Q1 2026 Ambarella Inc Earnings Call
Operator: Hello everyone and welcome to Ambarella's first quarter fiscal year 2026 earnings 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 participate, you will need to press star 1-1 on your telephone and you will hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please note this event is being recorded.
Hello, everyone and welcome to Ambarella first quarter fiscal year 2026 earnings 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 participate you will need to press star one one on your telephone.
Speaker Change: We'll hear him message advising your hand this race to withdraw your question simply press Star. One again. Please note. This event is being recorded now it's my pleasure to turn the call over to the Vice President corporate development Lewis scare Hardy.
Louis Gerhardy: Now it is my pleasure to turn the call over to the Vice President, Corporate Development, Louis Gerhardy. The floor is yours. Thank you, Carmen.
Speaker Change: Lore as yours.
Yeah.
Louis Gerhardy: Good afternoon and thank you for joining our first quarter fiscal year 2026 financial results conference call.
Speaker Change: Thank you Carmen.
Speaker Change: Good afternoon, and thank you for joining our first quarter fiscal year 2026 financial results Conference call.
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 first quarter of fiscal year 2026. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are 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?
Speaker Change: On the call with me today is Doctor Fermi, Wang President and CEO and John Young CFO.
Speaker Change: The primary purpose of todays call is to provide you with information regarding the results for our first quarter fiscal year 2026.
Speaker Change: The discussion today and the responses to your questions.
Contain forward looking statements regarding our projected financial results.
Speaker Change: Financial prospects market growth and.
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.
Speaker Change: Should any of these risks or uncertainties materialize.
Speaker Change: Or should our assumptions prove to be incorrect.
Louis Gerhardy: Our actual results could differ materially from these forward-looking statements. We are under no obligation to update these statements, these risks, uncertainties and assumptions, as well as other information on potential risk factors that could affect our financial results. are more fully described in the documents we file with the SEC.
Speaker Change: Our actual results could differ materially from these forward looking statements.
Speaker Change: We are 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.
Speaker Change: And more fully described in the documents we file with the SEC.
Louis Gerhardy: Before starting the call, I'd like to summarize our investor events scheduled for our second fiscal quarter. On June 3rd, we'll be participating in Bank of America's Technology Conference in San Francisco. June 17th, we'll host Redburn Atlantic's West Coast Bus Tour in Santa Clara. June 18 will host Trivariate Research and NH Investment Securities Bus Tour in Santa Clara. and June 23rd to 25th, we'll be visiting Baltimore, Boston and New York City on an on deal roadshow.
Speaker Change: Before starting the call I'd like to summarize our investor events scheduled for our second fiscal quarter.
Speaker Change: At June 3rd will be participating in bank of Americas Technology Conference in San Francisco.
Speaker Change: June 17th well host Redburn Atlantic West Coast Bus tour and Santa Clara.
Speaker Change: June 18th well host try various research and NH investment Securities Bus tour and Santa Clara.
Speaker Change: In June 23 to 25th I will be visiting Baltimore, Boston, and New York City.
Speaker Change: On a non deal road show.
Louis Gerhardy: Access to our first quarter fiscal year 2026 results, press release, transcripts, historical results, and SEC filings, as well as a replay of today's call can be found on the investor relations page of our website.
Speaker Change: Access to our first quarter fiscal year 2026 results press release transcripts historical results in our SEC filings.
Speaker Change: As well as a replay of today's call can be found on the Investor Relations page of our website.
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.
Speaker Change: The content of today's call as well as the materials posted on our website.
Speaker Change: <unk> property and cannot be reproduced or transcribed without our prior written consent.
Fermi Wang: For a list of image attributions, visit us at www.ambarellainc.com Fermi will now provide a business update for the quarter. John will review the financial results and outlook, then we'll be available for your questions. Fermi? Thank you, Louis, and good afternoon. Thank you for joining us for our call today. We had an excellent start to the year with a first quarter revenue of $85.9 million in the upper half of our guidance due to the continued strength in our HAI business. Both our 5nm CV5 and CV7 product family, as well as our 10nm CV2 product families contributed to the revenue growth and our average selling price, continue to increase as we capture more value per design week.
Speaker Change: Fermi will now provide a business update for the quarter, John will argue the financial results and outlook and will be available for your questions pardon me.
Lewis: Lewis and good afternoon. Thank you for joining us for our call today.
Speaker Change: We had an excellent start to the year with our first quarter revenue of $85 $9 million in the upper half of our guidance due to the continued strength in our H AI business.
Speaker Change: Our five nanometer <unk> product family as well as our 10 nanometer <unk> product families contributed to the revenue growth in our average selling price continue to increase as we capture more value puts us all week.
Fermi Wang: AGI revenue, which we define as a product that integrates one of our proprietary deep learning AI accelerators, was more than 75% of our Q1 revenue, and this represents the fourth consecutive quarter of record AI revenue. This achievement demonstrates the execution of our HAI strategy in the face of volatile markets. During the first quarter, IOT applications increased to a single digit sequentially and now represent about three quarters of our total revenue. With our automotive business declined low single digits sequentially, although automotive revenue was up more than 20% on a year-over-year basis. In our February 26th earning call, we provided a fiscal 2026 revenue growth estimate in the mid to high teens of approximately $327 million to $339 million.
Speaker Change: Hey, Jay I revenue, which we define as.
Speaker Change: A product that integrates well with our proprietary deep learning AI accelerators was more than 75% of our Q1 revenue and this represents the fourth consecutive quarter of record revenue.
Speaker Change: This achievement demonstrates the execution of our AI strategy in the face of volatile market.
Speaker Change: During the first quarter Iot applications increased mid single digits sequentially and now represent about three quarters of our total revenue with our automotive business declined low single digits sequentially, Although automotive revenue was up more than 20% on a year over year basis.
Speaker Change: In our February 26 earnings call, we provided a physical taki-taki six revenue gross estimate.
Speaker Change: Two a high teens or approximately $3 7 million to $339 million with some conservatism built in to our second half outlook due to the geopolitical uncertainty.
Fermi Wang: with some conservative building to our second half outlook due to the geopolitical uncertainty. Although the geopolitical uncertainty remains high, we are increasing our fiscal 2026 revenue growth estimate to the range of 19% to 25%, or approximately $348 million at the midpoint. While we continue to expect that we will not face a material direct impact from the current tariffs, given the uncertainty of an indirect impact, our larger-than-normal range of guidance reflects our conservatism. We are confident in the long-term drivers of our HAI strategy, and the business remains fully impacted. Multiple factors are driving our optimism for the HAI market, including my recent discussions with customers, the representative customer engagements I will discuss later in the call, as well as the evolution of our HAI serviceable available market.
Speaker Change: Although the geopolitical uncertainty remains high we are increasing our fiscal 2026 revenue growth estimate to the range of 19% to 25% or approximately $348 million at the midpoint.
Speaker Change: While we continue to expect that we will not face a material.
Speaker Change: Direct impact from the current tariffs given the uncertainty of what about indirect impact or larger than normal range of our guidance reflects our conservatism.
Speaker Change: We are covered under the long term drivers of our H AI strategy and the business remains fully impact mulch.
Speaker Change: Multiple factors are driving our optimism for the H a M.
Speaker Change: Including my recent discussions with customers because we put the lithium customer engagements I will discuss later in the call as well the evolution.
Speaker Change: Evolution about H AI serviceable available market.
Fermi Wang: Our SEM is comprised of more than 20 different automotive and IoT HAI applications with a five-year compounded annual revenue growth rate in the high-tech. reaching almost 13 billion dollars in fiscal 2031. In the past, a vast majority of our revenue and our SAM opportunity originated from the H endpoint market or the terminal device in a network. But our new analysis indicates SAM expansion in the H infrastructure or the layer of a network where data from multiple endpoints is aggregated and the incremental advanced AI features and services such as a multi-modal vision language model, vision language and reasoning models can be supported.
