Q2 2026 Ambarella Inc Earnings Call
Tawanda: Hello, and welcome to Ambarella's second quarter fiscal year 2026 earnings call. At this time, all participants are on 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-one on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star one-one again. I would now like to turn the conference over to Louis Gerhardy, Vice President of Corporate Development. You may begin.
Speaker #2: Hello, and welcome to Ambarella's second quarter fiscal year 2026 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker #2: To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automatic message advising that your hand is raised.
Speaker #2: To withdraw your question, please press star 1-1 again. I would now like to turn the conference over to Louis Gerhardy, Vice President of Corporate Development.
Speaker #2: You may begin.
Louis Gerhardy: Thank you, Tawanda. Good afternoon. Thank you for joining our second quarter fiscal year 2026 financial results conference call. On the call with me today is Dr. Feng-Ming 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 second quarter 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, our actual results could differ materially from these forward-looking statements. We are under no obligation to update these statements.
Speaker #3: Thank you, Tawanda. And good afternoon. Thank you for joining our second quarter fiscal year 2026 financial results conference call. On the call with me today is Dr. Feng-Ming Wang, President and CEO, and John Young, CFO.
Speaker #3: The primary purpose of today's call is to provide you with information regarding the results for our second quarter of fiscal year 2026. The discussion today, as well as the responses to your questions, will contain forward-looking statements regarding our projected financial results and financial prospects, market growth, and demand for our solutions, among other things.
Speaker #3: These statements are based on currently available information and are subject to risk, uncertainties, and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect?
Speaker #3: Our actual results could differ materially from these forward-looking statements, and we're under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we file with the SEC.
Louis Gerhardy: 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. Before starting the call, I'd like to summarize our planned investor events for our third fiscal quarter. On September 3rd, we'll participate in Citi's Global TMT Conference in New York City. On September 4th, we'll host KGI Securities bus tour in Santa Clara. On September 16th, we'll host Bernstein's seventh annual West Coast Semiconductor bus tour at our office in Santa Clara. On September 18th and 19th, Craig Hallam will host us on a Midwestern NDR. Access to our second quarter fiscal year 2026 results press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the Investor Relations page of our website.
Speaker #3: Before starting the call, I'd like to summarize our planned investor events for our third fiscal quarter. On September 3rd, we'll participate in Citi's Global TMT Conference in New York City.
Speaker #3: On September 4th, we'll host KGI Securities Bus Tour in Santa Clara. On September 16th, we'll host Bernstein's seventh annual West Coast Semiconductor Bus Tour at our office in Santa Clara.
Speaker #3: And on September 18th and 19th, Craig Hallam will host us on a Midwestern NDR. Access to our second quarter fiscal year 2026 results press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the Investor Relations page of our website.
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. Firmy will now provide a business update for the quarter. John will review the financial results and outlook, and we'll be available for your questions after that. Firmy?
Speaker #3: 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, Feng-Ming will now provide a business update for the quarter.
Speaker #3: John will review the financial results and outlook and will be available for your questions after that. Feng-Ming?
Feng-Ming Wang: Thank you, Louis, and a good afternoon. Thank you for joining our call today. Our strong momentum continued in our second quarter with revenue of $95.5 million, increasing 11% sequentially above the high end of our prior guidance range of $86 to $94 million. The second quarter results represent the fifth consecutive quarter of record AGI revenue. Furthermore, I am proud to say the midpoint of our new third quarter and the full fiscal year 2026 revenue guidance range represents all-time record quarterly and the fiscal year total revenue for Ambarella. In our May 29 earnings call, we increased our fiscal 2026 revenue growth estimate to a range of 19% to 25%, or approximately $348 million at the midpoint, with a strong order book, as well as our expectation for both our total unit ship and our average selling price to increase in fiscal 2026.
Speaker #4: Thank you, Louis, and good afternoon. Thank you for joining our call today. Our strong momentum continued in our second quarter, with revenue over $95.5 million.
Speaker #4: Increasing 11% sequentially above the high end of our prior guidance range of $86.94 million. The second quarter results represent the fifth consecutive quarter of record AGI revenue.
Speaker #4: Furthermore, I am proud to say that the midpoint of our new third quarter and the full fiscal year 2026 revenue guidance range represents all-time record quarterly and fiscal year total revenue for Ambarella.
