Q4 2025 Ambarella Inc Earnings Call

February 26, 2025

And for fiscal year 2025 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 to ask a question. During the session you will need to press star one on your telephone you will.

John Young: Non-GAAP operating expense in Q4 was $48.7 million, below the low end of our prior guidance range of $49 to 52 million, driven by continued expense management and the timing of spending between quarters. We remain on track to our internal product development milestones. Q4 net interest and other income was $2.4 million. Comparing to our prior guidance of $1.8 million, the increase was from a one-time government grant in the United States. Q4 non-GAAP tax provision was approximately $1 million. In fiscal 2025, non-GAAP tax provision was approximately $2.1 million.

And then here an automated message advising you. Your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.

John Young: Driven by continued expense management, and the timing of spending between quarters, we remain on track to our internal product development milestone. Q4 net interest and other income was $2.4 million. Comparing to our prior guidance of $1.8 million, the increase was from a one-time government grant in the United States. Q4 non-GAAP tax provision was approximately $1 million and fiscal 2025 non-GAAP tax provision was approximately $2.1 million. We reported a non gap net profit of $4.8 million or 11 cents.

Speaker Change: I would now like to hand, the conference over to your speaker today, Louis You're Hardy VP corporate development. Please go ahead.

Thank you Michelle good afternoon, and thank you for joining our fourth quarter and full year fiscal 2025 financial results Conference call.

Unknown Attendee: Please be advised that today's conference is being recorded.

Speaker Change: On the call with me today is Dr. Fermi, Wang President and CEO and John Young CFO.

Louis Gerhardy: I would now like to hand the conference over to your speaker today, Louis Gerhardy, VP Corporate Development. Please go ahead. Thank you, Michelle.

Speaker Change: The primary purpose of today's call is to provide you with information regarding the results for our fourth quarter and full year fiscal 2025.

Louis Gerhardy: Good afternoon, and thank you for joining our fourth quarter and full year fiscal 2025 financial results conference call.

Speaker Change: The discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results.

John Young: We reported a non-GAAP net profit of $4.8 million or $0.11 earnings per diluted share in Q4, and a non-GAAP net loss of $6.8 million or $0.16 or a $0.16 loss per diluted share for fiscal 2025. Now I will turn to our balance sheet and cash flow. Fiscal Q4 cash and marketable securities increased $23.7 million from the prior quarter and increased $30.4 million from the same quarter a year ago. Cash and marketable securities benefited primarily from working capital improvements during the quarter. Receivables days of sales outstanding decreased from 38 days in the prior quarter to 33 days, while days of inventory increased from 94 in the prior quarter to 97 days. Inventory dollars declined 5.9 sequentially and increased 18.5% from a year ago.

Louis Gerhardy: On the call with me today is Dr. Fermi Wang, President and CEO, and John Young, CFO. The primary purpose of today's call is to provide you with information regarding the results for our fourth quarter and full year fiscal 2025. The discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results. financial prospects, market growth. in demand for our solutions, among other things. These statements are based on currently available information and 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.

John Young: earnings per diluted share in Q4 and a non-gap net loss of $6.8 million or 16 cents or a 16 cent loss per diluted share for fiscal 2025.

Speaker Change: <unk> prospects market growth.

Speaker Change: And demand for our solutions among other things.

Speaker Change: These statements are based on currently available information and subject to risks uncertainties and assumptions.

John Young: Now I will turn to our balance sheet and cash flow. Fiscal Q4 cash and marketable securities increased $23.7 million from the prior quarter and increased $30.4 million from the same quarter a year ago. Cash and marketable securities benefited primarily from working capital improvements during the quarter. Receivables days of sales outstanding decreased from 38 days in the prior quarter to 33 days, while days of inventory increased from 94 in the prior quarter to 97 days. Inventory dollars declined 5.9% sequentially and increased 18.5% from a year ago. Operating cash inflow was $25.4 million for the quarter and for the full year we generated operating cash of $33.8 million.

Speaker Change: Should any of these risks or uncertainties materialize.

Speaker Change: Or should our assumptions prove to be incorrect, our actual results could differ materially from these forward looking statements.

Under no obligation to update these statements. These.

Speaker Change: These risks uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results.

Speaker Change: Are more fully described in the documents we file with the SEC.

Speaker Change: Before starting the call we hope to see you at one of the following investor events.

Louis Gerhardy: 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 the SEC.

Speaker Change: Bernstein's third annual Technology Media, and Telecom Forum Tomorrow February 27th and Palo Alto <unk>.

Speaker Change: Susquehanna as virtual annual Technology Conference on Friday February 28.

John Young: Operating cash inflow was $25.4 million for the quarter, and for the full year, we generated operating cash of $33.8 million. Capital expenditures for tangible and intangible assets were $4.2 million for the quarter and $10.4 million for the year. Free cash flow was $21.2 million for the quarter and $23.5 million for the year. This represented the 16th consecutive fiscal year of positive free cash flow. We had one logistics company representing 10% or more of our revenue. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 60.9% of revenue for Q4 and 62.9% for the full fiscal year 2025.

Louis Gerhardy: Before starting the call, we hope to see you at one of the following investor events. Bernstein's third annual Technology, Media, and Telecom Forum tomorrow, February 27th, in Palo Alto. Susquehanna's Virtual Annual Technology Conference on Friday, February 28. Morgan Stanley's Technology, Media, and Telecom Conference March 3rd in San Francisco. Loop Capital's conference March 11th in New York City. Cantor's Global Tech Conference, March 12th in New York. and the Roth Conference March 17th in Southern California.

Speaker Change: Morgan Stanley's technology Media and Telecom Conference March 3rd in San Francisco.

John Young: Capital expenditures for tangible and intangible assets were $4.2 million for the quarter and $10.4 million for the year. free cash flow was $21.2 million for the quarter and $23.5 million for the year. This represented the 16th consecutive fiscal year of positive free cash flow. We have one logistics company representing 10% or more of our revenue, WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia. came in at 60.9% of revenue for the fourth quarter and 62.9% for the full fiscal year 2025.

Speaker Change: Luke Capitals Conference March 11th in New York City.

Speaker Change: Cantor's Global Tech Conference March 12 in New York.

Speaker Change: And the Roth Conference March 17th in Southern California.

Speaker Change: Access to our fourth quarter and full year fiscal 2025 results press release transcripts <unk>.

Speaker Change: Historical results SEC filings and a replay of today's call can be found on the Investor Relations page of our website.

Speaker Change: The content of today's call as well as the materials posted on our website, our ambarella is property.

Louis Gerhardy: Access to our fourth quarter and full year fiscal 2025 results press release transcript. Historical results, SEC filings, and a replay of today's call can be found on the Investor Relations page of our website.

Speaker Change: And cannot be reproduced or transcribed without our prior written consent.

Speaker Change: For me will now provide a business update for the quarter.

John Young: I'll now discuss the outlook for the first quarter of fiscal year 2026. The new product momentum that Fermi described is expected to enable us to post better than normal seasonal results in fiscal Q1, despite the stronger than expected fiscal Q4. Q1 revenue is expected to be in the range of $81 to $87 million, with auto down sequentially and IOT flat to slightly up sequentially. We expect Q1 non-gap gross margin to be in the range of 61% to 62.5%. We expect non-GAAP OPEX in the first quarter to be in the range of $50 to $53 million, with the increase compared to Q4 driven by new product development costs, as well as increased employee-related expenses beginning in the new year.

John Young: I'll now discuss the outlook for the first quarter of fiscal year 2026. The new product momentum that Fermi described is expected to enable us to post better than normal seasonal results in fiscal Q1, despite the stronger than expected fiscal Q4. Q1 revenue is expected to be in the range of $81 to 87 million, with auto down sequentially and IoT flat to slightly up sequentially. We expect Q1 non-GAAP gross margin to be in the range of 61% to 62.5%. We expect non-GAAP OpEx in the first quarter to be in the range of $50 to 53 million, with the increase compared to Q4 driven by new product development costs as well as increased employee-related expenses beginning in the new year.

Speaker Change: John will review the financial results and outlook and then we'll all be available for your questions for me.

Louis Gerhardy: The content of today's call, as well as the materials posted on our website, are Ambarella's property and cannot be reproduced or transcribed without our prior written consent.

John: Thank you Louis.

John: Good afternoon, and thank you for joining our call today.

John: Ambarella finished physical 2025 with the strong results and a positive outlook.

Fermi Wang: Fermi will now provide a business update for the quarter. John will review the financial results and outlook, and then we'll all be available for your questions. Fermi. Thank you, Louis. Good afternoon, and thank you for joining our call today. Ambarella finished fiscal 2025 with strong results and a positive outlook. H-A-I is clearly established as our key revenue driver, enabling us to grow and overcome the cyclical, economic, and geopolitical challenges in the last year. We achieved record A-I revenue in Q4, as well as for the full year fiscal 2025. In the fourth quarter of fiscal 2025, our revenue increased 2% sequentially and exceeded the high end of our guidance range by 5%.