Speaker Change: Our segment is comprised of our more than 20 different automotive and Iot applications was a five year compounded annual revenue growth rate in the high teens.
Speaker Change: Almost $13 billion in physical 2031.
Speaker Change: In the past a vast majority of our revenue and our Sam opportunity originated a former H endpoint market all the terminal device.
Speaker Change: Work.
Speaker Change: But our new analysts indicate some expansion in the H infrastructure older layers over the layer over that work where data for multiple endpoints is aggregated and the incrementals as AIP chairs in the services such as a multimodal visual language model.
Speaker Change: Did your language and originally models can be supported.
Fermi Wang: We are already addressing the AI infrastructure market with the N1 family, and we are now developing a new AI SoC product family to enhance our AI infrastructure roadmap. By leveraging the silicon architecture and software investment in our low-power and scalable third-generation AI accelerator, we are able to efficiently extend our reach.
Speaker Change: We are already addressing with <unk> infrastructure market with the other one.
Speaker Change: Family and we are now devoting our new <unk> Soc product family to enhance our H AI infrastructure roadmap by leveraging our silicon architecture as sulfate and glass mountain.
Speaker Change: Low power and a scalable third generation <unk>, so either we're able to efficiently extend outreach.
Fermi Wang: Over the next few quarters, we will be describing some of the H infrastructure applications we are targeting in more detail.
Speaker Change: Over the next few quarter quarters, we will be describing some of the aged infrastructure applications, we are targeting in more detail.
Fermi Wang: In April, I attended the ISE West security show and met with key customers and partners. Ambarella demonstrated its leadership in Gen AI as of the age with 18 product demonstrations, including the latest Gen AI and the Vision AI capabilities. And I was very pleased with the high level of customer interest and design activities around our advanced AI products. The demonstrations highlight Ambarella's ability to enable scalable, high-performance reasoning and vision AI applications, leveraging our third-generation AI accelerator, which now supports most of the leading gen-AI models, from 500 million to 34 billion parameters. We demonstrated deep-seated chain layer models running on our products at three different price performance points, including CV75, CV72, and N1655 processors.
Speaker Change: In April I attended the ISC West Security show in La with key customers and partners.
Speaker Change: <unk> demonstrated its leadership in G&A I go the age with 18 product demonstration, including the latest AI and the Beecher air capabilities and I was very pleased with a high level of customer interest and design activities.
Speaker Change: Our events are behind us.
Speaker Change: The demonstration is highlight the ambarella is ability to enable scalable high performance recently and the vision applications, leveraging our circulation accelerator, which now supports most of the leading Shanghai models from 500 million to 34 billion.
Speaker Change: We demonstrated these six junior models running on all products are the three different price point.
Speaker Change: Points, including <unk>, 75, <unk> 72, and six five hypothesis.
Fermi Wang: These demos, including advanced multistream video analysis, exemplify how we are pushing the boundaries of a real-time AI powered security and analytics by running state-of-the-art visual language models for both endpoints and on-prime infrastructure.
Speaker Change: This demos, including advanced multi screen video analytics.
Speaker Change: Our how we are pushing the boundaries of a real time AI powered our security and analytics by Rolling State of Art visual language models for both endpoints and I'm Prime infrastructure.
Fermi Wang: I will now talk about some of our customer product introductions. During the quarter, leading enterprise security camera company introduced two new products based on our CD72, offering very high resolution and advanced AI analytics. A third product, a wearable device supporting multiple modalities, was also introduced to the market.
Speaker Change: I will now talk about some of our parcel of product introductions in the quarter.
Speaker Change: During the quarter, leading enterprise security camera company, introducing two new products based on <unk> 72, operating at very high resolution and advanced analytics.
Speaker Change: A third product a wearable device supporting multiple modalities was also introduced to the market and this first of a kind product is based on all seek out Asics and video processor.
Fermi Wang: And this first-of-a-kind product is based on our ASIC 6LM video processor. As I described earlier, we are seeing increased traction in the HAI market beyond our core enterprise and home security business. This quarter, IOTH examples that demanded demanding our AI technology, including 360 degree portable video camera. cyclist cameras, industrial automation, and enterprise video conferencing. In the portable video camera market, market leader Insta360 introduces a flagship model, the 360-degree X5 camera. Based on Ambarella's 5-nanometer CV5, the X5 offers 8K video with advanced AI-based image processing. Also in the IoT market, Garmin announced its VariaView Halide camera for cyclists based on our H32 video processing.
Speaker Change: As I described earlier, we are seeing increased traction in the Asia market beyond our core enterprise and whole security business.
Speaker Change: This quarter I O T. H example, stack demanded.
Speaker Change: Demand in our AI technology, including 360 degree portable video cameras cyclists cameras industrial automation and enterprise video conferencing.
Speaker Change: In a portable video camera market market leader installed 360, <unk> introduces a flagship model of the 360 degree X five cameras based on Ambarella is finite amico CV five the XY offers 8-K video with advanced AI based image processing.
Speaker Change: Also in the Iot market.
Speaker Change: <unk> announced its very of you highlight.
Speaker Change: Tamara for cyclists based on our age 32 video processors.
Fermi Wang: In the enterprise IoT industrial automation market, Huawei announced its R5000 series of machine vision code readers based on our third generation AI accelerator. The 5 nanometer CV75 enables the system to read up to 90 codes per second. Also in the enterprise IOT, Norway-based Hudley introduced a new category of multi-camera video conferencing products as an integrated system Europe exhibition. Hudley's new C1 video bar is part of a collaboration with technology giant Lenovo. The end of the advanced system is based on our 5nm CV72 with 20 times the AI performance of previous generation systems. In our automotive safety and ADAS business, this quarter we are disclosing wins in China, Japan, Korea, and the US.
Speaker Change: In the enterprise Iot industrial automation market.
Speaker Change: Announced after eight hours CSR machine vision colder reader co leaders based on our third generation of X or either.
Speaker Change: Nanometer CV 75 enables the assistant to read up to Nike codes per second.
Speaker Change: Also in the enterprise Iot, Norway based hardly introduce a new category of multi camera video conferencing products, either the integrated systems Europe.
Speaker Change: Europe experienced hot.
Speaker Change: How do these new <unk> video bar is a part of our collaboration with technology giant the logo.
Speaker Change: And that system is based on our five nanometer <unk> 72 was 20 times the AI performance of previous generation systems.
Speaker Change: Our automotive safety in the API business. This quarter, we are disclosing wins in China, Japan, Korea, and the U S.
Fermi Wang: A leading Japanese OEM will utilize our CV25 SoC in a data log application, with a CV25 supporting both human viewing and data analysis. The project is supported by a major Tier 1 in Japan, with production scheduled to begin this year. Also in Japan, Monomaly, a leading Japanese OEM, is utilizing CV25 for a multi-camera system providing in-cabin recording and viewing functions, with production scheduled for our current fiscal year. During the second quarter, Zikr introduced its 007 GT electric vehicle featuring an interactive intelligent B-pillar system with two cameras. Our CE28 enabled access control based on face ID as well as in-cabin monitoring.
Speaker Change: The Japanese OEM will utilize our <unk> Soc.
Speaker Change: Hello, Good application with the <unk> 25, so 14, plus human viewing analytics.
Speaker Change: The project is supported by a major tier one in Japan with production scheduled to begin this year.
Speaker Change: Also in Japan, well not really.
Speaker Change: A leading Japanese OEM utilizing CV quantified for multi camera system, providing in cabin recording and the viewing functions was production schedule for our current fiscal year.
Speaker Change: During the second quarter weaker introduce Douglas zero, seven GT electric vehicle featuring interactive intelligence Peter.
Speaker Change: Peter assistance was two cameras all <unk> enabled access control based on phase <unk> as well as in coming months.
