that we have a working silicon, can show real performance and real low power consumption and also demo to the customer. So I think that's our advantage and also believe that the extra resource we need to put on it.
is something that we can handle. Great. And what would be the go-to-market strategy? Are you looking for a few, maybe, flagship customers to lead the way, or are you going broad with lots of different customers? No, I think we have to be focused. I think we need to identify.
the sweet spot. I think we should talk about strategy later because we are in the process of talking to customers, but I think we need to focus on where our strength is and also focusing on companies that can leverage our chip and our software immediately. And so I think that one thing we learned...
is to work with a customer who has really, they feel the most painful experience with current solution, well, most likely to work with us. And that's where we're going to focus on.
Okay, great. Very interesting. Thank you one moment for our next question.
And our next question comes from the line of Quinn Bolton from Needham & Company. Your question, please.
Hey guys, thank you for taking my question. I guess for me and Brian , maybe just your best guess. I mean, we've been working down this inventory now for a few quarters. Certainly doesn't sound like it's.
You know, you haven't seen any green shoots yet in terms of the orders What's your best guess as to how many more quarters you think it will take to work down this inventory? Do you think we'll be pretty clear by the end of your fiscal year or the end of the calendar year? Do you think it could take longer?
A quarter ago we said that our guidance for fiscal Q1, which was 62 million at the midpoint, we thought that that would represent...
you know, the bottom as related to impacts associated with inventory adjustments, and that it would likely not get worse from that point. And we're kind of sitting in the same place we were 90 days ago from the standpoint that we still believe that's the case.
What becomes challenging is forecasting when this thing lifts off again and at what slope.
We certainly have visibility to backlog, but that backlog has been shifting. We've had rescheduled cancellations that we've had to deal with. So while in normal times we can look at that backlog and have a lot of confidence as to how revenue might shape up, say, in fiscal Q3.
Because of the movements that we've seen, our confidence in providing a forecast would be lower in this cycle than kind of a normal time. We don't see it getting worse, but the visibility to the second half and just how that recovery plays out, I think it's hard for us to talk to at this point.
Understanding you're not getting to the fiscal second half, historically you've seen some stronger seasonal trends in the second half. Can you just provide any framework how we might be thinking about it if the inventory doesn't get any worse and you see...
normal seasonality that would imply a lift obviously if you start to see the inventory correction and that would imply a lift I mean, are you sort of suggesting hey keep it in this 60 to 64 range, you know until you see the inventory clear or do you think you can see some some seasonal upticks?
in the second half? Well, normally we would see some uptick in the fiscal third quarter in particular. And we would hope that we do again, but we're just at a point where.
we don't have the visibility and confidence to put a number out there and try to give you some, you know, magnitude of directional increase at this point in time. Got it, understood, thanks Brian . And then I guess for me, I guess there's a little surprise to see your first win with Continental being a level four win.
on the fast track, but were you surprised that the level four came before level two plus with continental?
Well, I think that the engagement definitely after we announce this SOPHRAE collaboration between Conte and us, which happened at CES, and things go really fast after that. So I think it definitely ends the surprise how fast this developed. And also, I need to thank Conte for putting this whole thing together.
I took two things, one is the momentum with the county and the Bosch that we're still working on and still there. But more importantly, I really think now with Shanghai Auto Show and with our CV72 AQ announcement and the sampling the component and the software to a customer recently, that gives us the confidence that we're going to see CV72.
AQ level 2 plus design win this year and maybe quick revenue returns. And in China you know that the design cycle is not four years. Usually it's less than two years. So we are hopeful to see a really quick revenue return from the CB72 AQ and also that we have a roadmap continue to address.
this market. So I think overall I think Level 2 Plus design win is we are continuing to be our focus and we think we can continue to deliver what we think that we can do.
Perfect. Thank you for me. Thank you one moment for our next question. And our next question comes from the line of Brian Ruttenberg from Imperial Capital. Your question please.
Yes, thank you. Can you give me first of all housekeeping DNA and the period of depreciation amortization? Depreciation amortization, is that the question?
Can you give me, first of all, housekeeping DNA in the period? Depreciation and amortization. Depreciation and amortization, is that the question? Yes, that's affirmative.
Yeah, for a fiscal Q1, I believe it's 5.8 million. Okay, 5.8 million for the first quarter. Also, in terms of DSOs, do you anticipate DSOs stabilizing here? So in other words, trying to understand your cash situation.
You probably won't have to share step again or you anticipate DSOs continuing to go down.
No, I mean what we saw in fiscal Q1 was a normalization of the timing of shipments throughout the quarter.
versus say fiscal Q4 where shipments were very back end loaded. So we had a couple quarters fiscal Q3 Q4 were both very back end loaded quarters.