Speaker #4: In our May 29th earnings call, we increased our fiscal 2026 revenue growth estimate to a range of 19% to 25%, or approximately $348 million at the midpoint.
Speaker #4: With a strong order book, as well as our expectation for both our total ownership and our average selling price to increase in fiscal 2026, we are increasing our fiscal 2026 revenue growth estimate to a range of 31.35%.
Feng-Ming Wang: We are increasing our fiscal 2026 revenue growth estimate to a range of 31% to 35%, or approximately $379 million at the midpoint. Needless to say, it is a very exciting time for Ambarella. Fundamentally, after a multi-year period of significant AGI R&D investment, our broad product portfolio enables us to address a rising breadth of AGI applications. This increased breadth not only drives our overall unit demand, but we continue to see very strong demand for our new five-nanometer AI SoCs in both our existing and emerging AGI markets, which is driving our firm-wide average ASP higher. I would like to double-click on the rising breadth of AGI applications I mentioned and focus on three applications we see as rapidly emerging for us: portable video, robotic aerial drones, and the edge infrastructure.
Speaker #4: Or approximately $379 million at the midpoint. Needless to say, it is a very exciting time for Ambarella. Fundamentally, after a multi-year period of significant AGI R&D investment, our broad product portfolio enabled us to address a rising breadth of AGI applications.
Speaker #4: This increased breadth not only drives our overall unit demand, but we continue to see very strong demand for our new 5nm AI SoCs in both our existing and emerging AGI markets.
Speaker #4: Which is driving our firm-wide average AI spin price higher? I would like to double-click on the rising breadth of AGI applications I mentioned and focus on three applications we see as rapidly emerging for us.
Speaker #4: Portable video, robotic aerial drones, and the edge infrastructure. Our AGI revenue began in the enterprise security market more than five years ago, and it was followed by an incremental AGI application in the smart home, automotive safety, and telematics markets.
Feng-Ming Wang: Our AGI revenue began in the enterprise security market more than five years ago, and it was followed by an incremental AGI application in the smart home, automotive safety, and the telematics market, all of which are continuing their unique growth trajectories. Now, this year, layered on top is the rising demand for our AGI SoCs from the portable video market, including action camera, panorama cameras, and body-worn cameras. In addition to the portable video market, we expect to commence high-volume shipment into the robotics market by the end of this fiscal year. The unit volume in the robotics market is highly fragmented by application, form factors, and customers. Our technology products and roadmap have enabled us to win one of the early high-volume robotic applications, partially autonomous aerial drones. Portable video and robotics both represent new emerging AGI applications in Ambarella's traditional market for IoT endpoints.
Speaker #4: All of which are continuing their unique growth trajectories. Now, this year, later on top is the rising demand for our AGI SoCs from the portable video market, including action cameras, panorama cameras, and body-worn cameras.
Speaker #4: In addition to the portable video market, we expect to commence high-volume shipments into the robotics market by the end of this fiscal year. The unit volume in the robotics market is highly fragmented by application.
Speaker #4: Form factors and the customers. But our technology products and roadmap have enabled us to win one of the early high-volume robotic applications: partially autonomous aerial drones.
Speaker #4: Portable video and robotics both represent new emerging AGI applications in Ambarella's traditional market for IoT endpoints. Today, we are also announcing our first win in the AGI infrastructure with our NY655 SoC.
Feng-Ming Wang: Today, we are also announcing our first win in the AGI infrastructure with our NY655 SoC. This win is yet another example of the expanding breadth of our AGI business, and I am encouraged by the interest in our NY AGI infrastructure roadmap from both new and existing customers. In the automotive autonomy market, the largest subset of the robotic market, we are actively bidding on OEM projects with our CV3 family of advanced five-nanometer central domain controller for L2+ to L4 applications. While offering significant lifetime revenue opportunities, the lower frequency of award decision, OEM program delays, and a longer time to revenue are causing our other AGI applications to emerge more rapidly for us. Nevertheless, we remain highly focused on developing this business, and we will provide updates on our progress as wins occur.
Speaker #4: This win is yet another example of the expanding breadth of our AGI business. I am encouraged by the interest in our NY AGI infrastructure roadmap from both new and existing customers.
Speaker #4: In the automotive autonomy market, the largest subset of the robotic market, we are actively bidding on OEM projects with our CB380 family of advanced 5nm central domain controllers for L2+ to L4 applications.