Fermi Wang: I think we are leaving South Korea. provider of smart car information technologies, has entered production with Harmony, a dual camera recorder based on CD25 supporting ADAS features such as full collision warning, land departure warning, and security monitoring. And in the commercial fleet kinematics market, US-based Rode Easy introduces RZ1 featuring a dual-view camera based on our CV25. The RZ1 captures clear road and cutting footage to improve fleet safety and accountability. It's an integrated edge AI identifying risks like distracted driving, phone usage, or tailgating. As you can see from this representative engagement, security remains an important growth market for us.
Speaker Change: I think we're a leading so south Korea.
Speaker Change: The over small car information technologies has entered production was how was harmony do camera recorder based on CD 25, supporting Adas features such as forward collision warning bells departure warning and a security monitoring.
Speaker Change: And even the commercial fleet telematics market U S based a real easy introduces <unk> feature and let you give your camera based on <unk> 25, the Aussie won't capture clear ROE and caviar footage to improve safety and accountability.
Speaker Change: Integrating <unk> identifying risk lack of distracted driving full year since you're calculating.
Speaker Change: As you can see so long as representative engagement security remains an important growth market for us, but we are seeing opportunities in numerous other AJ applications with customers in both the auto and Iot market.
Fermi Wang: But we are seeing opportunities in numerous other AI applications with customers in both the auto and the IoT market, evaluating and adopting our AI SoC. As many of you know, roughly five years ago, AGI originated in an enterprise security camera market, and we were quick to leave the market. Today, we continue to lead the security-age AI market, and we are successfully leveraging our AI portfolio and the market know-how into new application verticals. In fact, security is less than half our total revenue today, and today's announcements are just a subset of new HAI applications we see emerging.
Speaker Change: Evaluating and adopting our AI Soc.
Speaker Change: As many of you know roughly five years ago <unk> originated in the enterprise security camera market and we were quick to lead the market.
Speaker Change: Today, we continue to lead our security market.
Speaker Change: Our successfully leveraging our AI portfolio and the market knowhow into new application protocols.
Speaker Change: In fact that security is less than half of our total revenue today and today's announcement, just a subset of new H E application, we see emerging.
Fermi Wang: Our investment in technology and products is driving today's revenue growth and our future revenue growth opportunities. Our AGI products address the megatrends of safety and security, but also automation which enables end-user productivity to be improved and or enables entirely new revenue streams across many markets.
Speaker Change: Yes.
Speaker Change: Our investment in technology and products is driving to base revenue growth and our future revenue growth opportunities are <unk> products. Okay.
Speaker Change: Yes, the Megatrends of safety and security, while also automation, which enables end user productivity to be improved and or enables entirely new revenue streams across many markets.
Fermi Wang: While it is still early, AI is fighting its way to the H. It's not just a data center or hyperscaler opportunity anymore. Ambarella is the leader in HAI, with more than 32 million HAI processors shipped on a cumulative basis. We are the established HAI technology provider, which uniquely focus on focus and the position for the rapidly evolving HAMR. We continue to pace a record of innovation. Our product portfolio and roadmap are highly differentiated and offer the flexibility and scalability to target increasingly diverse applications, both enterprise and consumer-driven markets and close-edge endpoints, as well as edge infrastructure.
Speaker Change: While it is still early AI, it's finding its way to the age is not just a data center or hyperscale or opportunity anymore.
Speaker Change: And where is the leader in the H in H AI with more than 32 media <unk> processors shifts on a cumulative basis.
Speaker Change: We established.
Speaker Change: Establish a technology provider, which uniquely focus on focus and are positioned for the rapidly evolving H air market. We continue with the pace of rapid innovation.
Speaker Change: Our product portfolio and roadmap are highly differentiated and offer the flexibility and scalability to target increasingly.
Speaker Change: Diverse applications.
Speaker Change: Its enterprise and consumer driven market and across each end points as well as the <unk> infrastructure.
Fermi Wang: As I wrap up today, I want to reiterate The important points we share today. One, we deliver a strong Q1 result with similar strengths projected into Q2. Two, we increase our fiscal 2026 guidance while maintaining a conservative second-half stance. Three, our higher value, higher ASP products are seeing strong momentum. Fourth, we have a strong SEM outlook with the new HAI markets in development. Five, we are the established AGM market leader who's leading at the right pace.
Speaker Change: As I wrap up today I want to reiterate.
Speaker Change: The important points, we shared today.
Speaker Change: One we delivered strong Q1 results, we have similar strength projected into Q2.
Speaker Change: We increased our fiscal 2020 guidance, while maintaining a conservative second half stance.
Speaker Change: Three our higher value higher ASP products are seeing strong momentum.
Speaker Change: We have a strong sem outlook with a new age of air markets in development.
Speaker Change: Five we are the established hei market, either who is leading at the right pace.
Fermi Wang: Of course, the geopolitical uncertainty can be a distraction, but to deal with it, I feel it is important to remain agile and to be prepared for short-term surprises and to focus on what we can control, while most importantly continuing investment in innovation and market development. That is most critical for our success. Financially, while we have generated positive free cash flow for 16 consecutive years, our goal is to develop the technology products and the customers that result in positive earning leverage and growth in our free cash flow.
Speaker Change: Of course, the geopolitical uncertainty can be a distraction, but to deal with it I feel it is important to remain agile and be prepared for shortly the surprises and to focus on while we can control.
Speaker Change: While most importantly, continuing investment in innovation and market development that is most critical for our success.
Speaker Change: Financially, while we have generated positive free cash flow for 16 consecutive years. Our goal is to keep all over the technology products and the customers that result in positive earnings leverage and growth in our free cash flow.
John Young: With that, John will now discuss the Q1 results and the Q2 outlook in more detail. Thank you, Fermi. I'll now review the financial highlights for the first quarter of fiscal year 2026, ending April 30th, 2025. I will also provide a financial outlook for our second quarter of fiscal year 2026, ending July 31st, 2025.
Speaker Change: With that John will now discuss the Q1 results and the key.
John: Q2 outlook in more detail.
John: Yes.
John: Thank you Fermi.
John: I will now review the financial highlights for the first quarter of fiscal year 2026, ending April 32025, I will also provide our financial outlook for our second quarter of fiscal year 2026, ending July 31 2025.
John Young: I will be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense along with acquisition-related costs adjusted for the impact of tax. For Fiscal Q1, revenue was $85.9 million above the midpoint of our prior guidance range, up 2.2% from the prior quarter, and up 57.6% year-over-year. Sequentially, automotive revenue declined in the low single digits and IOT increased in the mid single digits. Non-gap gross margin for fiscal Q1 was 62%, slightly above the midpoint of our prior guidance range due to a favorable product match.
John: I will 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 costs adjusted for the impact of taxes.
John: For fiscal Q1 revenue was $85 $9 million above the midpoint of our prior guidance range up two 2% from the prior quarter and up 57, 6% year over year.
John: Sequentially automotive revenue declined in the low single digits and Iot increased in the mid single digits.
John: non-GAAP gross margin for fiscal Q1 was 62% slightly above the midpoint of our prior guidance range due to a favorable product mix.
John Young: Non-GAAP operating expense in Q1 was $51.8 million, slightly above the midpoint of our prior guidance range of $50 to $53 million. due in part to higher engineering costs on new and existing chip development projects. Q1 net interest and other income was $2.2 million. Comparing to our prior guidance of $1.8 million, the increase was primarily from higher other income. Q1 non-GAAP tax provision was approximately $600,000. We reported a non-gap net profit of $3 million or 7 cents of earnings per diluted share in Q1.
John: non-GAAP operating expense in Q1 was $51 $8 million slightly above the midpoint of our prior guidance range of $50 million to $53 million.
John: Due in part to higher engineering cost on new and existing chip development projects.
John: Q1, net interest and other income was $2 $2 million comparing to our prior guidance of $1 $8 million the increase was.
John: Primarily from higher other income.
John: Q1, non-GAAP tax provision was approximately $600000.
John: We reported a non-GAAP net profit of $3 million or seven of earnings per diluted share in Q1.