John: AI is clearly established as our key revenue driver, enabling us to grow and overcome the cyclical economy and geopolitical challenges in the last year.

We achieved a record revenue in Q4 as well as for the full year fiscal 2025.

John Young: We expect non-GAAP OpEx in the first quarter to be in the range of $50 to 53 million, with the increase compared to Q4 driven by new product development costs as well as increased employee-related expenses beginning in the new year. We estimate net interest income to be approximately $1.8 million, our non-GAAP tax expense to be approximately $600,000, and our diluted share count to be approximately 43.4 million shares. Thank you for joining our call today. With that, I will turn the call over to the operator for questions.

John: In the fourth quarter of fiscal 'twenty, five a revenue increase of 2% sequentially and exceeded the high end.

John: Our guidance range by 5%.

John: I'll find nanometer Soc products led to the results with the new product revenue wafer one from the <unk> family, leading the charge and the for the first time, we generated production production revenue from the CB seven family or new product revenue too.

John Young: We estimate net interest income to be approximately $1.8 million, our non-GAAP tax expense to be approximately $600,000, and our diluted share count to be approximately 43.4 million shares. Thank you for joining our call today. With that, I will turn the call over to the operator for questions.

John Young: Thank you for joining our call today.

John: Our physical quantified revenue increased 26% year over year with both units and average selling price rising.

Unknown Attendee: And with that, I will turn the call over to the operator for questions. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question, one follow up.

Fermi Wang: Our 5-nanometer SOC products led the results, with new product revenue wave 1 from the CV5 family leading the charge. And for the first time, we generated production revenue from the CV7 family, or new product revenue 2. Our fiscal 2025 revenue increased 26% year-over-year, with both units and the average selling price rising. AGAI was about 70% of our total revenue. Our customers completed the digestion of their excess inventory in the first half of the year. And in the second half, the secular growth of our AGAI strategy became more apparent.

Operator: Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question. Our first question is going to come from the line of Quinn Bolton with Needham & Company. Your line is open. Please go ahead.

John: Hai was about 17% of our total revenue.

John: Customer customers completed.

Unknown Attendee: One moment for our first question.

John: The digestion of the excess inventory in the first half of the year and in the second half the secular growth of our H AI strategy became more apparent.

Quinn Bolton: Our first question is going to come from the line of Quinn Bolton with Needham & Company. Your line is open. Please go ahead. Hey, guys. Thanks for taking my question.

John: I am proud of the key achievements our team delivered in the last year first financially revenue growth.

Quinn Bolton: Hey, guys. Thanks for taking my question and congratulations on the nice results, outlook, and the 16th year of positive cash flow. I guess for me, John, I guess I wanted to start. I think you said in prepared script that CV5, CV7 would account for more than half of the growth in fiscal 2026. Wondering what's the other half of revenue growth? Is that the older CV2 family, or are there other drivers of the business? I assume, but wanted just to see if you would confirm that the vision processors or the camera processors, you would expect that business to continue to decline at a gradual pace in fiscal 2026.

John Young: Congratulations on the nice results and outlook in the 16th year of positive cash flow. I guess for me, John, I guess I wanted to start. I think you said in the prepared script that CB5, CB7 would account for more than half of the growth in fiscal 26. Wondering, what's the other half of revenue growth? Is that the older CB2 family, or are there other drivers of the business? And I assume, but just to see if you would confirm, that the vision processors or the human camera processors, you would expect that business to continue to decline at a gradual pace in fiscal 26?

Speaker Change: Stuart and in the second half we returned to non-GAAP profitability.

Speaker Change: Physical 2025 represented our 16th consecutive year of positive free cash flow.

Fermi Wang: I am proud of the key achievements our team delivered in the last year. First, financially, revenue growth was restored, and in the second half, we returned to non-GAAP profitability. Fiscal 2025 represented our 16th consecutive year of positive free cash flow. Second, we execute on our R&D priorities. As a result, we are realizing revenue growth from the CV5 and the CV7 new product families with emergent opportunities on the horizon. Most importantly, we are successfully commercializing our AI investment. HGAI commenced in our enterprise security market. And from there, we continue to successfully reach into more markets, such as fleet telematics, ADAS, automotive e-mails, in-cabin systems, next-generation access control, advanced video conferencing, and portable consumer electronics.

Second we ask you that all R&D priorities as a result, we are realizing revenue growth from our <unk>, five and the Cvs or a new product families with emergent opportunities on the horizon.

Speaker Change: Most importantly, we are successfully commercializing our AI investment.

Speaker Change: <unk> comments in our enterprise security market and from there we continue to successfully reaching into more markets such as a fleet telematics Adas automotive E mirrors.

John Young: Yeah, Quinn, you know our business very well. Everything you say is correct. But first of all, half of the growth, fiscal 26, is from CV5 and CV7. And our old VP, video process product, will have a slow decline. We expect maybe 10%, 15% annual decline rate from now to the end. But also CV2, we continue to expect growth. And the healthy growth from our existing product line, for example, we talk about one of our telematic customer ramping up their products last quarter. And it really drives the significant growth on CV2 family. So I think all of that, so CV2, CV5, and CV7 drive the growth.

John Young: Yeah. Quinn, you know our business very well. Everything you say is correct. First of all, half of the growth fiscal 26 is from CV5 and CV7. Our old VP video process product will have a slow decline. We expect maybe 10, 15% annual decline rate from now till the end. Also CV2, we continue to expect growth and healthy growth from our existing product line. For example, we talk about that one of our telematics customer ramping up their products last quarter, and it really drive the significant growth on CV2 family. I think all of that. CV2, CV5, and CV7 drive the growth, and VP will continue to have a consistent slow rate of decline.

Having modest in cabin monitoring in cabin systems next generation access control advanced video conferencing, and the portable consumer electronics.

Speaker Change: Looking into fiscal year 2026, we anticipate meet to high teens revenue growth. Despite despite the higher base of much stronger than expected Q4.

Speaker Change: With uncertainty related to government policy decisions will have appeal to conservatism into our outlook for the second half physical 2026, while we do not expect to be directly impacted by tariffs. We suspect that some customers are evaluating their own supply chains as well as the U S.

Fermi Wang: Looking into fiscal year 2026, we anticipate a meat to high team's revenue growth, despite the higher base of the much stronger than expected Q4. With uncertainty related to government policy decisions, we have built conservatism into our outlook for the second half of fiscal 2026. While we do not expect to be directly impacted by tariffs, we suspect some customers are evaluating their own supply chains as well as the elasticity of demand for their products.

John Young: And VP will continue to have a slow rate of decline. Perfect.

Quinn Bolton: Perfect. Just to follow up, it sounds like in both the January quarter and the April guide, you've got auto down sequentially. Just wondering, you know, is that sort of a reflection just of inventory correction still taking place in that end market? Is it just lackluster demand given some of the macro events, and, you know, perhaps tariff uncertainty or, you know, is it just sort of timing of when some of your new pipeline projects go to production? Just any more color on auto would be helpful.

John Young: And then just to follow up, it sounds like in both the January quarter and the April guide, you've got auto down sequentially. Just wondering, you know, is that sort of a reflection just of inventory correction still taking place in that end market? Is it just lackluster demand given some of the macro events and, you know, perhaps tariff uncertainty? Or, you know, is it just sort of timing of when some of your new pipeline projects go to production? Just any more color on auto would be helpful. Right. First of all, on the auto Q4 and the Q1 guidance, you know, although we say it's a little down, but the decline rate is very small.

Speaker Change: Elasticity of demand for their products.

Speaker Change: Hey market the.

Speaker Change: The breakthroughs with more powerful efficient and the open sourced recently models was an exciting industry development in January.

Speaker Change: We expect to open source reasonably model such as deep seek all want to enable more events decision, making and intelligence in all tiers of AI processing hierarchy, including our target market I know the age.

Fermi Wang: turn into a development in a in a broad AI market.

John Young: Right. First of all, on the auto Q4 and the Q1 guidance, you know, although we say it's a little down, but the decline rate is very small. In fact, that decline has nothing to do with the previous rounds of, you know, inventory correction. That you are right, you know, although none of our customers indicates that they are accumulating inventory because of the current, all of the new government policy. We do see there are some concerns about how the tariff will have indirect impact to us, direct impact to our customer. That's where we put in some of the conservatism in our second half guidance.

Fermi Wang: The break

Speaker Change: Well breakthroughs like the spring new level compute efficiency the implementation of a new reason the models and age is expected to require incremental compute power.

John Young: So, in fact, that decline has nothing to do with the previous rounds of, you know, inventory correction. Although that you are right, you know, although none of our customers, it indicates that they are accumulating inventory because of the current, all of the new government policy. But we do see there are some concerns about how the tariff will have an indirect impact to us, directly direct impact to our customer. So that's where we put in some of the conservatism. You also can have guidance. Got it. Okay.

Speaker Change: In Hai this easy.

Speaker Change: This is an example of a secular trend we expect to drive our.

Speaker Change: ASP higher.