Speaker #4: We are offering significant lifetime revenue opportunities. The lower frequency of award decision OEM program delays and the longer time to revenue are causing our other AGI applications to emerge more rapidly.
Speaker #4: Nevertheless, we remain highly focused on developing this business, and we will provide updates on our progress as wins occur. I will now describe some representative customer engagements during the quarter, beginning with the two key customer design wins that validate our future vision and strategy.
Feng-Ming Wang: I will now describe some representative customer engagement during the quarter, beginning with the two key customer design wins that validate our future vision and strategy. In a rapidly growing robotic drone market, Arashi Vision, also known as Insta360, launched the world's first 8K 360-degree drone on this new anti-gravity brand. Powered by our CV5 AI SoC, this drone features dual lenses on both the top and the bottom, enabling 8K 360-degree video recording. The AI capacity in CV5 is fully utilized in this partially autonomous drone, and our product portfolio will enable the drone market to evolve rapidly to higher levels of autonomy. The anti-gravity A1 is set to launch globally in January 2026.
Speaker #4: In the rapidly growing robotic drone market, Rush Vision, also known as Insta360, launched the world's first 8K 360-degree drone under this new anti-gravity brand.
Speaker #4: Powered by our CV5 AI SoC, this drone features dual lenses on both the top and the bottom, enabling 8K 360-degree video recording. The AI capacity in CV5 is fully utilized in this partially autonomous drone, and our product portfolio will enable the drone market to evolve rapidly to higher levels of autonomy.
Speaker #4: The anti-gravity A1 is set to launch globally in January 2026. We are proud to see a rush to very successfully differentiate their diverse portable video and robotic aerial drone portfolio with AI features, such as neural net image signal processing, AI editing, and gesture control leveraging our AI SoCs.
Feng-Ming Wang: We are proud to see Arashi very successfully differentiate their diverse portable video and now robotic aerial drone portfolio with AI features such as neural net image signal processing, AI editing, and gesture control leveraging our AI SoCs. A majority of Arashi's products are based on Ambarella SoCs, and approximately 70% of Arashi shipments are exported. In the emerging AGI infrastructure market, a global networking customer is rolling out a compact on-premises network AI appliance with multimodal intelligence at the event level built on our NY655 AI SoC. This appliance will add large language model-powered natural language search, and we were selected because of our power efficiency, network bandwidth saving, and low bill of material cost. This is a great example of one of the green shoots I mentioned earlier. There are several other use cases being evaluated on our NY655 SoC.
Speaker #4: A majority of a rush's products are based on Ambarella SoCs, and approximately 70% of a rush's shipments are exported. In the emerging AGI infrastructure market, a global networking customer is rolling out compact on-premises network AI clients, with multi-modal intelligence at the event level built on our NY 655 AI SoC.
Speaker #4: This appliance will add large language model-powered natural language search, and we will select it because of our power efficiency, network bandwidth saving, and low bill of material cost.
Speaker #4: This is a great example of one of the green shoots I mentioned earlier. There are several other use cases being evaluated on our NY 655 SoC.
Feng-Ming Wang: In our automotive safety, ADAS, and the telematics business, I would like to share some key customer wins during the quarter. Sensara, a leading provider of a commercial fleet of telematics solutions, has introduced its AI multi-cam platform. Based on Ambarella's CV7T2 AI SoC, Sensara's AI multi-cam delivers live 360-degree visibility and real-time risk detection alerts on an in-cab monitor with up to four times auxiliary HD camera updates. It is a great design win for CV7T2 that demonstrates more camera inputs and advanced AI features on a single SoC. Audi is utilizing CV22FS for their left-right e-modal functions in the E5 model, initially in the China market. It enables them to provide intelligent context adaptive viewing mode on highways, parking, turning, and lane changes with dynamic image processing and display enhancement functions. Also, in the mirror market, BAIC Skeletal H9 is utilizing CV22FS for their rearview electronic mirror.
Speaker #4: In our automotive safety, ADAS, and telematics business, I would like to share some key customer wins during the quarter. Sensara, a leading provider of commercial fleet telematics solutions, has introduced its AI multi-cam platform.
Speaker #4: Based on Ambarella's CV7T2 AI SoC, Sensara's AI multi-cam delivers live 360-degree visibility and real-time risk detection alerts on an in-cap monitor, with up to four times auxiliary HD camera updates.
Speaker #4: It is a great design win for CV7T2 that demonstrates more camera inputs and advanced AI features on a single SoC. Audi is utilizing CV22FS for their live write email functions in the E5 model, initially in the China market.