John Young: Now I will turn to our balance sheet and cash flow. Fiscal Q1 cash and marketable securities reached $259.4 million, increasing $9.1 million from the prior quarter and $56 million from the same quarter a year ago. Increased cash and marketable securities benefited primarily from working capital improvements associated with increased revenue during the quarter. Receivables Day sales outstanding decreased from 33 days in the prior quarter to 31 days, while days of inventory increased one day to 98 days. Compared to the prior quarter, our inventory dollars increased 14% to support our customers strong demand outlook for our product.
John: Now I will turn to our balance sheet and cash flow.
John: Fiscal Q1, cash and marketable securities reached $259 4 million, increasing $9 $1 million from the prior quarter and $56 million from the same quarter a year ago.
John: Increased cash and marketable securities benefited primarily from working capital improvements associated with increased revenue during the quarter.
John: Receivables days sales outstanding decreased from 33 days in the prior quarter to 31 days, while days of inventory increased one day to 98 days compared to the prior quarter, our inventory dollars increased 14% to support our customers' strong demand outlook for our products.
John Young: Operating cash inflow was $14.8 million for the quarter. Capital expenditures for tangible and intangible assets were $4.6 million for the quarter. Free cash flow was $10.2 million for the quarter.
John: Operating cash inflow was $14 8 million for the quarter.
John: Capital expenditures for tangible and intangible assets were $4 6 million for the quarter free.
John: Free cash flow was $10 $2 million for the quarter.
John Young: During the second quarter of fiscal year 2020-2026, Ambarella's board of directors approved an extension of the current share repurchase program for an additional 12 months ending June 30, 2026. During the first quarter, we purchased 24,152 shares of our stock for total consideration of approximately $1 million. As of today, there's approximately $48 million available under our repurchase authorization.
John: During the second quarter of fiscal year 2022, 2026, Ambarella is board of directors approved an extension of the current share repurchase program for an additional 12 months ending June 32026.
John: During the first quarter, we purchased 24152 shares of our stock for total consideration of approximately $1 million.
John: As of today, there is approximately $48 million available under our repurchase authorization.
John Young: 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 63.1% of revenue for the quarter.
John: We had one logistics company, representing 10% or more of our revenue WT microelectronics, a fulfillment partner in Taiwan that shifts to multiple customers in Asia came.
John: Came in at 63, 1% of revenue for the quarter.
John Young: I'll now discuss the outlook for the second quarter of fiscal year 2026. Demand for our edge AI inference processors remains strong. We anticipate fiscal Q2 revenue in the range of $86 million to $94 million, or $90 million at the midpoint. We expect mid single digit sequential revenue growth and IoT applications with auto revenue expected to be slightly up versus the prior quarter.
John: I will now discuss the outlook for the second quarter of fiscal year 2026 demand for our edge AI inference processors remained strong.
John: Anticipate fiscal Q2 revenue in the range of $86 million.
John: $94 million or $90 million at the midpoint.
John: We expect mid single digit sequential revenue growth in Iot applications with auto revenue is expected to be slightly up versus the prior quarter.
John Young: For fiscal 2026, we anticipate a revenue growth range of 19% to 25%. We expect fiscal Q2 non-gap gross margin to be in the range of 60.5% to 62%. We expect non-GAAP operating expenses in the second quarter to be in the range of $52.5 to $55.5 million. With the increase compared to Q1 driven by new product development costs, including a new AISOC addressing the emerging IoT edge infrastructure opportunities described earlier by Fermi.
John: For fiscal 2026, we anticipate our revenue growth range of 19% to 25%.
John: We expect fiscal Q2, non-GAAP gross margin to be in the range of 16, 5% to 62%.
John: We expect non-GAAP operating expenses in the second quarter to be in the range of $52 five to $55 $5 million.
John: With the increase compared to Q1, driven by new product development costs, including a new AI associated addressing the emerging Iot edge infrastructure opportunities described earlier by Fermi.
John Young: We also anticipate a weaker U.S. dollar to have a moderately unfavorable impact on our operating expenses in the second quarter. We estimate net interest and other income to be approximately $1.8 million, our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 42.6 million shares.
John: We also anticipate a weaker U S dollar to have a moderately unfavorable impact on our operating expenses in the second quarter.
John: We estimate net interest and other income to be approximately $1 8 million or non-GAAP non-GAAP tax expense to be approximately $800000.
John: And our diluted share count to be approximately $42 6 million shares.
Operator: Thank you for joining our call today and with that I will turn the call over to the operator for questions. Thank you so much and as a reminder that is star 11 if you do have a question and wait for your name to be announced. To remove yourself press star 11 again.
John: Thank you for joining our call today and with that I will turn the call over to the operator for questions. Thank you. So much and I'm. Sorry reminder, that is star one one if you do have a question and wait for your name to be announced to remove yourself press star one again.
Christopher Rolland: One moment for our first question. It comes from the line of Christopher Rolland with Susquehanna. Please proceed.
John: For our first question.
Speaker Change: It comes from the line of Christopher Roland with Susquehanna. Please proceed.
Christopher Rolland: Hey guys, congrats on the quarter and thanks for the question. To get to your full year guide, I just wanted to make sure I get the moving parts right. It seems like we are taking up our numbers in the first half, but just looking at the sequential growth profile, it looks at least versus prior that the back half, the sequentials are reduced versus our prior. I was just wondering, has the growth profile actually changed? Is this related to the tariff pull-in that you commented on last quarter? Are we adding to the first half but taking from the second?
Speaker Change: Hey, guys congrats on the quarter and thanks for the question.
Speaker Change: To get to your full year guide.
John: I just wanted to make sure I get the moving parts right.
John: It seems like we are taking up our numbers in the first half.
John: But just looking at the sequential growth profile it looks at least versus prior.
John: That the back half.
John: The sequential or reduced versus our prior and so I was just wondering.
John: Has the growth profile actually changed is this related to the tariff.
John: Kind of pulling.
John: Pulling that you commented on last quarter. So are we taking from the FERC. The are we adding to the first half, but taking from the second.
Fermi Wang: What are the moving parts in the growth profile for the year?
John: Just what are the kind of moving parts in the growth profile for the year.
Louis Gerhardy: Well, first of all, I don�t think we are having concerns. At least our current annual guidance doesn�t have any concerns about second-half strength. If you look at it, we extend the guidance range. If you look at it, the high-end guidance range, we have regular seasonality and showing a strong second-half growth. So it�s really about, you know, there�s uncertainty about with the current geopolitical situation. We want to build in uncertainty in there. So I think we are still high confidence about our second-half growth. And with our visibility in Q3 and we�re building up visibility in Q4, I think that I don�t believe we�re giving any signal that we have a weak second-half growth.
John: Well first of all I don't think we're having.
John: Having concerns our current annual guidance doesn't have any concerns about second half strength.
John: You look at the we extend the guidance range. If you look at the high end of guidance range. When you kind of look a.
John: Regular seasonality and showing a strong second half growth. So it's really about.
John: There is uncertainty.
John: About we still current geopolitical situations one computing.
John: So I think we are still high confidence about our second half growth and with our visibility in Q3 <unk>.
John: In Q4, I think of that.
John: I don't believe it was giving any single number that we have a weaker second half.
Louis Gerhardy: Dear Chris, going into this, this Louis, going into this call, you know, I think the consensus was about 51% in the first half 49 in the second half. Fair enough. Thank you very much for that, Louis.
John: Chris going into this this is louis.
John: Going into this call.
John: The consensus was about 51% in the first half 49 in the second half.
John: And at the midpoint I don't take those percents changed much but the dollar figures I think in every quarter would probably be going up a bit. So it's another way to think about it but I would point out also that.
John: If you are in the upper half of our guidance range, you'd probably end up with seasonality pretty close to normal. So it's really your call. We're just saying, it's an uncertain environment it could happen and play out a lot of different ways.
John: Okay fair enough.
Louis Gerhardy: I know you don't guide a few quarters ahead, but would you expect October to be up seasonally? I know January is typically down, but is there any reason to think that October should be up overall? I think we could help you with the shape, but as Fermi said, not the absolute numbers. And I think it's reasonable to think that that would be a positive sequential number. And it's probably reasonable to expect Q4 to be down sequentially. That's all we can answer at this stage, the shape, but not much more precision than that.