Speaker Change: And actually example of how ambarella is leading the rapid evolution of the H are market with innovation and execution is our <unk> experience. This year, where we demonstrate a vision language module processing on our CV seven <unk>, three and <unk> product families.

Quinn Bolton: Got it. Okay. Thank you, Fermi.

Unknown Attendee: Thank you, Fermi. Thank you.

Fermi Wang: Thank you.

Speaker Change: Yeah.

Speaker Change: Successfully brought up the deep seek our module on CV server and <unk> product families and we are showing them to our customers.

Operator: Thank you. One moment as we move on to our next question. Our next question will come from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead.

Unknown Attendee: And one moment as we move on to our next question.

Joe Moore: And our next question will come from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead. Great, thank you. Fermi, I wonder if you could just talk about the general investment in ADAS these days. You know, you're seeing Tesla's FSD has done well, the God's Eye thing at BYD got people's attention. And I know those aren't, you know, your opportunities, but has that stimulated kind of incremental investment interest in the ADAS space from other OEMs? Right, so we continue to see a strong demand on the ADAS side, particularly Level 2+, that didn't change.

Joe Moore: Great. Thank you. Fermi, I wonder if you could just talk about the general investment in ADAS these days. You know, you're seeing Tesla's FSD has done well. The God's Eye thing at BYD got people's attention, and I know those aren't, you know, your opportunities, but has that stimulated kind of incremental investment interest in the ADAS space from other OEMs?

Speaker Change: There is a growing trend toward performing more AI processing as an H is cloud based processing has a higher total cost of ownership latency challenges high power usage data security and privacy concerns.

Speaker Change: Our processing is now being able to with the introduction of a smaller and more optimized model.

Speaker Change: Yeah.

Fermi Wang: Right. We continue to see a strong demand on the ADAS side, particularly level two plus. Might even change. The only change is the flavor of the OEM demand becomes very cost sensitive. We talk about this trend also that we call value products, so that if you look at OEMs, they want to upgrade the product from level two to level two plus. Some of them want to upgrade even to level two plus plus or level three. At the same time, they are very sensitive to cost. From that point of view, I think our CV3 family that can help them to address the BOM concerns is definitely continued to be viewed positively in the market.

Speaker Change: We introduced our own 165 by H Chan AIA <unk> this year with a high AI processing promote performance to support the latest transform our network and popular multimodal amps and the language amalgam up larger language models.

Fermi Wang: But the only change is the flavor of the OEMs demands become, they become very cost sensitive. We talk about this trend also that we call value products so that if you look at OEMs, they want to upgrade the product from Level 2 to Level 2+. Some of them want to upgrade even to Level 2++ or Level 3, but at the same time, they are very sensitive with the cost. So from that point of view, I think our CV3 family that can help them to address the bomb concerns is definitely continue to be viewed positively in the market.

Speaker Change: 655 comes from only 20 watts of power and pockets applications, such as <unk> AI box.

Speaker Change: The Palomar mobile robots security network video recorders.

Speaker Change: And retail analytics.

Speaker Change: At the show, we demonstrated <unk> six firefight running.

Speaker Change: Clifford and lava type of or.

Speaker Change: Leisure model with data inputs, including tax video in a speech all running locally.

Speaker Change: Box without the need for Internet connection.

Fermi Wang: Great, that's helpful. And then I noticed that the NIO win on electronic rearview mirrors, I know that's a market you've sort of been talking about for a long time. And, you know, are you starting to see more adoption there? And, you know, do you expect that to be, you know, a more significant growth area going forward? I think we see multiple design, we only talk about, we continue to expect growth in that area. But the ASP that we talk about is really, you know, just from the high single digit to low teams. So the growth rate, although in that particular segment, growth rate will be high, but the material impact to our total revenue is limited.

Joe Moore: Great. That's helpful. I noticed that the NIO win on electronic rear view mirrors. I know that's a market you've sort of been talking about for a long time. You know, are you starting to see more adoption there and, you know, do you expect that to be, you know, a more significant growth area going forward?

In the enterprise security market El Toro introduces small phone factor <unk> hundred body worn camera based on our history our asos.

Speaker Change: And designed to enhance worker safety and the security in poverty environments, such as the <unk> retail medical or hospitality industries. Additionally, Motorola introduced its <unk> 700 body camera based on our <unk> Soc in the offering 12 hour operation.

Fermi Wang: I think we see multiple design win, or we only talk about we continue to expect growth in that area. The ASP that we talk about is really you know, just from this high single digit to low teens. The growth rate, although in that particular segment, growth rate will be high, but the material impact to our total revenue is limited. I think this is, we treat that as a way to get into OEM designs. For example, we talk about, you know, Korean company, you know, one of the largest Korean automotive OEM using that, using our solution for the eMirrors. That just help us to open the door to those major OEMs.

Speaker Change: But what I also introduced its <unk> six a fisheye camera based on our final Romito CV 72, and operating three 360 degree viewing megapixel resolution and AI powered video and audio analytics.

Fermi Wang: But continue, but I think this is, we treat that as a way to get into OEM designs. For example, we talk about, you know, Korean company, you know, what the largest Korean automotive OEM using that, using our solution for the e-muros that just help us to open the door to those major OEMs. Great, thank you. Thank you.

Speaker Change: Japanese enterprise security Neither April formerly Panasonic introduced its new line of high Zune bullet cameras targeting long ridge monitoring over highways parking lots and the stadiums based on our final enemies or a <unk> 52. The cameras are pre installed it was nine <unk> a M.

Joe Moore: Great. Thank you.

Operator: Thank you. One moment as we move on to the next question. Our next question is gonna come from the line of Christopher Rolland with Susquehanna. Your line is open. Please go ahead.

Unknown Attendee: And one moment as we move on to the next question.

Christopher Rolland: And our next question is going to come from the line of Christopher Rolland with Susquehanna. Your line is open. Please go ahead.

Speaker Change: Occasions.

Speaker Change: We are very pleased to announce our first win with HIV division of us are blowing.

Fermi Wang: Hi, this is Aaron Nackville in for Chris Rolland. Thanks for taking the question. So the mid to high teens guide for fiscal year 26 seems very conservative. So I mean, essentially we're modeling flat down for the remaining three quarters. And I know you mentioned building conservatism into the second half, but is there anything else beyond government uncertainty that you're factoring in? And how does this play out between auto and IOT? Well. the first half to second half, based on current guidance, is not as high. The growth on the first half to second half is not as high as before, but that definitely reflects our customers' consultations, and also our consultations, reflecting the potential government policy change, right?

Aren Nakpil: Hi, this is Aren Nakpil in for Chris Rolland. Thanks for taking the question. The mid to high teens guide for fiscal year 2026 seems very conservative. I mean, essentially we're modeling flat to down for the remaining three quarters. I know you mentioned building conservatism into the second half, but is there anything else beyond, you know, government uncertainty that you're factoring in? How does this play out between auto and IoT?

Arin Nakpil: Hi, this is Aren Nakpil in for Chris Rolland. Thanks for taking the question. The mid to high teens guide for fiscal year 2026 seems very conservative. I mean, essentially we're modeling flat to down for the remaining three quarters. I know you mentioned building conservatism into the second half, but is there anything else beyond, you know, government uncertainty that you're factoring in? How does this play out between auto and IoT?

Speaker Change: Global leader in the access solution market.

Speaker Change: <unk> has deployed its you argue camera identification system based on our <unk> to deliver fast accurate and secure facial your combination.

Speaker Change: Powered by AI, driven multi spectral image and events presentation.

Speaker Change: Pac detection.

Speaker Change: It enhances user convenience, while reducing fraud risks even in high security in a challenging environment.

Fermi Wang: Well. The first half to second half, based on our current guidance, is not as high. The growth from the first half to second half is not as high as before, but that definitely reflects our customers' conservatism, also our conservatism reflecting the potential government policy change, right? We are all waiting for how, for example, the tariff at Mexico, Canada that will impact or impact our customers' manufacturing side. Those are kind of factors in. I think overall I still feel very strong. I feel comfortable our growth rate for from our customer product point of view. We talk about CV5, CV7. We think that the growth rate will continue, and CV2, like I said before, will continue.

Speaker Change: Yeah.

Speaker Change: In the smart home security camera market Canadian communication, operator tell us introduce a range of cameras, including Dobell indoor and outdoor cameras all based on our CV 28.

Speaker Change: In vehicles of vast majority of our revenue is currently in the Adas market and our global effort is demonstrated with this quarter's representative customer engagement in China, South Korea and France.

Fermi Wang: We are always waiting for how, for example, the tariff at Mexico or Canada that will impact our customers' manufacturing sites. So those are kind of factoring in, but I think overall, I still feel very strong, feel comfortable our growth rate from our customer product point of view. We talk about CV5, CV7, we think that the growth rate will continue, and CV2, like I said before, will continue. So I think overall, although there's some conservatism there, but it's really reflecting on the policy side, not on our products.

Speaker Change: During the quarter, if AWS introduces Hong Chi <unk> ph, even including level two adas implemented with our <unk> system based on <unk> <unk>.