Speaker #4: It enables them to provide intelligent, context-adaptive viewing modes on highways, for parking, turning, and lane changes, with dynamic image processing and display enhancement functions. Also, in the email market, BAIC Skeletal 89 is utilizing CV22FS for their rearview electronic mirror.
Feng-Ming Wang: They note that AI-aided detection via camera inputs helps them cut down blind spots by up to 60%. A leading Chinese OEM will utilize our CV22 SoC for their 8-megapixel sensor designed specifically for their level two front ADAS functionality. A key capability they are enabling is small target detection at the long range. In the enterprise security segment, Honeywell India has launched their 50-series enterprise security cameras in 3-megapixel and 5-megapixel resolutions based on our CV25 SoCs. India is a fast-growing market with a drive for made-in-India products, creating new customer opportunities for us. In the smart home market, one of our long-term customers in the U.S. has leveraged our H32 SoCs to build multi-sensory, multimodal AI products available in the retail outlets today. They have built a nursery device integrating video monitoring, two-way intercom, fine noise generator, and an air quality sensor.
Speaker #4: They note that AI-aided detection via camera inputs helps them cut down blind spots by up to 60%. A leading Chinese OEM will utilize our CV22 SoC for their 8-megapixel sensor, designed specifically for their level two front ADAS functionality.
Speaker #4: A key capability they are enabling is small target detection at long range. In the enterprise security segment, Honeywell's operations in India have launched their 50 series enterprise security cameras in 3-megapixel and 5-megapixel resolutions based on our CV25 SoCs.
Speaker #4: India is a fast-growing market, with a drive for made-in-India products creating new customer opportunities for us. In the smart home market, one of our long-term customers in the U.S. has leveraged our H32 SoCs to build multi-sensory, multi-modal AI products available in retail outlets today.
Speaker #4: They have built a nursery device integrating video monitoring, a two-way intercom, a Huangnui generator, and an air quality sensor. They have also built a garage device that features carbon monoxide and heat detection.
Feng-Ming Wang: They have also built a garage device that features carbon monoxide and heat detection, security camera, and intercom functionality. Also, in the smart home market, Netamov launched their indoor camera advanced product that is built on H6L SoC in the European market. As you can see from this representative customer engagement, we continue to build design wins momentum in our existing AGI endpoints application, and we continue to successfully address incremental AGI applications such as robotic aerial drones and edge infrastructure as the AGI market breadth expands. Having shipped more than 36 million AGI processors to hundreds of customers who have successfully ported hundreds of advanced customer AI models to our SoCs, there should be no doubt that Ambarella is a leader in AGI. AGI is expected to represent about 80% of our total revenue this year.
Speaker #4: Security camera and the intercom functionality. Also, in the smart home market, Natamo launched their indoor camera advanced product that is built on the H6L SoC in the European market.
Speaker #4: As you can see from this representative customer engagement, we continue to build design win momentum in our existing AGI endpoints application. We also continue to successfully address incremental AGI applications.
Speaker #4: Such as robotic aerial drones and edge infrastructure as the AGI market breadth expands. Having shipped more than 36 million AGI processors to hundreds of customers, who have successfully ported hundreds of advanced customer AI models to our SoCs, there should be no doubt that Ambarella is a leader in AGI.
Speaker #4: AGI is expected to represent about 80% of our total revenue this year. We are focusing exclusively on the unique needs of the AGI market, and we continue a rapid pace of innovation.
Feng-Ming Wang: We are focused exclusively on the unique needs of the AGI market, and we continue a rapid pace of innovation. In conclusion, I would like to summarize the key points covered today. First, we delivered Q2 results above the high end of our prior guidance, and we increased the midpoint of full-year fiscal 2026 revenue guidance by 9%. Second, the breadth of our AGI applications we are successfully addressing is expanding, as seen with our ongoing ramp in a variety of portable video applications and the anticipated product production ramp for robotic aerial drones and edge infrastructure. Third, the growth of our AGI business is over-occurring with our higher-priced AGI SoCs, supporting the anticipated growth in our ASP. Last, we are exclusively focused on the unique requirements of the AGI market, and we remain an established AGI market leader who continue to innovate at a rapid pace.
Speaker #4: In conclusion, I would like to summarize the key points covered today. First, we delivered Q2 results above the high end of our prior guidance, and we increased the midpoint of full-year fiscal 2026 revenue guidance by 9%.