Lewis Hardy: Thank you very much for that Lewis.
John: I know you don't guide a few quarters ahead, but would you expect October to be up seasonally I know January is typically down.
John: But is there any reason to think that.
John: The October.
John: <unk> should be up overall.
John: Overall I.
Speaker Change: I think we can help you with the shape, but his firm you said not the absolute numbers and I think.
John: It's reasonable to think that that would be a positive sequential number and it's probably reasonable to expect Q4 to be down sequentially.
John: That's why we can answer at this stage the shape, but not much more precision than that.
Christopher Rolland: That's very helpful. Thank you so much guys and and congrats. Thank you.
Speaker Change: That's very helpful. Thank you so much guys and congrats.
John: Thank you. Thank you.
Tore Svanberg: Our next question is from Tore Svanberg with TESOL. Please proceed. Yes, thank you and congratulations on the results. Fermi, you talked about edge infrastructure, and I'm sure this is something that you're going to continue to elaborate on. Could you just explain a little bit, you know, what you mean by that? Obviously, we're not talking about, you know, big AI clusters here.
toys Bamberg: Thank you. Our next question is from toys Bamberg with Stifel. Please proceed.
toys Bamberg: Yes, Thank you and congratulations on the results.
toys Bamberg: For me you talked about edge infrastructure and I'm sure. This is something that you're going to continue to elaborate on but could.
John: Could you just explain a little bit of what.
John: What you mean by that obviously, we're not talking about big AI clusters here. So.
Fermi Wang: So, yeah, if you could just add some color on what exactly you mean by introducing new products for edge infrastructure. Right, so I think, you know, if you look at how the device is being distributed, on the top is really a data center and cloud. On the bottom is really the endpoints, which is where we are serving our customer. But now it's become clear with so many different AI models happening, and you just cannot upgrade the endpoints fast enough, right? Of course that our customer continue to want to replace the endpoints with new products or new cameras that can run efficient advanced AI models.
John: Yes, if you could just add some color on what exactly you mean by introducing new products for edge infrastructure.
John: Alright so.
John: If you look at how the device.
John: On the top is really a data center in the cloud on the BARDA is read.
John: H endpoints, which is where we are having serving our customer but now it's been unclear with so many different ways.
John: AI models happening and you just cannot upgrade to the endpoints faster enough right of course that our customer country want to replace the endpoints.
John: New products or new cameras that we can efficiently.
Fermi Wang: But to upgrade the existing install base, you can imagine that there is a – you want to integrate multiple endpoints that are already in the install base, and using a server or an AI box that can integrate all of those endpoints, video input, and run this model on that box, right? So that could be the easiest way to upgrade the install base, and I think that's become a trend. It's become obvious. And among other things, this is just one early trend that we're seeing, and we believe that has momentum on that.
John: Efficient advanced AI models.
John: To upgrade to the existing installed base.
John: Can you imagine that you.
John: You want to.
John: Integrate multiple endpoints that already in the installed base and using.
John: Our survey.
John: Box that can integrate all of those endpoints video inputs and around our base model on that box, so that would be either.
John: This is way to upgrade the installed base.
John: I think that would be kind of trends, if you kind of obvious and among other things. This is just a one early trends that we're seeing and we believe that as momentum on that and in the future there'll be many other.
Fermi Wang: And in the future, there will be many other, you know, on-premise servers, edge servers, that we can use our solution to.
John: Imprimis.
John: Servers.
John: Servers that at all.
John: He was our solution too.
Tore Svanberg: Yeah, that's great, Colin, and that's my follow-up. You know, I know your segment revenue is in IOT versus auto, but it sounds like, you know, non-camera IOT is really starting to proliferate here with, you know, IOT industrial enterprise wearables and so on and so forth.
Speaker Change: Yes, that's great color and then as my follow up.
John:
John: I know Youre segment revenues and Iot versus oil, but it sounds like you know non camera Iot is really starting to proliferate here with Iot.
John: Iot industrial enterprise, Wearables and sort of and so forth.
Louis Gerhardy: Is that business sort of approaching 10% of revenue? And, you know, will you potentially eventually split that out, you know, so that you don't just sort of have investors focus on the security camera part of the revenue?
John: Is that business sort of approaching 10% of revenue and will you potentially eventually.
John: Split that out.
John: So that you don't just sort of have investor focus on the security camera part of the of the revenue.
Louis Gerhardy: A couple things here, Tori, it's Louis. You know, most of our revenue today, you know, the data is getting ingested by our AI accelerator through the lens of a camera. So, you know, that hasn't changed, although we have said it's likely that that becomes an incremental opportunity for us in the future, especially as we go into the edge infrastructure.
Louis Hardy: A couple of things here Tory it's Louis.
Louis Hardy: Most of our revenue today.
Speaker Change: The data is getting ingested by our AI accelerators through the lens of the camera so.
Speaker Change: That hasnt changed although we have said, it's likely that that becomes an incremental opportunity for us in the future, especially.
Speaker Change: As we go into the edge infrastructure.
Louis Gerhardy: But, you know, Fermi made a comment in his script, you know, about security as an end market for us. And, you know, that's less than half of our revenue now. So now we're seeing, you know, very good growth. As you know, auto is, you know, around 25% of our revenue. And then in other IOT markets, we're starting to see solid growth there and adoption of AI in a wide variety of markets. So everything is still ingesting data through the lens of a camera, but that probably changes in the future. And security is, you know, ground zero for us because that's where AI at the edge started.
Speaker Change: But firm you made a comment in his scripts.
Speaker Change: About security as an end market for us.
Speaker Change: That's less than half of our revenue now so now we are seeing.
Speaker Change: Very good growth as you know auto.
Speaker Change: Is around 25% of our revenue.
Speaker Change: And then in the other Iot markets, we're starting to see.
Speaker Change: Solid growth, there and adoption of AI in a wide variety of markets. So everything is still ingesting data through the lens of a camera, but that probably changes in the future.
Speaker Change: And securities.
Speaker Change: Zero for us because thats, where AI at the edge started.
Louis Gerhardy: You know, we led that market and now we're leveraging that expertise and applying it to a lot of additional vertical applications.
Speaker Change: That market and now we're leveraging that expertise and applying it to a lot of additional vertical applications.
Tore Svanberg: That's a great perspective, congrats again, thank you.
Speaker Change: That's great perspective, congrats again, thank you.
Speaker Change: Okay.
Kevin Cassidy: Our next question comes from Kevin Cassidy with Rosenblatt Securities. Please proceed. Unknown Attendee Yes, thanks for taking my question.
Speaker Change: Thank you. Our next question comes from Kevin Cassidy with Rosenblatt Securities. Please proceed.
Kevin Cassidy: Yes, thanks for taking my question.
Kevin Cassidy: Also, congratulations on the great results. But speaking of those results, what do you think with the strong product cycle that you're in? Could there be a change in your seasonality, maybe as the human interface devices become less relevant in your revenue? Yeah. You are asking about our CV products versus human viewing products? Just a question with regard to whether our seasonality might not be as much of an impact. Right. So I think for this year, I think with so many uncertainty on geopolitical situation, that seasonality is definitely a question mark for us. Although we are not saying there's no regular seasonality, we'll just say that we provide a much higher, a much broader range for the annual guidance to indicate there's uncertainty on the second half.
Kevin Cassidy: Also.
Kevin Cassidy: Congratulations.
John: Great results.
John: Speaking of those results.
John: Or do you think.
John: Strong product cycle that you're in.
John: Could there be a change in your seasonality maybe as the.
John: Human interface devices become less relevant in your revenue.
John: Yeah.
John: Yeah, Youre asking about.
John: Our CV products, the rest of the human viewing products.