Q1 normalized, DSOs came down. That provided about a $22 million benefit to cash flow in the quarter. As we move forward, we would expect DSOs to remain at similar levels. Thus, we would not expect to get a large benefit in a future quarter.
from another stair step down, for example. So as we move into Q2, obviously at the revenue level and the other metrics that we gave you, that would be a forecast for a non-GAAP loss. And so you'll have lower free cash flow in fiscal Q2 versus Q1.
And as we go through the year, cash flow is just going to be highly dependent upon the revenue levels. And we've talked about the fact that we don't have great visibility at this point in time to the second half revenue.
Great, thank you very much. Thank you one moment for our next question. And our next question comes from the line of Suji DeSilva from Roth Capital. Your question, please. Hi, Fermi. Hi, Brian . Good to see the continental wind. I don't know if I missed this, but did you say...
the L4 commercial vehicle customer, what geography that was.
We didn't. And our customer doesn't want us to disclose that yet.
Okay, fair enough. And then I think Fermi talked about a range of ASPs five to 20 times. He just talked about what drives the delta there. Is that more compute horsepower on the chip or is that compute plus software? Any color there would be helpful.
I think that comment is purely for silicon, does not include the software. So the difference is really from the low end to the high end. So for example, the low end, for the high end chip we talk about $400 plus dollars and the low end, for example, our 655 chip that we're talking about is probably in the $100 range. So it's really the
involved. Thanks for me.
Thank you one moment for our next question. And our next question comes from the line of David O'Connor from BMP Paribas. Thank you.
Great. Good afternoon. Thanks for taking my questions, guys. Maybe for me, just going back to the question on the AI inference opportunity, can you just give us a bit more detail there on what type of customers are potentially you could engage with on the AI inference side? Is that data prize or enterprise or any particular vertical?
opportunity there will be helpful. Thank you.
Yeah, so it's a lot of questions. So I think, like I said, the target market is really where, you know, is I think our first target is really on the age server side, where you can focus on, you know, the enterprise and the people who are running their own neural network.
For people running OpenAI or other very large model, that might not be the best customer at this point for us, but there are plenty other different software SVs that are driving different neural net model, either for their own code or they are running at the enterprise level. Those are the probably sweet spot for our trip because...
So we know that just like I said, the scale definitely matters in this market too and we need to pick the best market to go after. And we are still in the process to figure that out, but I definitely think that's what I just said is our current thinking. I think in terms of the content, I think…
It's obviously even better than our automotive ASPs because the competition out there is starting at a much higher level. And also we have a great advantage on both – on the power consumption side. We're not talking about 5, 10 percent. We're talking about significant difference in power consumption. We are in a much higher level at vastly lower levels in communications. We're in a higher level at just seem like we've got growing HELLO in a way in little
the total system cost. So I think from that point of view, it will help us to get a healthier content there. I think there is another question I forgot. Time to revenue. Oh, time to revenue. So I think we need to get—
But that more running, then a software two running so that customer can port, and then we can talk about design and then we talk about revenue. So I think if you ask me today, I will say that's a 24-month process.
a demo running, then a software 2 running so the customer can port, and then we can talk about design and then we talk about revenue. So I think if you ask me today, I will say that's a 24-month process, totally.
That's quite helpful to bring that. Thank you for me. And maybe just a follow-up on that for Brian , just on the ramping that sulfur development team, just to clarify, that fits in with the current optics in the NOPE or would there be some kind of step up there to fund that new team? Thank you.
Our plan is to use our current expertise and team to facilitate this activity. The idea is simple because our internal team is helping many other customers to port their neural network onto CV3. We understand LLM because it's so large.
and it takes extra effort. So that the best way to do this is fund it and put internal resources on this project. Obviously, you will take a trade-off. We don't plan to add much of the resources into the company.
So I think that we need to really focus on the area where we think is important. I think where it's important for us is definitely security camera to provide cash for us, maintaining our CV3 momentum with the current design wins like the Borscht County and try to secure CV3 design wins with OES and also try to find the resource to...
found this LLM and everything else is a tradeoff that we need to consider. Very helpful. Thank you.
Thank you one moment for our next question. And our next question comes from the line of Vivek Arya from Bank of America. Your question please.
Hi, this is Blake Freeman from the VEX. Thanks for taking my question. Just first on the cash side, just curious, I know you mentioned talking about increased R&D investments over the next few quarters. Just at your current cash level, are you comfortable there or do you see any needs to raise incremental cash in the future?