Speaker #4: Second, the breadth of our AGI applications we are successfully addressing is expanding, as seen with our ongoing ramp in a variety of portable video applications.
Speaker #4: And the anticipated product production ramp for robotic aerial drones and edge infrastructure. Third, the growth of our AGI business is also occurring with our higher-priced AGI SoCs.
Speaker #4: Supporting the anticipated growth in our ASP. Last, we are exclusively focused on the unique requirements of the AGI market, and we remain an established AGI market leader who continues to innovate at a rapid pace.
Feng-Ming Wang: Now, John will now discuss the Q2 results and the Q3 outlook in more detail.
Speaker #4: Now, John will discuss the Q2 results and the Q3 outlook in more detail.
Louis Gerhardy: Thank you, Fermi. I'll now review the financial highlights for the second quarter, fiscal year 2026, ending July 31, 2025. I will also provide a financial outlook for our third quarter of fiscal year 2026, ending October 31, 2025. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation and acquisition-related expenses adjusted for the impact of taxes. For fiscal Q2, revenue was $95.5 million, above the high end of our prior guidance range of $86 to $94 million, up 11.2% from the prior quarter and up 49.9% year over year. Sequentially, automotive revenue increased in the mid-single digits and IoT increased in the low teens, with IoT growth led by the adoption of edge AI in portable video applications.
Speaker #3: Thank you, Feng-Ming. I'll now review the financial highlights for the second quarter of fiscal year 2026, ending July 31, 2025. I will also provide a financial outlook for our third quarter of fiscal year 2026, ending October 31, 2025.
Speaker #3: I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP AP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation and acquisition-related expenses, adjusted for the impact of taxes.
Speaker #3: For fiscal Q2, revenue was $95.5 million, above the high end of our prior guidance range of $86.94 million. This reflects an 11.2% increase from the prior quarter and a 49.9% increase year over year.
Speaker #3: Sequentially, automotive revenue increased in the mid-single digits, and IoT increased in the low teens, with IoT growth led by the adoption of Edge AI in portable video applications.
Louis Gerhardy: IoT in fiscal Q2 represented slightly more than 75% of our revenue and is spread across an increasing number of edge AI applications. Non-GAAP gross margin for fiscal Q2 was 60.5% at the low end of our prior guidance range of 60.5% to 62% due to product mix. Non-GAAP operating expense in Q2 was $53.4 million, below the midpoint of our prior guidance range of $52.5 to $55.5 million, primarily due to lower engineering-related costs associated with the timing of product development. Q2 net interest and other income was $2.2 million, compared to our prior guidance of $1.8 million. The increase was primarily from higher interest income. Q2 non-GAAP tax provision was approximately $200,000. We reported a non-GAAP net profit of $6.4 million, or $0.15 per diluted share in Q2. Now I'll turn to our balance sheet and cash flow.
Speaker #3: IoT in fiscal Q2 represented slightly more than 75% of our revenue and is spread across an increasing number of Edge AI applications. Non-GAAP gross margin for fiscal Q2 was 60.5%, at the low end of our prior guidance range of 60.5% to 62%.
Speaker #3: Due to product mix, non-GAAP operating expense in Q2 was $53.4 million, below the midpoint of our prior guidance range of $52.5 million to $55.5 million, primarily due to lower engineering-related costs associated with the timing of product development.
Speaker #3: Q2 net interest and other income was $2.2 million, compared to our prior guidance of $1.8 million. The increase was primarily from higher interest income.
Speaker #3: Q2 non-GAAP tax provision was approximately $200,000. We reported a non-GAAP net profit of $6.4 million, or $0.15 per diluted share, in Q2.
Speaker #3: Now, I'll turn to our balance sheet and cash flow. Fiscal Q2 cash and marketable securities reached $261.2 million, increasing $1.8 million from the prior quarter, and $41.4 million from the same quarter a year ago.
Louis Gerhardy: Fiscal Q2 cash and marketable securities reached $261.2 million, increasing $1.8 million from the prior quarter and $41.4 million from the same quarter a year ago. Increased cash and marketable securities benefited primarily from operating cash flow associated with increased revenue, partially offset by increased expenditure on capital investments during the quarter. Receivables day sales outstanding increased from 31 days in the prior quarter to 40 days, while days of inventory decreased from 98 days to 85 days. Operating cash inflow was $5.5 million for the quarter. Capital expenditures for tangible and intangible assets were $4.1 million for the quarter. Free cash flow was $1.4 million. 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 71% of revenue for the second quarter.