John: A question with regard to weather or seasonality might be as much of an impact right. So I think for this year I think with so many uncertainty and geopolitical situation that seasonality is definitely a question mark for us. Although we are not saying theres no regular seasonality will just say that we provide a much higher a march quarter range for the annual guidance.
John: Two indicators uncertainty on this.
Fermi Wang: But I think there's definitely a scenario that normal seasonality can happen.
John: The second half, but I think there is definitely a scenario that normal seasonal.
John: So it allows you could happen.
Fermi Wang: Unknown Attendee And you've piqued our interest with mentioning these new edge devices. You know, these are all your transformer based SoCs. Yeah, I think the question was, correct me if I'm wrong, Kevin, it was a little bit hard to hear you, on the edge infrastructure, is, do we expect that market to leverage our third generation AI accelerator to a high degree, and the answer is yes. Yes, obviously, because right now, the first, we already announced N1655 this year for that particular market, but we also understand the need for the customer, so we're going to build another chip for the family of the product, so we can deliver a complete roadmap for the customer.
John: Okay.
John: If piqued our interest.
John: Mentioned.
John: <unk> devices.
John: These are all your former base.
John: Yes.
John: Checks on what basis.
John: Yes, I think the question was.
John: Correct me, if I'm wrong, Kevin It was a little bit hard to hear you on the agenda for structure is do we expect that market to leverage our third generation AI accelerator to a high degree and the answer is yes, yes, obviously because right.
John: Right now the first.
John: The last six months.
John: This year for that particular market, but we also understand the need for the customer so we're going to build.
John: Another chair for the for the family of products. So we can give you.
John: Complete roadmap for a customer all of chip, we're talking about today still leveraging our third generation <unk> architecture and the software to minimize all you've asked about the syntax provide a very competitive solution in the market and more importantly, I think.
Fermi Wang: All the chips we're talking about today are still leveraging our third generation CV flow architecture and the software to minimize our investment, but at the same time, provide a very competitive solution in the market, and more importantly, I think, as you know, that third generation architecture can really do all of the advanced AI models based on transformers. Okay, great. That'll be an exciting product.
John: As you know that origination.
John: Architecture can really to all of the events AI models based on Transformers.
John: Okay great.
Fermi Wang: I look forward to hearing it.
John: So I think product, Florida here.
Operator: One moment for our next question.
John: Thank you.
John: One moment for our next question.
Joe Moore: And it's from the line of Joe Moore with Morgan Stanley, please proceed. Great, thank you. Thanks for the update and the good numbers. As you talk about these kind of edge AI focus, you know, I guess, is this a shift in focus for you guys? And I guess, how are you thinking about this sort of more the CB3 types of larger automotive ADAS opportunities? You know, are you moving resources maybe away from those things towards these other initiatives? Or are those initiatives still something that you're, you know, enthused about?
Speaker Change: And he is from the line of Joe Moore with Morgan Stanley. Please proceed.
Joe Moore: Great. Thank you thanks for the update and the good numbers.
Speaker Change: As you talk about these kind of edge AI focus I guess is this a shift in focus for you guys and I guess, how are you thinking about sort of more the CV three types of larger automotive Adas opportunities are you moving resources away from those things towards these other initiatives or are those initiatives still something that you're thinking about.
Fermi Wang: Autos continue to be a focus, but I think, you know, with our current approach for autos is we already built a complete CV3 automotive series, as you know, that we have a 685, 655, and a 635, that complete line-up for the autonomous driving software. And also, we're going to continue to invest on our software side, both for the VizLab autonomous driving software stack and the ArcLight radar software stack, so that doesn't change. However, you know, with that, we finalized already CV3 family for the automotive roadmap. We definitely have resources that we're going to put on the H infrastructure.
Speaker Change: <unk> continued to be a focus I think.
Speaker Change: Our current approach for all the ways, we already build a company <unk> automotive Sirius as Youll know that we have $685 655, and the 685 that the company and lay out for the autonomous driving software and although we continue to invest.
Speaker Change: Software side, both for that is that upon driving software stack is ottrelite radar. So facet software stack so that doesn't change however.
Speaker Change: We finalized <unk> III family for the automotive roadmap, we definitely have resources that we're going to pull down the <unk> infrastructure and also we talk about.
Fermi Wang: And also, we talk about we add another project, which is not in our annual plan, but we think with our revenue growth, we have a chance to build another silicon for H infrastructure, which we are doing. So, we have definitely added a little bit more table fee to improve our strength in this H infrastructure business.
Speaker Change: At another another project, which is not in our annual plan, but we think we saw our revenue growth we have a chance to build another silicon for <unk> infrastructure, which you are doing so we have definitely act a little bit more.
Speaker Change: Paypal fee to improve our.
Speaker Change: Our strength in the infrastructure business.
Speaker Change: Okay. Thank you that's helpful and then I guess.
Fermi Wang: Douglas Goldstein, CFP®, Financial Planner & Investment Advisor I know you don't like talking about this sort of more futuristic humanoid robots and things like that, but there's obviously a lot of upfront investment in paving the way to those types of markets and you have technology that should be important, so how do you kind of frame that? Is that an opportunity that you're willing to invest resources into? Yes, in fact, we are investing the resources.
Speaker Change: I know you don't like talking about this sort of more futuristic.
Speaker Change: Robots and things like that but there's obviously a lot of kind of upfront.
Speaker Change: Investment in kind of paving the way to those types of markets and you have technology that should be important. So just how do you kind of frame that is that an opportunity that you are willing to invest resources into.
Speaker Change: In fact, we are investing the resource let me maybe go a little bit deeper than that than before.
Fermi Wang: Let me maybe go a little bit deeper than before. The way we look at robotics, we view that market very similar to autonomous driving five years ago. What that means is that most of our customers, instead of trying to find the most efficient solution, they are still trying to piece.
Speaker Change: The way we look at.
Speaker Change: Robotic obligate patient today, we'll look at that we view that market very similar to autonomous driving five years ago.
Speaker Change: Is that most of our customer instead of trying to most of them the most efficient solution.
Speaker Change: Still trying to piece.
Speaker Change: Different pieces of the solution together to build a prototype because the size of the market for each customer still small so well start seeing people trying to using.
Speaker Change: Box for the video perception yellow box, where radar cross section and using a CPU to integrate them together. So this really reminds me five years ago refrigeration of level two car coming out is a similar architecture and we are in that stage right now and we already have solution like a <unk> 77 to provide.
Speaker Change: The video perception and they rollout precession for those kind of.
Speaker Change: Solution for hybrid we also believe just like that.
Speaker Change: I'm driving card.
Speaker Change: Moving forward for the high volume robotic application you need the domain controller, you need into AI software to try with this application so well.
Speaker Change: Using our <unk> III solution too.
Speaker Change: Can you drive this obligation.
Speaker Change: Application, but everything we're doing for this agent.
Speaker Change: Infrastructure you can imagine that that's also can help.
Speaker Change: Robotic solution, but more importantly, that's talking about silicon the sofa, but really go to market that you're going to start seeing maybe in the next quarter, we're just going to start drilling.
Speaker Change: <unk> introduced the idea of how we are going to change our go to market because we realize that.
Speaker Change: In the past, we're focused on addressing larger customers now.
Speaker Change: The robotic application the customer.
Speaker Change: The market is very segmented.
Speaker Change: It was a customer it has small volume so we need to find a different approach go to market approach to address this need and we will probably start talking about that approach next quarter.
Louis Hardy: It's Louis just to wrap some part numbers around that so for the co processing.
Louis Hardy: Save a perception that would be parts like CB <unk> CB seven.
Speaker Change: And then of course, the essential brain the domain controller for me it was referring to it would be like the end family of products.
Unknown Attendee: Great, thank you so much.
Speaker Change: Great. Thank you so much.
Suji DeSilva: One moment for our next question. And it's from Suji DeSilva with Roth Capital. Please proceed. Hi, Fermi, John, Louis, congrats on the progress here. Maybe you can help me frame this edge AI server opportunities. Is there a way to think about the size of that relative to maybe the end devices, some ratio, or some way of thinking about the content of the servers relative to the device content? Any way to frame it so we can think about how it's going to grow in your All right, so maybe a... Let me help you to the number that I'm thinking about.