Speaker Change: VW is joint venture with <unk> introduced a pre installed the Tashkent is Michael Tung passenger vehicle based on our <unk>.

Fermi Wang: I think overall, although there's some conservatism there, but I, it's really reflecting on the policy side, not on our product side.

Speaker Change: Neil consider one of the leading new energy vehicle companies introduces a flagship EV, the ETE night, including electric electronic Rearview mirror system based on our <unk>.

Unknown Attendee: Understood.

Aren Nakpil: Understood. If I have a follow-up. Over the next, like, two to three years from a geographic perspective, which regions do you expect to outperform, underperform, given your pipeline?

Arin Nakpil: Understood. If I have a follow-up. Over the next, like, two to three years from a geographic perspective, which regions do you expect to outperform, underperform, given your pipeline?

Unknown Attendee: And if I have a follow up, over the next like two to three years from a geographic perspective, which regions do you expect to outperform underperform given your pipe? I still consider that the U.S. is our largest customer, our largest geography, and we did well in Japan, Korea, and Europe. In China, we maintain 15 percent total exposure. Consumption point of view. So I think from the point of view, we'll continue to focus on the US, EU and the Japan Korea market. And we expect that they continue to do well for us. Thank you. One moment as we move to the next question.

Speaker Change: In December we allow first driver monitor wing in Shanghai key our passenger vehicle the premium cirrhosis and he's provided the LG electronics is based on our <unk> 25.

Fermi Wang: I still consider that US is our largest customer; it's our largest geography. We did well in Japan, Korea, and Europe. In China, we maintain 15% total exposure from the, you know, consumption point of view. I think from the point of view, we'll continue to focus on the US, EU, and the Japan, Korea market, and we expect that they continue to do well for us.

And in January Fork trucks was announced as a first Cosmo four French with tier 1000, who is providing is AI powered smart vision camera mycosis aren't using our CV to MFS.

Speaker Change: In summary, this quarter. This alternative representative customer engagements highlights the increased breadth of our <unk> revenue globally. This includes a range of enterprise and.

Aren Nakpil: Thank you.

Arin Nakpil: Thank you.

Operator: Thank you. One moment as we move to the next question. Our next question is gonna come from the line of Ross Seymore with Deutsche Bank. Your line is open. Please go ahead.

Ross Seymour: Our next question is going to come from the line of Ross Seymour with Deutsche Bank. Your line is open. Please go ahead. Hi, guys. Thanks for asking the question and congrats on the strong results. Getting into the full year guide, again, I can understand the policy conservatism for me you just answered. Does that hit one side of your business more than the other? Or if you're going to grow that kind of mid to high teens, is there a significant delta in your mind between the IoT slash AI side and the automotive side? I think the people that are manufacturing in, you know, China, Mexico, and Canada, definitely they start looking for options, right, and waiting for the final result.

Speaker Change: On the consumer Iot.

Speaker Change: <unk>.

Speaker Change: And a variety of automotive applications, such as level, two Adas driver monitoring rearview and the exterior left and the right Samuels.

Ross Seymore: Hi, guys. Thanks for taking this question, and congrats on the strong results. Getting into the full year guide, again, I can understand the policy conservatism Fermi you just answered. Does that hit one side of your business more than the other? If you're gonna grow that kind of mid to high teens, is there a significant delta in your mind between the IoT/AI side and the automotive side?

Speaker Change: Cumulatively cumulatively cumulatively, we have shipped more than $13 million.

Speaker Change: That's over <unk> with each asos integrating our proprietary CV flow deep learning.

Fermi Wang: Geography. I think the people that are manufacturing, you know, China, Mexico, and Canada, definitely they start looking for options, right? And waiting for the final results. I think that's really geography dependent, not market dependent.

Speaker Change: <unk> XR, either with our proprietary video processor.

Speaker Change: A vast majority of this installed base is represented by our <unk> family of computer vision processors, while we expect continued growth.

Fermi Wang: So I think that's really geography dependent, not the market dependent.

Louis Gerhardy: Gotcha, so the conservatism that you have on the two, well, let me just ask the question in a different way. With that given conservatism, do you have a significantly different growth rate expectation for the IoT AI side versus automotive? Last year, you said one was up over 30%, the other was up mid single digits. Is that ratio gonna continue or does the automotive side start to catch up?

Ross Seymore: Gotcha. The conservatism that you have on the two. Well, let me just ask the question a different way. With that given conservatism, do you have a significantly different growth rate expectation for the IoT AI side versus automotive? Last year, you said one was up over 30%, the other was up mid-single digits. Is that ratio gonna continue, or does the automotive side start to catch up?

Speaker Change: Our new five nanometer products.

Speaker Change: Which come in above average ASP.

Speaker Change: Represent our key growth driver with revenue etcetera to arrive in ways. The first wave.

Speaker Change: From our growing <unk> family is underway.

Speaker Change: And they continue to have a strong growth outlook wave.

Fermi Wang: Go ahead.

Speaker Change: <unk> from the CB superfamily reach production status for the first time in the fourth quarter with three customer purchasing production quantities.

Fermi Wang: Go ahead.

Louis Gerhardy: Hey Ross, it's Louis. For fiscal 26, IOT should continue to grow faster than auto, but auto is expected to grow year-over-year as well. And I guess just to sneak in one more, you guys talked about getting good leverage. Can you just parse out a little bit the gross margin trend versus the OPEC side as we try to figure out how you get to the leverage? Yeah, so we expect to, I would say the high level is that we are focused on monitoring and controlling it OPEX as much as possible. You know, we've been talking about gross margin moving down into the long-term model range, you know, we're guiding to that and we've shown that in Q4, but we do expect with the revenue growth, you know, the primary driver is going to be, you know, revenue contributing at those still healthy margins to drive improvements in operating leverage.

Louis Gerhardy: Hey, Ross. It's Louis. For fiscal 26, IoT should continue to grow faster than auto, but auto is expected to grow year-over-year as well.

Speaker Change: Combined this first two waves are expected to represent more than half of our incremental revenue in fiscal 2026.

Ross Seymore: I guess just if I could sneak in one more. You guys talked about getting good leverage. Can you just parse out a little bit to the gross margin trend versus the OpEx side as we try to figure out how you get to the leverage?

Speaker Change: In addition to the new product efforts I have described we remain committed to developing new technologies and products capable of processing advanced AI models.

Fermi Wang: Yeah. I would say the high level is that we are focused on monitoring and controlling OpEx as much as possible. You know, we've been talking about gross margin moving down into the long-term model range. You know, we're guiding to that, and we've shown that in Q4. We do expect with the revenue growth, you know, the primary driver is going to be, you know, revenue contributing at those still healthy margins to drive improvements in operating leverage.

Speaker Change: So the business case develops we will provide more information on the timing over the revenue contribution.

Speaker Change: This is a very exciting period that was a rapid evolution of our industry.

Speaker Change: Our <unk> business intersect multiple industries, where the megatrends of safety security and automation intersect.

Speaker Change: As a result in this dynamic environment, we carefully evaluate new opportunities to maximize our return on investment.

Speaker Change: Our goals for fiscal 2006 or two.

Speaker Change: Sustained a high level of innovation and execution to continue to lead the <unk> market.

Unknown Attendee: Perfect, thank you.

Ross Seymore: Perfect. Thank you.

Unknown Attendee: Thank you and one moment for our next question.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Tore Svanberg with Stifel. Your line is open. Please go ahead.

Speaker Change: We intended to drive that positive operating leverage which is revenue growth and a high focus on operating efficiency.

Tore Svanberg: Our next question comes from the line of Tore Svanberg with Stiefel. Your line is open. Please go ahead. Yes, thank you and congratulations on the results.

Speaker Change: The development of a two nanometer technology for next generation Hei processor is critical.

Tore Svanberg: Yes, thank you, and congratulations on the results. Fermi, can we just take a step back here, you know, especially when we start thinking about open source reasoning models. I mean, DeepSeek, you know, probably wasn't positive for everybody, but I think Ambarella probably a pretty positive development. Could you just, you know, again, take a step back, elaborate a little bit on, you know, how important is this for Ambarella? Because obviously, you know, this will probably accelerate the adoption of smaller models and certainly also AI at the edge. You know, any more color you could share with us, that would be great.

Fermi Wang: Fermi, can we just take a step back here, you know, especially when we start thinking about open source reasoning models? I mean, DeepSeq, you know, probably wasn't positive for everybody, but I think for Ambarella, probably a pretty positive development. So could you just, you know, again, take a step back, elaborate a little bit on, you know, how important is this for Ambarella? Because obviously, you know, this will probably accelerate the adoption of smaller models, and certainly also AI at the edge. So, you know, any more color you could share with us, that would be great.

Speaker Change: In summary in the new year, we intend to build upon the positive momentum we have established with our AI strategy technology and the products.

Speaker Change: With that John will now discuss the Q4 and the full year fiscal 2005 results and the outlook in more detail.

John: Thank you Fermi.