Speaker #3: Increased cash and marketable securities benefited primarily from operating cash flow associated with increased revenue, partially offset by increased expenditure on capital investments during the quarter.
Speaker #3: Receivables Days Sales Outstanding increased from 31 days in the prior quarter to 40 days. While Days of Inventory decreased from 98 days to 85 days.
Speaker #3: Operating cash inflow was $5.5 million for the quarter. Capital expenditures for tangible and intangible assets were $4.1 million for the quarter. Free cash flow was $1.4 million.
Speaker #3: 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 71% of revenue for the second quarter.
Louis Gerhardy: I'll now discuss the outlook for the third quarter of fiscal year 2026. The breadth of our edge AI business is expanding with a strong unit and average selling price outlook. As a result, in Q3, we forecast revenue in the range of $100 to $108 million, or $104 million at the midpoint. Sequentially, we expect mid to high single-digit % growth in our automotive business, with our IoT business up in the mid-teens. For fiscal 2026, we anticipate a revenue growth range of 31% to 35%. We expect fiscal Q3 non-GAAP gross margin to be in the range of 60% to 61.5%. We expect non-GAAP OPEX in the third quarter to be in the range of $54 to $57 million, with the increase compared to Q2 driven by new product development costs.
Speaker #3: I'll now discuss the outlook for the third quarter of fiscal year 2026. The breadth of our Edge AI business is expanding, with a strong unit and average selling price outlook.
Speaker #3: As a result, in Q3, we forecast revenue in the range of $100 million to $108 million, or $104 million at the midpoint. Sequentially, we expect mid- to high-single-digit percent growth in our automotive business, with our IoT business up in the mid-teens.
Speaker #3: For fiscal 2026, we anticipate a revenue growth range of 31% to 35%. We expect fiscal Q3 non-GAAP gross margin to be in the range of 60% to 61.5%.
Speaker #3: We expect non-GAAP OpEx in the third quarter to be in the range of $54 million to $57 million, with the increase compared to Q2 driven by new product development costs.
Louis Gerhardy: We estimate net interest in other income to be approximately $2 million, our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 43.7 million shares. Thank you for joining our call today, and with that, I will turn the call over to the operator for questions.
Speaker #3: We estimate net interest and other income to be approximately $2 million, our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 43.7 million shares.
Speaker #3: Thank you for joining our call today. With that, I will turn the call over to the operator for questions.
Tawanda: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star one-one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one-one again. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Christopher Rowland with Susquehanna. Your line is open.
Speaker #2: Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star 1-1 on your telephone, then wait for your name to be announced.
Speaker #2: To withdraw your question, please press star one-one again. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.
Speaker #2: Our first question comes from the line of Christopher Roland with Susquehanna. Your line is open.
John Young: Hey, thanks so much for the question and congrats on a great quarter. For my first question, I think for years you guys pitched yourself kind of as the future of the company being automotive, automotive first. IoT at this point has just been an incredible outperformer. I think it outperformed auto by 4x this year. I guess my question is, are you thinking about IoT differently now? Could there be a pivot in your business where you just double down spending around IT, IoT versus auto, lean into the development of IoT versus auto? When might we get to a point where auto outperforms IoT? Is this not the case just given the great interest in IoT? Thank you.
Speaker #5: Hey, thanks so much for the question, and congrats on a great quarter. So, for my first question, I think for years you guys pitched yourselves kind of as the future of the company being automotive, automotive first.
Speaker #5: But IoT at this point has just been an incredible outperformer; I think it outperformed auto by 4x this year. So I guess my question is, are you thinking about IoT differently now?
Speaker #5: Could there be a pivot in your business where you just double down spending around IT? IoT versus auto? Lean into the development of IoT versus auto?
Speaker #5: And when might we get to a point where auto outperforms IoT? Or is this not the case, just given the great interest in IoT?
Speaker #5: Thank you.