Speaker Change: Thank you one moment for our next question.
Roth capital: And he's from Sujit de Silva with Roth capital. Please proceed.
Speaker Change: Hi, Fermi John Lewis Congrats on the progress here.
Roth capital: Maybe you can help me frame this edge AI server opportunities is there a way to think about the size of that relative to maybe the end devices some ratio or some way to think about the content of the servers relative to the device content anyway to frame. It. So we think about how it's going to grow in your revenue.
Speaker Change: Right so maybe.
Speaker Change: Let me help you to the number.
Fermi Wang: If you look at the aggregate, the current camera space, that's using security camera as an example. There are roughly 1.2 billion install-based camera, which you need to be upgraded. Either upgrade by a new camera with advanced AI technology or upgrade with what's called the H infrastructure box. And those kind of box usually integrate, I would say, 16, 32 different cameras into a box. And the content for that box for us is three digits, and the low three digits. So I hope that gives you an idea of how we look at this marketing opportunity.
Speaker Change: Im thinking about it.
Speaker Change: If you look at the aggregate the current camera space, that's using security camera as an example, they are roughly $1 2 billion installed based camera could you need to be upgraded either upgrade by a new camera was advanced AI technology or upgraded with.
Speaker Change: Sure.
Speaker Change: That's called.
Speaker Change: H H infrastructure box and those kind of box, usually integrally I'll say, a 16 32 different cameras into a box.
Speaker Change: And then the content for that box for US is three digits in the low single digits. So I hope that gives you a idea of how we look at the small box opportunity.
Fermi Wang: One thing I tack on there also is that, you know, having AI in the endpoint or in the edge infrastructure is not like a mutually exclusive thing. You can, you can have AI in the endpoint, along with the edge infrastructure servers. Unknown Attendee That's great, understood.
Speaker Change: One thing I'd tack on there also.
Speaker Change: Having AI and the endpoint or in the edge infrastructure is not like a mutually exclusive thing you can you can have AI in the endpoint along with that.
Speaker Change: The edge infrastructure servers.
Fermi Wang: And then my other question around the edge infrastructure market as you're going into this, how does the competitive landscape maybe shift in some perspective there, versus things like FPGAs, GPUs, CPUs that already target that market? Do you think about the competitive landscape differently? Unknown Speaker ... ... So in that market, it's a very new market, you know, when you're looking at the near edge and the far edge of the market. And so the SAM numbers like we're using are fairly small. So you do have some general purpose type processors used in these applications, you know, whether it's FPGAs or of course, GPUs.
Speaker Change: No that's great understood and then my other question around the edge infrastructure market as you're going into this how does the competitive landscape maybe shifting some perspective there.
Speaker Change: Things like FPGA as Gpus Cpus that already target that market do you think about the competitive landscape differently or is it similar.
Speaker Change: Okay.
Speaker Change: Go ahead.
Speaker Change: So in that market.
Speaker Change: It's a very new market when youre looking at the near.
Speaker Change: Nir edge in the far edge market.
Speaker Change: So the Sam numbers like we are using are fairly small. So you do have some general purpose type processors used in these applications, whether it's <unk> or of course Gpus.
Fermi Wang: We approach this market with, you know, much more efficient solution when you measure it in terms of like performance per watt and consider thermal impacts on the total system costs. And so kind of the same advantages that we've talked about in other markets will be applying to this edge market, initially say the near edge. And your first question, you mentioned, you know, AI servers, you know, that's probably gonna be part of it too, but maybe initially you'll hear about progress in some of the near edge markets first. and particularly those that use cameras. got it.
Speaker Change: We approach this market was.
Speaker Change: More efficient efficient solution.
Speaker Change: When you measure it in terms of like performance per watt and two.
Speaker Change: Consider thermal impacts on the total system cost and so kind of the same.
Speaker Change: The advantages that we've talked about in other markets, we'll be applying to this edge market initially say the near edge and your first question you mentioned AI servers.
Speaker Change: Probably going to be part of it too, but maybe initially youll hear about progress on some of the near edge markets first okay.
Speaker Change: Okay.
Speaker Change: Use cameras.
Speaker Change: Got it thanks guys.
Unknown Attendee: Our next question comes from Quinn Bolton with Needham and Company. Please proceed. Hey guys, it's Shadi Mitwalli on for Quinn. Thanks for letting me ask the question. My first question is on some of the conversations you've had in regards to your customers supply chain. I know last quarter you mentioned customers evaluating their own supply chains, which has caused uncertainty in the back half of this year. So just curious on how these conversations have progressed. talking to our customer about our supply situation. So we continue to have that conversation. You know, one of the worries last time we talked about is whether we are our customer building up inventories.
Speaker Change: Thank you.
Quinn, Bolton: Our next question comes from Quinn, Bolton with Needham and company. Please proceed.
Speaker Change: Hey, guys its shutting that Wally on for Glenn Thanks for let me ask the question.
Quinn, Bolton: My first question is on some of the conversations you've had in regards to your customers' supply chain I know last quarter, you mentioned customers evaluating their own supply chains, which has caused uncertainty in the back half of this year. So just curious on how these conversations have progressed.
Quinn, Bolton: Talking to a customer about while our supply situation. So we continue to have that conversation.
Quinn, Bolton: While the worry that's how we talk about is our customer building up inventories.
Fermi Wang: I think that we continue to have that conversation with customers. All of them told us that they are not building inventory. In fact, they are watching the situation and none of them are really eager to build any inventory at this point. So from that point of view, I think we can feel comfortable with that. However, there's still always a geopolitical situation. Every day, as we know, things can change. So that we cannot speak for what we don't know in the next—in the second half. So that's where our uncertainty lies. Got it.
Quinn, Bolton: I think that we continue to have that conversation with customers.
Quinn, Bolton: Well all of them told us that they are.
Quinn, Bolton: Not building inventory in fact, they are watching the situation and then now that really eager to build any inventory at this point. So from that point of view I think we can feel comfortable with that however, there is still always always with geopolitical situation every day as we know things can change.
Quinn, Bolton: Change so that we cannot speak for we don't know in the.
Quinn, Bolton: Second half, so that's where uncertainties.
John Young: And my follow up is on gross margin. Sounds like some of your new CV chips have been tailwinds to ASB. However, gross margin is expected to decline next quarter. So I was just curious on what is driving the decline. Yeah, it's a I mean, from any quarter to quarter, it's really a combination of customers and product mix that that is the primary driver of, of, you know, how that corporate gross margin rolls up. And so ordering patterns of different customers and and, you know, their contribution, that's, that's really the I guess you could say the primary.
Speaker Change: Got it.
Quinn, Bolton: And my follow up is on gross margin it sounds like some of your new CV chips have been tailwind to ASP. How the gross margin is expected to decline next quarter. So was just curious on what is driving the decline.
Quinn, Bolton: Yes.
Quinn, Bolton: From any quarter to quarter, it's really a combination of customers and product mix.
Quinn, Bolton: Is the primary driver of of.
Quinn, Bolton: How that corporate gross margin rolls up and so.
Quinn, Bolton: Bordering patterns are different customers in.
Quinn, Bolton: Their contribution.
Quinn, Bolton: That's really the.
Quinn, Bolton: I guess you could say the primary.
John Young: Driver for any one quarters gross margin guide. Got it. Thank you.
Quinn, Bolton: Driver for any one quarter's gross margin guide.
Quinn, Bolton: Got it thank you.
Quinn, Bolton: Thank you.
Gus Richard: Our next question comes from Gus Richard with Northland Capital Markets. Please proceed. Yes, thanks for letting me ask a couple questions. You know, the video management systems that... Obviously AI capabilities and the camera has AI capabilities. And I was wondering if you could help me understand. how that AI split happens and, you know, why you need it in. Right.