John: I will now review the financial highlights for the fourth quarter and full fiscal year 2025, ending January 31 2025.

Fermi Wang: Yes, let me elaborate a little bit what we have done with DeepSeq model in our product portfolio. I talked about we successfully brought up that model on our N1, N1655, CV72, and CV75. The N1 is a 50-watt chip, and the CV75 is a 1.5-watt chip. Of course, you run different 1.5-billion-parameters DeepSeq R1 model. I think that's significant. That really means that at age, we can get a better and better model and even a reasoning model running on age, and that will expand the possible application. But more importantly, I think that the open-source type of the model will enable our customer to fine-tune the model easier than before, so they can really quickly adapt that model to their vertical application, and both of that will help us to expand.

Fermi Wang: Yes. Let me elaborate a little bit what we have done with DeepSeek model in our product portfolio. I talk about we successfully put up that model on our N1-655, CV72, and CV75. The N1 is a 50-watt chip, and the CV75 is 1.5-watt chip. Of course, you run different versions of DeepSeek our models on those chip. But a 1.5-watt chip can run a 1.5 billion parameters DeepSeek our model. I think that's significant. That really means that at edge, we can get a better and better model and more advanced reasoning model running on the edge, and that will expand the possible application.

John: I will also provide our financial outlook for our first quarter of fiscal year 2026, ending April 32025.

John: 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.

John: For non-GAAP reporting we have eliminated stock based compensation expense, along with acquisition related and restructuring costs adjusted for the impact of taxes.

John: Fiscal year 2025 revenue increased 25, 8% to $284 $9 million.

John: Automotive revenue increased mid single digits, and Iot led by a new five nanometer products.

John: Was up more than 30% year over year.

Fermi Wang: more importantly, I think that the open source type of the model will enable our customer to fine-tune the model easier than before. They can really quickly adapt their model to their vertical application. Both of that will help us to expand. I think the significance for us is that we found out that we can run the 1.5 billion parameter model on the 1.5-watt chip. That really opened door for us to look at, you know, what other application that we can enable in the future. With that, definitely that we need to talk to our customer, which we are doing right now, and to understand the potential impact to our business development.

John: For fiscal year 2025, non-GAAP gross margin was 62, 7% versus 63, 3% in fiscal 2024.

John: non-GAAP operating expense increased six 5% for the year versus 4% in the prior year.

Fermi Wang: And I think that's significant for us.

Fermi Wang: that we we found out that we can run the 1.5 billion parameter model on a 1.5 watt chip that really opened the door for us to look at you know what other application that we can enable in the future with that definitely that we need to talk to our customer which we are doing right now and to understand the potential impact to our business development. Yeah, no, that's that's great perspective.

John: Ending cash and marketable securities totaled $253 million.

John: Up from $219 9 million at the end of the prior year.

John: For fiscal Q4 revenue was $84 million above the high end of our prior guidance range up one 7% from the prior quarter.

And up 62, 8% year over year.

Tore Svanberg: Yeah, no, that's great perspective. As my follow-up, could you give us an update on the 2 nanometer development? You know, any sort of benchmarks or timelines that we should keep an eye on?

Fermi Wang: And as my follow up, could you give us an update on the two nanometer development? You know, any sort of benchmarks or timelines that we should keep an eye on? Right. First of all, two nanometer we expect we get and we only now we get evaluated, but also we get some test chip out to evaluate the performance. We are confident that this technology will give us significant improvement on the power consumption, and also the die size saving. With that, we are aggressively doing two projects already on the for the IoT devices. One is for our traditional camera market, the other one for the one type of project.

John: Sequentially automotive revenue declined and Iot increased in the mid single digits.

John: non-GAAP gross margin for fiscal Q4 was 62%.

Fermi Wang: Right. First of all, 2 nanometer. We already not only get to evaluate the, but also we get some test chip out to evaluate the performance. We are confident that this technology will give us significant improvement on the power consumption and also the die size saving. With that, we are aggressively doing 2 projects already for the IoT devices. One is for our traditional camera market, the other one for the N1 type of project. You can see that we want to using the benefit of a 2 nanometer on the power consumption side to continue to give us even more leverage of a high-end and the low-end products, based on 2 nano.

John: Slightly lower than the midpoint of our prior guidance range, primarily due to product mix.

John: non-GAAP operating expense in Q4 was $48 $7 million below the low end of our prior guidance range of $49 million to $52 million driven.

John: Driven by continued expense management and the timing of spending between quarters, we remain on track to our internal product development milestones.

John: Q4, net interest and other income was $2 $4 million comparing to our prior guidance of $1 $8 million.

Fermi Wang: So you can see that we want to using the benefit of a two nanometer on the power consumption side to continue to give us even more leverage of a high end and the low end products based on two nano. We expect to take out the chip sometime this late this year and also get simple back early next year. And we hope our customer can go into production at the end of 2026.

John: The increase was from a one time government grant in the United States.

John: Q4, non-GAAP tax provision was approximately $1 million in fiscal 2025 non-GAAP tax.

Fermi Wang: We expect to tape out the chip sometime late this year and also get sample back early next year. We hope our customer can go into production at the end of 2026.

John: Approximately $2 $1 million.

We reported a non-GAAP net profit of $4 $8 million or 11 cents.

John: Earnings per diluted share in Q4, and a non-GAAP net loss of $6 $8 million or <unk> 16 cents, our 16th cent loss per diluted share for fiscal 2025.

Unknown Attendee: Great. Thank you for that, Carlo, and congrats again. Thank you.

Tore Svanberg: Great. Thank you for that color and congrats again.

Fermi Wang: Thank you.

Unknown Attendee: Thank you and one moment for our next question.

Operator: Thank you. One moment for our next question. Our next question is gonna come from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Please go ahead.

Kevin Cassidy: Our next question is going to come from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Please go ahead. Yes, thanks for taking my question and congratulations on the great results. Maybe just to expand on that with the two nanometer development is, is that going to be a product similar to the N1-655? Or are you going to be focused more on some of the CV devices? I said we have two chips, one for one type of product, the other one is for the camera product. So we are trying to use two nanometers to address the two different markets.

John: Now I will turn to our balance sheet and cash flow.

Kevin Cassidy: Yes, thanks for taking my question, and congratulations on the great results. Maybe just to expand on that. With the 2 nanometer development, is that gonna be a product similar to the N1-655, or are you gonna be focused more on some of the CV devices?

John: Fiscal Q4, cash and marketable securities increased $23 $7 million from the prior quarter and increased $34 million from the same quarter a year ago.

John: Cash and marketable securities benefited primarily from working capital improvements during the quarter.

Fermi Wang: I said we have two chips, one for N1 type of product, the other one is for the camera product. We are trying to use 2nm to address the two different markets.

John: Receivables days of sales outstanding decreased from 38 days in the prior quarter to 33 days.

Fermi Wang: I said we have two chips, one for N1 type of product, the other one is for the camera product. We are trying to use 2nm to address the two different markets.

John: Days of inventory increased from 94 in the prior quarter to 97 days.

John: Inventory dollars declined five 9% sequentially and increased 18, 5% from a year ago.

Fermi Wang: Okay, and, you know, you mentioned DeepSeq, but you know, there are some countries that are saying that they don't want to use DeepSeq. Is that just as an example? And are there other low cost LLMs that you're testing with? Yeah, I fully expect that, you know, our US AI company is going to start introducing similar type of model after they learn how the DeepSeq was done. And I think this is a trend of the market, not just one company. So DeepSeq for us is really to use that for demo purpose and also to get to engage customers.

Kevin Cassidy: Okay. You know, you mentioned DeepSeek, but you know, there are some countries that are saying that they don't wanna use DeepSeek. Is that just an example, and are there other low-cost LLMs that you're testing with?

John: Operating cash inflow was $25 $4 million for the quarter and for the full year, we generated operating cash of $33 $8 million.

Fermi Wang: Yeah. I fully expect that, you know, our US AI company is going to start introducing similar type of model after they learn how the DeepSeek was done. I think this is a trend of the market, not just one company. DeepSeek, for us, is really to use that for demo purpose and also to get to engage customer. I fully expect we're gonna see more and more of this kind of model from American AI companies.

John: Capital expenditures for tangible and intangible assets were $4 $2 million for the quarter and $10 $4 million for the year.

John: Free cash flow was $21 $2 million for the quarter and $23 $5 million for the year.

John: This represented the 16th consecutive fiscal year of positive free cash flow.

Fermi Wang: But I fully expect we're going to see more and more this kind of model from American AI company. Okay, great. Thank you.

John: We had one logistics company, representing 10% or more of our revenue WT microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia.

Kevin Cassidy: Okay, great. Thank you.

Operator: Thank you. One moment for our next question. Next question is going to come from the line of Suji Desilva with Roth Capital. Your line is open. Please go ahead.

Suji DeSilva: One moment for our next question.

John: Came in at 69% of revenue for the fourth quarter and 62, 9% for the full fiscal year 2025.