No, we don't see any need to raise incremental cash. We have a strong cash balance, no debt, and we've got a history of being positive from a free cash flow perspective. So no need to raise additional cash.
Great. And then quickly as my follow-up, just given the current revenue levels, we've seen a relatively substantial change with kind of the split between IoT and auto is now roughly 65, 35 percent. So the margins are still kind of held up.
relatively okay and above this – the long-term range of 59 to 62 percent. So, just kind of curious if you can give us the puts and takes on the gross margin side and maybe beyond Q2 at a diverse margin level.
Yeah, I think we stick with that long-term model that we provided previously. In recent history, we've been delivering higher gross margins than that, and we would expect that that would continue until we get into the impact of potentially very large automotive opportunities, and that's why that long-term model.
provides for a slightly lower gross margin if we need to get there to secure those design wins. But for now, in the foreseeable future, we should be at recent gross margin levels and probably a little bit higher once we get through this inventory correction and get back to slightly higher gross margins that we were posting last fiscal year.
Thank you. Thank you. Thank you. Thank you one moment for our next question. Fantastic.
It comes to the line of Martin Yang from Oppenheimer. Your question, please. All right, thank you for taking the time. Day on CD32 YouTube.
I'm sorry, can I hear you well? Can you hear me better now? Yes, yes.
Do you expect most customers either automotive or...
Do you expect most customers either automotive or
Jonathan, let's go to the next question and then we'll give Martin another chance after this question. Okay, understood. We understood one moment for our next question.
Let's go to the next question and then we'll give Martin another chance after this question. Okay, understood one moment for our next question.
And our next question comes from the line of Matt Ramsey from TD Cowen. Your question, please. Hi. This is Josh Buckhalter on behalf of Matt. Thanks for squeezing me in. It's great to see that the CV3 win was continental for commercial applications. I was wondering if you could provide some initial feedback on how it's going on the consumer passenger vehicle side.
I recognize it's only been a few months since the partnerships have been announced, but you're going against some entrenched and large competitors in the central ADAS domain, and I was wondering how Conti and Bosch are positioning your CB3-based solutions to win in that market. Thank you.
Yeah, I think, you know, first of all, I, you know, we have a strong relationship with both the Bosch and County, and the County has even further collaboration because of the SOFR relationship, and you can see that SOFR relationship already start paying off, not only on the level four, but also we start building an engineering collaboration on that. So I think that...
And that activity definitely is very helpful. And also on the business side, both sides, working with the county and Bosch definitely help us to address the scale problem partially. And also we believe that working with – we continue to believe that working county and Bosch is the right thing for us to do to get design wings in the U.S. and Europe .
I think that says that I also believe that our first level two plus design will come from China, like I said, because the momentum we see after the Shanghai Auto Show is real and that we not only demo a powerful chip, but also we demo something that very few people can do, which is... You learned so many things over the last few moments, I wish you all a quest over theconstitutional
running transformer neural network in a lower end chip that just nobody out there can demo. Like the company you mentioned, now then the lower end chip can demo transformer efficiently. And the transformer becomes such an important neural network and you can use as benchmark everywhere. So particularly in China, where AI and neural network performance is very much appreciated.
So I think that's a moment where we definitely enjoy it, and I hope that we can get several design wins in China this year.
Can you talk about, I think this is the first time you've mentioned auto being a source of inventory correction despite the results coming in in line with your expectations. Did that get any appreciably worse during the quarter? I know we've all heard about weakness in the China EV market. It would be helpful if we could help us understand your exposure there and if that worsened and drove I guess some incremental weakness during the quarter. Thank you.
No, what we said before is we think our inventory control in auto is much less than the inventory control in IoT. That's what we said. We didn't say auto was not impacted. We definitely see several customers got impacted, but not as bad as IoT space. So from that point of view, I think…
I still think that, I still expect that when the inventory correction finish, the auto should go back to the growth. Got it. Thank you. Thank you. And Mr. Yang, if you could press star 1-1 again, we'll open your line to see if you can be heard this time, if you have better signal. All right, one moment. Mr. Yang, your line is now open.
I think for the IoT, the adoption of radar system will be slower because the co-market, the IoT market is moving toward radar but not as fast as auto. Radar in auto space is basically everywhere. Everybody realizes that they need to have radar solution in any level 2 power system.
So I think in terms of adoption, that radar will go to auto space first. For CV72AQ, I think that radar integration will come later, because right now we're focusing on winning the video site. However, at the second phase of software development, radar integration will come also.
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Dr. Fermi Wang for any further remarks. And thank you. Thank you very much for you to join us today. I'm looking forward to talk to you next quarter. Thank you. Bye everyone.