Gus Richard: Our next question comes from Gus Richard with Northland Capital markets. Please proceed.
Gus Richard: Yes.
Quinn, Bolton: Couple of questions.
Quinn, Bolton: The video management system.
Quinn, Bolton: <unk> two cameras or 16, whatever attached to those are coming out with.
Quinn, Bolton: Obviously AI capability from the camera has AI capability.
Speaker Change: If you could help me understand.
Quinn, Bolton: How that AI.
Quinn, Bolton: What happens and why you need it in both places.
Fermi Wang: So The quick answer to that is, you know, with InstoBase, you just cannot replace all the InstoBase cameras fast enough with advanced AI cameras. So you know, to enable the InstoBase with advanced AI models, this kind of box is required and probably the easiest way to upgrade. So that's just the first answer. The second answer is with a lot of different AI improvements every month or every quarter, I can imagine that in the future you're going to continue to see more and more advanced models coming up. The camera can run a portion of it, but every time there's an advanced camera comes out, it's easier to upgrade the service with a box approach.
Quinn, Bolton: Right so.
Quinn, Bolton: The quick answer to that is.
Quinn, Bolton: Installed base you just cannot replace older installed based camera fast enough.
Quinn, Bolton: As AI cameras, so to enable the installed base of advanced AI models.
Quinn, Bolton: Box is kind of boxes as required is probably easiest way to upgrade so thats, a first and so the figure as there is with <unk>.
Quinn, Bolton: A lot of different AI improvement every month or every quarter.
Quinn, Bolton: Matching that in the future you're going to continue to see more and more advanced module coming up the camera.
Quinn, Bolton: Portion of it but every time, there's a reverse camera comes out is easier to upgrade the service with.
Fermi Wang: So I think the combination of these two really drives the upgrade cycle.
Quinn, Bolton: Also our box approach. So I think the combination of this to really drive this upgrade cycle Hey.
Louis Gerhardy: Hey, Gus, it's Louis. Just to add some comments, John kind of touched on it earlier, but you could have, you know, CB2-based cameras in the field doing detection and classification with CNN networks. And then you could provide an incremental layer of service with one of our Gen-AI chips that could accommodate much larger perimeter models on the infrastructure side, the point of aggregation. And so, you know, maybe that's one example of how it would be architected.
Quinn, Bolton: Hey, guys. It's Louis just to add some comments John kind of touched on it earlier, but.
Quinn, Bolton: You could have.
Speaker Change: <unk> two based.
Quinn, Bolton: Cameras in the field doing detection and classification with CNN networks, and then you could provide an incremental layer of service with one of our Gen AI chips that could accommodate much larger perimeter models.
Quinn, Bolton: On the infrastructure infrastructure side, the point of aggregation and so maybe that's one example of how it would be architected.
Unknown Attendee: andsy., and then, thinking about the market, you know, at this point, China is not Unknown Attendee, Dr. Gary Mobley, Unknown Attendee, Dr. Gary Mobley, Unknown Attendee, Unknown Attendee Not China market is what you see your market share You know, when we talk about our 710 numbers, we donít include China number anymore in any security cut market. So thatís where weíre at. And in terms of market share, outside China, I would say we definitely have a majority of the market share for the security camera in the middle and high-end. On the low-end side, there are plenty of Chinese and Taiwanese suppliers trying to compete with the low-end with $2 to $3 chip, which we donít compete there.
Speaker Change: Got it and then just thinking about the market at this point in China is not.
Quinn, Bolton: Part of your market.
Quinn, Bolton: Wondering if you could.
Quinn, Bolton: Comment on how big the.
Quinn, Bolton: Not China market is for security cameras and.
Quinn, Bolton: What you see your market share is currently.
Quinn, Bolton: You know when we talked about our seven and 10 numbers. We don't include China number anymore any security Cup market. So that's where we add and in terms of market share.
Quinn, Bolton: Outside China, I would say, we definitely have a majority of the market share for the security camera in the middle and high end on the low end side. There are plenty of Chinese and Taiwanese supplier tried to compete with the low end with two to $3 chip, which we don't compete there. So if you look at if you will.
Unknown Attendee: So if you look atóif you separate the line with the mainstream high-end to the low-end, on the top, we are probably the majority leader, and on the bottom, you know, we are just one of the players. Got it. Thanks.
Quinn, Bolton: Separate the line with the mainstream high end to the low <unk>.
Quinn, Bolton: Yeah.
Quinn, Bolton: On the top we are we are probably the majority leader on the button just watch as well with our players.
Speaker Change: Got it thanks.
Speaker Change: Sure.
Martin Yang: And as a reminder to our tele audience, if you do have a question, simply press star 11 to get in the Okay, we have a question from the line of Martin Yang with Oppenheimer. Please proceed. Hi, thank you for taking my question.
Speaker Change: Thank you and as a reminder to our tele audience. If you do have a question simply press star one one to get in the queue.
Speaker Change: Okay, and we have a question from the line of Martin <unk> with Oppenheimer. Please proceed.
Martin: Alright. Thank you for taking my question first question is.
Martin Yang: First question is, on the Edge AI infrastructure product, is the second chip something new, meaning that you are pulling forward the development reacting to end market demand or something you have long planned in the roadmap? It's a first case. In fact, that after we talked to so many customers and what they need, we realized that, you know, R1655 is great for the first product, but we do need to have a second chip to keep competitive. And so, I think that second chip – however, the second chip is leveraging our current CV3, our third-generation CV4 architecture and software.
Speaker Change: On the edge AI.
Speaker Change: Infrastructure products.
Speaker Change: As the second ship.
Speaker Change: Something new meaning that.
Speaker Change: Pulling forward the development reacting to end market demand or something you have long planned.
Speaker Change: And our roadmap.
Speaker Change: It's our first case in fact of that after we talked to so many customers and while they need we realize that.
Speaker Change: Spotify is grateful the first product, but we do need to have.
Speaker Change: Second Chengdu to keep competitive and so I think that second chip, but however, the second chips are averaging all current CD three hour. So generation CV for architecture <unk> software. So the development is going to be fast and also the cost will be what we're seeing or can be easily controlled but the adds value is really help.
Fermi Wang: So the development is going to be fast, and also, the cost will be – can be easily controlled. But the added value is really helping customers have a better performance per watt and higher performance in a sense. Unknown Attendee Got it.
Speaker Change: <unk> customers have a better performance per watt and higher.
Speaker Change: Higher performance in a sentence silicon.
John Young: And then in this quarter accounts payable trends a little higher than normal. Is that associated with this new chip development? Not specifically, Martin, no. I think, you know, as we started to grow the Q2 top line guide, it's really more a function of building the inventory to support the demand that we're seeing. And so corresponding with that is the accounts payable associated with it. Thank you.
Speaker Change: Got it and then in this quarter accounts payable trends a little higher than normal is that associated with this new chip development.
Speaker Change: Not specifically Martin no.
Speaker Change: I think you know as we started.
Speaker Change: To grow the.
Speaker Change: Q2 top line guide.
Speaker Change: It's really more a function of of building the inventory for to support the demand that we're seeing.
Speaker Change: And so the corresponding with that is.
Speaker Change: Accounts payable associated with it.
Unknown Attendee: That's it for me.
Speaker Change: Got it. Thank you that's the Permian.
Unknown Attendee: Thank you so much.
Speaker Change: Thank you so much and ladies and gentlemen, this concludes the Q&A session.
Operator: And ladies and gentlemen, this concludes the Q&A session.
Operator: I will pass it back for final remarks. And thank you all for joining us today, and I'm looking forward to talk to you next time. Bye. Thank you.
Speaker Change: Session.
Speaker Change: I will pass it back for final remarks.
Speaker Change: And thank you all for joining us today and looking forward to talk to you next time bye.
Operator: And this concludes our program. Thank you for participating, and you may now disconnect. Okay. Thanks for watching!
Speaker Change: Thank you and this concludes our program. Thank you for participating and you may now disconnect.
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