Fermi Wang: Our next question is going to come from the line of Suji DeSilva with Roth Capital. Your line is open. Please go ahead. Hi Fermi, John, Louis. So just to understand from the geopolitical perspective, can you describe the risk you think there is in your chips having to be replaced in China or customers making that decision to de-risk the geopolitical or whether you think that's not a significant risk given the, you know, what's been happening last few months? Right.

Suji Desilva: Hi, Fermi. John Lewis. Just to understand from the geopolitical perspective, just can you describe the risk you think there is in your chips having to be replaced in China or customers making that decision to de-risk the geopolitical or whether you think that's not a significant risk given the, you know, what's been happening last few months?

John: I'll now discuss the outlook for the first quarter of fiscal year 2026.

John: The new product momentum that firmly described is expected to enable us to post better than normal seasonal results in fiscal Q1 <unk>.

John: Despite the stronger than expected fiscal Q4.

John: Q1 revenue is expected to be in the range of $81 million to $87 million with auto down sequentially and Iot flat to slightly up sequentially.

Fermi Wang: Right. First of all, in China, we have been talking about this for four or five years now. I think in China, our Chinese customer will use Chinese component as long as there is viable options for them. That's why we walk away from Chinese enterprise security camera market five years ago. This also applied to automotive market and also any other market in China. From that point of view, our strategy in China is we use that market to really understand the market situation. Also, the opportunity for us in China is really two-fold. One is the product that we offer in China that we don't see a comparable solution from Chinese components.

Fermi Wang: So first of all, in China, we have been talking about this for four or five years now. I think in China, our Chinese customer will use Chinese component as long as there is a viable option. And that has been, you know, that's why we walk away from Chinese enterprise security camera market five years ago. This also applies to automotive market and also any other market in China. So from that point of view, our strategy in China is we use that market to really to understand the market situation. Also, the opportunity for us in China is really two-fold.

John: We expect Q1 non-GAAP gross margin to be in the range of 61% to 62, 5%.

John: We expect non-GAAP opex in the first quarter to be in the range of $50 million to $53 million with the increase compared to Q4, driven by new product development costs as well as increased employee related expenses beginning in the new year.

We estimate net interest income to be approximately $1 $8 million, our non-GAAP tax expense to be approximately $600000 and our diluted share count to be approximately $43 4 million shares.

Fermi Wang: One is the product that we offer in China that we don't see a comparable solution from Chinese components. The second one is a lot of Chinese customers, particularly automotive customers, are talking about export business, where they do need a non-Chinese solution.

Fermi Wang: Second one is our Chinese customer, particularly automotive customer, talking about export business, where they do need a non-Chinese market Chinese solution. Those are our opportunities in China, and that's where we think we're going to focus on. Outside China, I think we don't see any problems by supplying our chip to any other potential customers.

John: Thank you for joining our call today and with that I will turn the call over to the operator for questions.

John: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, we ask that you. Please limit yourself to one question one follow up.

Fermi Wang: So those are our opportunities in China, and that's where we think we're going to focus on.

Unknown Attendee: But outside China, I think we don't see any problems by supplying our chip to any other potential customers. Okay, thanks. That's pretty sure. That's helpful.

John: Our first question.

Suji Desilva: Okay. Thanks, Fermi. That's helpful. Also on the non-auto side, talk about the enterprise security camera market. Is that gonna accelerate in 2026, or are you kind of hitting a point where it's grown very strongly and now it's kinda stabilizing into the kind of full year growth rate?

John: Our first question is going to come from the line of.

Fermi Wang: And then also on the non auto side, the talk about the enterprise security camera market, is that going to accelerate in 26? Or are you kind of hitting a point where it's grown very strongly, and now it's kind of stabilizing into the kind of full year growth? First of all, I think the market will continue to grow in two things. Although the unit number growth is there, but the biggest growth will be from the ASP growth. You know, look at we are selling CV25, CV22 at the ASP level, but our current CV5, CV7 that just went into production have a higher ASP.

Speaker Change: In Bolton with Needham <unk> Company. Your line is open. Please go ahead.

Speaker Change: Hey, guys. Thanks for taking my question and congratulations on the nice results and outlook in the 16th year of positive cash flow I guess for me John I guess I wanted to start I think he said in the prepared script that <unk>.

Fermi Wang: First of all, I think the market will continue to grow in two things. Although the unit number growth is there, but the biggest growth will come from the ASP growth. You know, looking at, we are selling CV25, CV22 at the ASP level, but our current CV5, CV7 that just went into production have a higher ASP. I think that both of them will drive, but ASP will be the main driver for our growth.

Speaker Change: <unk> five <unk> seven would account for more than half of the growth in fiscal 'twenty six wondering what's the other half of revenue growth is that the older ships two family.

Speaker Change: Or are there other other drivers of the business.

Speaker Change: I assume but wanted just to see if you would confirm that.

Fermi Wang: So I think that both of them will drive, but ASP will be the main driver for our growth. All right. Thanks, Fermi. Thank you.

Speaker Change: The vision processors or the human camera processors, you would expect that business continue to decline at a.

Suji Desilva: Okay. All right. Thanks, Fermi.

Speaker Change: Gradual pace in fiscal 'twenty six.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. Our next question is going to come from the line of Gus Richard with Northland. Your line is open. Please go ahead.

Unknown Attendee: And as a reminder, if you would like to ask a question, please press star one one on your telephone.

Quinn: Yes Quinn.

Speaker Change: Is it very well.

Speaker Change: Everything you said is correct that first of all half of the gross fiscal 'twenty as it is from <unk> 77, and our old VP video video processed product well have a slow decline, we expect that maybe 10% 15% of annual decline rate.

Gus Richards: Our next question is going to come from the line of Gus Richards with Northland. Your line is open. Please go ahead. Yes, thanks for taking the questions, and congratulations on strong results and outlook. Fermi, I just was hoping you could talk a little bit about, you know, where you see the growth, edge versus data center, and within the edge, you know, you know, you've always been heavy on imaging applications. Are you starting to broaden out beyond that? And what opportunities at the edge do you see to be the most exciting outside of imaging and enterprise?

Gus Richard: Yes, thanks for taking the questions and congratulations on strong results and outlook. Fermi, I just was hoping you could talk a little bit about, you know, where you see the growth edge versus data center. Within the edge, you know, you've always been heavy on imaging applications. Are you starting to broaden out beyond that? What opportunities at the edge do you see to be the most exciting outside of imaging and enterprise?

Speaker Change: Now to the end.

Speaker Change: But also CV true, we continue to expect growth and healthy growth from our existing part of life. For example, we talk about that well, while problematic customer ramping up their products last quarter and really drive the significant growth on CV to family. So I think all of that so CB <unk> CB seven drive the growth.

Fermi Wang: Right. You know, we are right now 100% focused on edge. You know, data center is pretty well established, and NVIDIA has a really strong dominance on that market. We don't believe that should be our first target. We are focused on edge, and there are multiple. With our current market, definitely the IoT is definitely one focus market. Also that, the new market, like, with the CLIP or vision language model or even the current DeepSeek type of model will enable new application. That's definitely a focus area.

Speaker Change: MVP will continue to have of course.

Fermi Wang: You know, we are right now 100% focused on age. Data center is pretty well established, and NVIDIA has a really strong dominance on that market. We don't believe that that should be our first target. We are focused on age, and there are multiple. With our current market, definitely the IoT is definitely one focus market, and also that the new market, like with the CLIP or vision language model, or even the current LIPSIC type of model, will enable new application. That's definitely a focus area. But there's a new area, which is people trying to use building an age server, AI age server, to accumulate multiple different type of strings, either video string or non-video string, and to apply a centralized AI processing at the age.

Speaker Change: Slower rate of decline.

Speaker Change: Perfect and then just a follow up it sounds like in both the January quarter in the April guide, you've got auto down sequentially.

Speaker Change: I'm just wondering is that sort of a reflection just of inventory correction. So taking place in that end market is it just lackluster demand given some of the macro events.

And perhaps tariff uncertainty or.

Speaker Change: Is it just sort of timing of when some of your new pipeline projects go to production just just any more color on auto would be would be helpful. First of all on the <unk> Q4, and the Q1 guidance.

Fermi Wang: There's a new area which is people trying to build an edge AI server to accumulate multiple different type of streams, either it's video stream or non-video stream, and to apply a centralized AI processing at the edge. That definitely is a market that we are looking at and try to understand how we can participate. I think that our N1-655 is a great candidate for that, and obviously we need to build a roadmap based on our new next generation CVflow architecture to address that.

Speaker Change: Although we say, it's a little Tampa the.

Speaker Change: The decline rates are very small so in fact that that decline has nothing to do with the previous rounds of inventory correction, although that youre right.

Fermi Wang: That's definitely the market that we're looking at and trying to understand how we can participate. I think that our N1655 is a great candidate for that. And obviously, we need to build a roadmap based on our new next-generation CV flow architecture to address it. Got it. Thanks. That's helpful.

Speaker Change: Although none of our customers indicates that they are accumulating.

Speaker Change: Inventory at the close of our current all of the new government policy, but we do see there are some concerns about how powerful indirect impact to us directly direct impact to our customer. So that's where we're putting some of the conservatism in your second half guidance.

Gus Richard: Got it. Thanks. That's helpful. You've had some long-standing partnerships with Continental, Bosch, and, you know, you've got a relationship with Rivian, which is now working with VW. I was just wondering if you talk a little bit about how those automotive partnerships, if you will, you know, are evolving. Do you see any, you know, opportunity over the next year or two?

Fermi Wang: And then you've had some long standing partnerships with Continental Bosch. And, you know, you've got a relationship with Rivlin, which is now working with V-dub. And I was just wondering if you talk a little bit about how those automotive partnerships, if you will, you know, are evolving? And do you see any, you know, opportunity over the next year or two? Yes. First of all, we continue to build on different RFQs with our partner. Conti is our strong partners, both on hardware and software, and Bosch is our hardware side partner. We continue to build on multiple different opportunities.

Speaker Change: Got it okay. Thank you for me.

Speaker Change: Thank you.

Speaker Change: And one moment as we move on to our next question.

Joe Moore: And our next question will come from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead.

Joe Moore: Great. Thank you.

I mean I wonder if you could just talk about the general investment and aid asked these days you know youre seeing.

Fermi Wang: Yes. First of all, we continue to bid on different RFQs with our partner. Continental is our strong partners on both on hardware and software, and Bosch is our hardware side, so our partner. We continue to bid on multiple different opportunities. Although recently we were informed that we lost a major Western OEM past that particular competition, we work with a tier one in there, and the feedback we got was that our technology and product were viewed very favorably, and also our price is competitive. But at the end, at the final round of bidding, when we face the incumbent supplier, we were told that our scale, so the scale benefits that the existing supplier can offer create the differences.

Joe Moore: Tesla's FSD is done well the gods I think <unk> got people's attention and I know those aren't your opportunities, but has that stimulated kind of incremental investment interest in the Adas space from other Oems right. So we continue to see them.

Fermi Wang: Although recently, we were informed that we lost a major Western OEM At the potato car competition, we worked with a tier one in there. And the feedback we got was that our technology and product were viewed very favorably, and also our price is competitive. But at the end, when we faced, at the final round of bidding, when we faced the incumbent supplier, we were told that our scale, certain scale benefits that the existing supplier can offer create the differences. So from that point of view, although we lost that one major Western OEM, but we continue to commit to invest in the automotive products.

Joe Moore: Our strong.

Joe Moore: The demands on the Adas side, particularly level two plus Nike then change about the only change is the flavor of.

Joe Moore: The oes demand to become they become very cost sensitive we talked about this trend also that we call value a value potash. So that if you look at the Oems. So they want to upgrade the product level two level two plus some that want to upgrade you went to a level two plus plus or level three by some time there.

Joe Moore: We're sensitive to cost so from that point of view I think our series III family.

Fermi Wang: From that point of view, although we lost that one major Western OEM, but we continue to commit to invest in the automotive products. We definitely are looking for alternative way to continue to sell our products and the technology into automotive markets.

Speaker Change: Hello, I want to address the bond concerns is definitely continue to be viewed positively in the market.

Joe Moore: Yeah.

Joe Moore: That's helpful and then I noticed that the neo in on.

Unknown Attendee: And we definitely are looking for alternative way to continue to sell our products and technology into automotive market. Got it. Thank you so much. Thank you.

Joe Moore: Electronic rearview mirrors, I know Thats a market you have.

Joe Moore: <unk> been talking about for a long time and.

Joe Moore: Are you starting to see more adoption, there and do you expect that to be a more significant growth area going forward.

Gus Richard: Got it. Thank you so much.

Fermi Wang: Thank you.

Fermi Wang: Thank you, and I would now like to hand the conference back to Fermi Wang for closing remarks. And thank you, guys. Thank you for joining our call today. If there's any follow-up, please give me or Louis a call. Thank you.

Operator: Thank you. I would now like to hand the conference back to Fermi Wang for closing remarks.

Joe Moore: Oh I see.

Joe Moore: We see multiple design wins, we only talk about we continue to expect growth in that area.

Fermi Wang: Thank you, guys. Thank you for joining our call today. If there's any follow-up, please give me or Louis a call. Thank you.

Joe Moore: But the ASP that we talk about is really.

Unknown Attendee: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Joe Moore: From the.

Joe Moore: High single digit to low teens, so the growth rate in that particular segment gross rate will be high.

Joe Moore: Material impact to our total revenue is limited, but continue but I think this is we see that as a way to get into OEM designs. For example, we talked about you know Korean company.

Joe Moore: The largest Korean automotive OEM using that using our solution for the E mirrors that just help us to open the door to those the major Oems.

Joe Moore: Great. Thank you.

Joe Moore: Thank you and one moment as we move on to the next question.

Speaker Change: And our next question is going to come from the line of Christopher Rolland with Susquehanna. Your line is open. Please go ahead.

Aaron Nashville: Hi, This is Aaron Nashville in for Chris Rolland, Thanks for taking the question.

Speaker Change: So the mid to high teens, a guide for fiscal year 2016 is very conservative. So I mean, essentially we're modeling flat to down for the remaining three quarters.

Speaker Change: And I know you mentioned building conservatism into the second half, but is there anything else beyond government uncertainty that you're factoring in and how does this.

Speaker Change: Play out between auto and Iot.

Speaker Change: Well.

Speaker Change: So the first half to second half based on our current guidance is not as high the growth from the first half to second half is not as high as it before but definitely it reflect our customers' Conservatives and also our Congress.

Speaker Change: Reflecting the potential government policy.

Speaker Change: Policy change right.

Speaker Change: Waiting for how the for example, the tariff at the Mexico, Canada that will impact.

Speaker Change: Or impact our customers' manufacturing side. So those are kind of factor in but I think overall I still feel very strong feel comfortable our growth rate for our customer our customer product point of view, we talk about <unk>, we think that the growth rate will continue at <unk> to like I said before it will continue.

Speaker Change: So I think overall, although there is some conservatism there, but it's really reflecting on the policy side not on the other side.

Speaker Change: Understood and.

Speaker Change: Over the next like two to three years from a geographic perspective, which regions do you expect to outperform underperform given your pipeline.

Speaker Change: I still consider that.

Speaker Change: U S is our largest customer so our largest geography and we.

Speaker Change: We did well in Japan, Korea, and Europe, and China, we meant how 15% total exposure off on the Oh.

Speaker Change: Consumer consumption point of view, so I think from the point of view, we will continue to focus on the U S EU and Japan Korea market and we expect that they continue to do well for us.

Speaker Change: Thank you.

Speaker Change: Thank you one moment as we move to the next question.

Speaker Change: Our next question is going to come from the line of Ross Seymore with Deutsche Bank. Your line is open. Please go ahead.

Ross Seymore: Hi, guys. Thanks for my question and congrats on the strong results.

Ross Seymore: Getting into the full year guide again I can understand the policy conservatism for me you just answered does that hit one side of your business more than the other or if youre going to grow that kind of mid to high teens is there a significant delta in your mind between.

Ross Seymore: The Iot such AI side, and the automotive side.

Ross Seymore: Yes, I think so.

Ross Seymore: The people that are manufacturing in China, Mexico, and Canada definitely they start looking at options and waiting for the final results. So I think that that's really geography dependent not the market dependent.

Ross Seymore: Gotcha. So the conservatism that you have on the two well let me just ask the question a different way without giving conservatism do you have a significantly different growth rate expectation for the Iot AI side versus automotive last you said one was up over 30%. The other was up mid single digits is that ratio is going to continue or does the automotive side.

Ross Seymore: To catch up.

Ross Seymore: Hey, Ross, it's Louis for fiscal 'twenty, six Iot shaking and continue to grow faster than auto, but auto is expected to grow year over year as well.

Speaker Change: Gotcha, and then I guess, just if I could sneak in one more you guys talked about getting good leverage can you just parse out a little bit the gross margin trend versus the opex side as we try to figure out how you get to the leverage.

Speaker Change: Yes, so we expect to.

Speaker Change: I would say the high level is that we are focused on.

Monitoring and controlling opex as much as possible.

Speaker Change: We've been talking about gross margin moving down into the long term model range.

Speaker Change: Where we're guiding to that and we've shown that in Q4.

Speaker Change: But we do expect with the revenue growth the primary driver is going to be.

Speaker Change: Revenue.

Speaker Change: Contributing.

Speaker Change: Still healthy margins two to drive improvements in operating leverage.

Speaker Change: Perfect. Thank you.

Speaker Change: Thank you and one moment for our next question.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of tourists Sandberg with Stifel. Your line is open. Please go ahead.

Speaker Change: Yes, Thank you and congratulations on the results.

Speaker Change: Can we just take a step back here.

Speaker Change: Especially when we start thinking about open source reasoning models I mean do you think.

Speaker Change: Probably wasn't positive for everybody, but I think from a railroad probably.

Speaker Change: Probably a pretty positive development. So could you just again take a step back and elaborate a little bit on you know how important this is for ambarella. Because obviously you know this will probably accelerate adoption of smaller models and certainly also.

Speaker Change: So any more color you could share with us that would be great.

Speaker Change: Yes.

Let me, let me elaborate a little bit quiet, we have done with.

Speaker Change: The <unk> model in our product portfolio.

Speaker Change: While we successfully bring up without that model.

Speaker Change: Our stone one don't want six Wifi <unk> 70 to <unk> 75, the otherwise a 50 watt chip and the <unk> 75 to one point firewall chip of course, you're wrong different versions of <unk> our models on those chip, but the one point firewall chip.

Speaker Change: Long one.

Speaker Change: A one five BD empower meters deep seek our model I think thats a significant and also.

Speaker Change: Oh really means that at age, we can get better and better model and more recently.

Speaker Change: There isn't any model running on H and that will expand our possible applications, but more importantly, I think that that the open source.

Speaker Change: Type of the model will enable our customer to fine tune the model easier than before so they can really quickly adapt our model to their vertical application and both have that will help us to expand and I think that's significant for us is.

Speaker Change: That we found out that we can wrong.

Speaker Change: Oh.

Speaker Change: The $1 5 billion Powermeter module on a 1.5 watt chip.

Speaker Change: That really opened door for us to look at.

Speaker Change: Other applications, but we kind of enabling the future with that definitely that we need to talk to our customers, which we're doing right now to understand the potential impact to our business development.

Speaker Change: Yeah, that's great perspective.

Speaker Change: This is my follow up can you give us an update on the two nanometer.

Speaker Change: <unk> development.

Speaker Change: Any sort of benchmarks or timelines that we should keep an eye on right first of all two nanometer. We expect we can and we already not only get evaluated but also we get some.

Speaker Change: Pest chip out to evaluate the performance. We are confident that this technology will give us significant improvement on the power consumption and also that ISI saving with that we are aggressively between.

Speaker Change: Two projects already on the for the Iot devices, one is for our traditional camera market yellow and for the other one type of project. So you can see that we want to using the benefit over two nanometer on the power consumption side to continue to.

Speaker Change: Give us even more leverage of our high end and the low end of products based on two level, we expect to tape out that chip.

Speaker Change: Some time.

Speaker Change: This late this year and also get a simple fact that early next year and we hope that our customer can go into production at the end of 2026.

Speaker Change: Great. Thank you for that color and congrats again, thank you.

Speaker Change: Thank you and one moment for our next question.

Our next question is going to come from the line of.

Speaker Change: Kevin Cassidy with Rosenblatt Securities. Your line is open. Please go ahead.

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

Speaker Change: Maybe just to expand on that would be.

Kevin Cassidy: Two nanometer development is.

Kevin Cassidy: Is that going to be a product similar to it and one $666 55 or are you going to be focused more on some of the CV devices.

Kevin Cassidy: I hope.

Kevin Cassidy: I said, we have two chips wonderful.

Kevin Cassidy: One type of product the other one is for the camera up on that so we are trying to use two nanometer to address.

Kevin Cassidy: The the two different markets.

Kevin Cassidy: Okay.

Kevin Cassidy: You mentioned deep seek but there are some countries that are saying they don't want to use the <unk> does that just as an example, and are there other low cost.

Kevin Cassidy: <unk>.

Kevin Cassidy: You're testing with.

Yeah, I've I fully expect that our U S. AI companies going to start introducing similar type of model. After they learn how the deep stake was done and I think this is a true.

And over the market not just one company. So deep seek for US is really to use that for them will purpose and also to get to engage customer, but I fully expect we're going to see more and more of this kind of model.

Kevin Cassidy: American companies.

Kevin Cassidy: Okay, great. Thank you.

Kevin Cassidy: Thank you one moment for our next question.

Our next question then comes from the line of <unk> Silva with Roth Capital. Your line is open. Please go ahead.

John Lewis: Hi, Fermi John Lewis.

Kevin Cassidy: Just to understand from a geopolitical perspective.

Kevin Cassidy: Describe the risk do you think there is and your chips, having to be replaced in China or customers, making that decision to derisk, the geopolitical or whether you think that's not a significant risk given the you know what.

Kevin Cassidy: It's been happening last few months.

Kevin Cassidy: Right. So first of all in China, we have been talking about this for four five years now I think in China.

Kevin Cassidy: Our Chinese customer well use Chinese component.

Kevin Cassidy: As long as there is a viable options for treatment and that has been that's why we walk away from Chinese.

Kevin Cassidy: Enterprise security camera market five years ago.

Kevin Cassidy: This also apply to automotive market and also any other market in China. So from that point of view our strategy in China is which we use that market to really to understand the market situation and also the opportunity for us in China is really twofold one is.

Kevin Cassidy: The product that we offer in China that we don't see a comparable solution from Chinese components second one is a lot of our Chinese customer policies, particularly automotive customer talking about export business, where they do need a non Chinese mark Chinese solution. So those are all our our opportunities in China and Thats.

Kevin Cassidy: Where we think we're going to focus on but outside China I think we don't see any.

Kevin Cassidy: Problems are solved.

Kevin Cassidy: Buying our chip to any other potential customers.

Speaker Change: Okay. Thanks for me that's for sure.

Kevin Cassidy: And then also on the non auto side the.

Kevin Cassidy: I'm talking about enterprise security camera market is that kind of accelerate in 'twenty, six or you're kind of hitting a point, where it has grown very strongly and now it's kind of stabilizing into the kind of full year growth rate.

Kevin Cassidy: Well I think the market will continue to grow in two things, although the union number growth.

Kevin Cassidy: Is there, but the biggest growth work from the ESP growth look at it we are selling CV 25 C. V 22 at the <unk> level, but our current <unk> seven that just went into production.

Kevin Cassidy: Higher asps, so I think that both of them will drive our asps will be the main driver for our growth.

Kevin Cassidy: Okay.

Kevin Cassidy: Alright, thanks very much.

Speaker Change: Thank you and as a reminder, if you would like to ask a question. Please press star one on your telephone.

Kevin Cassidy: Yeah.

Speaker Change: And our next question is going to come from the line of Gus Richard with Northland. Your line is open. Please go ahead.

Gus Richard: Yes, thanks for taking the questions and congratulations on the strong results and outlook.

Gus Richard: For me I, just was hoping you could talk a little bit about.

Gus Richard: Where do you see the growth edge versus data center and within the edge.

Gus Richard: You've always been heavy on imaging applications are you certain starting to broaden out beyond that and what opportunities at the edge do you see.

Gus Richard: To be the most.

Gus Richard: Exciting outside of imaging and enterprise right.

Gus Richard: You know we are right now 100% focus on H.

Gus Richard: Data center is pretty well established and the Nvidia has a really strong dominant dominance on that market. We don't believe that that should be our first target. We are focus on H and there are multiple with all current market definitely that Iot is definitely one focus market and also that the.

Gus Richard: The new market back with the clip or visual language model or even the.

Gus Richard: The current <unk> lipstick type of model will enable new application, that's definitely a focus area, but there is a new area, which is people trying to use a building a H server AIA each server to accumulate multiple different type of strength, either video stream or non video stream and to apply our centralized.

Gus Richard: Oh AI processing at the age that definitely is a market that we're looking at and try to understand how we can participate I think that 655 is a great candidate for that and obviously, we need to build a roadmap based on our new Nextgen nation CME for architecture to address that.

Speaker Change: Got it. Thanks, that's helpful. And then you've had some long standing partnerships with Continental Bosch and.

Speaker Change: You've got a relationship with Brooklyn, which is now working with VW and I was just wondering if you could talk.

Speaker Change: A little bit about how those automotive.

Speaker Change: Partnerships. If you will are evolving and do you see any.

Speaker Change: Opportunity over the next year or two.

Speaker Change: Yes first of all we continue to.

Speaker Change: So bid on different Skus with our partner County is our strong partners are both on hardware and software and Bush is on highway sites.

Speaker Change: Our partner, we continue to pay down much.

Speaker Change: People with different opportunities.

Speaker Change: Recently, we were informed that we lost a major western OEM passion.

Speaker Change: That particular car a competition, we work with a tier one in there and the feedback we got was that our technology and product will be a very favorably and also our price is competitive but at the end wholly fifth and final round of bidding when we face the ink.

Speaker Change: <unk> is a supplier we were told that our scale.

Speaker Change: So the scale benefits of that.

Existing supplier can offer.

Speaker Change: Right.

Speaker Change: The differences so from that point of view, although we lost that one major western Oems, but we continue to commit to invest in the automotive products and we definitely are looking for alternative ways to continue to sell our products and technology into automotive market.

Speaker Change: Got it thank you so much.

Speaker Change: Thank you.

Speaker Change: Thank you and I would now like to hand, the conference back to Fermi Wang for closing remarks.

John Lewis: And thank you guys. Thank you for joining our call today, if there's any follow up please give me or Lewis. Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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