Feng-Ming Wang: Right. Thank you for the question. I think the first part of the answer is that, like I said in our script, we are continuing to focus on our level two plus level four autonomous driving. We are working hard to continue to win design wins there. I pointed out that because our other AGI business, because of the shorter design cycle and the more available opportunity for us, we are making significant progress there. We're going to continue to focus on the AGI market, including both autonomous driving as well as IoT. I want to point out that the fundamental hardware architecture between the AGI or the IoT side and the autonomous driving side are identical. Our CV architecture, our image processing pipeline, our CPU investment, even on the OS side, there are huge leverages between each two. From the OPEX expense side, the leverage is very strong.
Speaker #4: Right. Thank you for the question. I think the first part of the answer is that, like I said in our script, we are continuing to focus on our Level 2+, Level 4 autonomous driving.
Speaker #4: And we are working hard to continue to win design wins there. But also, I pointed out that because of our other AGI business, due to design, shorter design cycles, and more available opportunities for us, we are making significant progress there.
Speaker #4: And we're going to continue to focus on the AGI market, including both autonomous driving as well as IoT. But I want to point out that the fundamental hardware architecture between the AGI for the IoT side and the autonomous driving side is identical.
Speaker #4: Our CV4 architecture, our image processing pipeline, our CPU investment, even the OS side; they are huge leverage between each two. So in front of OpEx expense side, the leverage is very strong.
Feng-Ming Wang: Obviously, the go-to-market strategy from the marketing side and sales side are different. We are going to continue to focus on those two areas because I still believe in the long-term autonomous driving continues to drive our strength. As you can see in our announcement, we made significant progress on the AGI in the IoT side, which means we're going to put also more resources on this than before to continue to make progress and try to collect more market share in this particular market.
Speaker #4: Obviously, the go-to-market strategy from the marketing side and the sales side are different. But we are going to continue to focus on those two areas because I still believe that, in the long term, autonomous driving continues to drive our strength.
Speaker #4: But as you can see in our announcement, we made significant progress on the AGI in the IoT side, which means we're going to put more resources into this than before to continue to make progress and try to collect more market share in this particular market.
John Young: Thank you for that, Feng-Ming. Just maybe back to the growth rates, just a couple of things. First of all, would you expect auto to outgrow IoT next year, or is this really going to be, you've talked about auto and your CV3 wins, I think, ramping in 2027? Would we have to wait for auto to outperform at that point in time? Thank you.
Speaker #5: Thank you for that, Feng-Ming. And yeah, just maybe back to the growth rates, just a couple of things. First of all, would you expect auto to outgrow IoT next year?
Speaker #5: Or is this really going to be, you've talked about auto and your CB3 wins. I think ramping in 2027, would we have to wait for auto to outperform at that point in time?
Speaker #5: Thank you.
Feng-Ming Wang: Right. I think the auto will outperform IoT when we have major design wins with OEMs, like the one that we talk about, like the Volkswagen K2. I think in the 2027, 2028 timeframe, we can see that auto growth will outperform IoT. Right now, I think in the foreseeable future, before we get any major design win from the automotive side, IoT will continue to have a very strong contribution to our income. In fact, our current growth, you can see that the growth rate that we got from just the IoT side is significantly improved over the last few years.
Speaker #4: Right. So I think the auto segment will outperform IoT when we have major design wins with OEMs, like the one we talked about in the VW case. How do we want to design?
Speaker #4: Yes, I think in the 2027, 2028 timeframe we can see that. That auto growth will outperform IoT. Right now, I think in the foreseeable future, before we get any major design win from the automotive side, IoT will continue to have a very strong contribution to our income.
Speaker #4: In fact, our current growth indicates that the growth rate we have achieved from the IoT side has significantly improved over the last few years.
John Young: Yep. Thanks and congrats.
Speaker #5: Yep. Thanks and congrats.
Feng-Ming Wang: Thank you.
Speaker #4: Thank you.
Tawanda: Please stand by for our next question. Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.
Speaker #2: Please stand by for our next question. Our next question comes from the line of Cabin Cassidy with Rosenblatt Securities. Your line is open.
John Young: Yes, thanks for taking my question and congratulations on the great results and outlook. You know, you piqued my interest with the robotic aerial drones. You mentioned Insta360. Is this another trend or will there be multiple companies coming out with these solutions? Are there commercial applications like for deliveries?
Speaker #6: Yes, thanks for taking my question, and congratulations on the great results and outlook. You know, you piqued my interest with the robotic aerial drones.
Speaker #6: You mentioned Insta360; is there another trend? Will there be multiple companies coming out with these solutions? Are there commercial applications, like for deliveries?
Feng-Ming Wang: Yeah, so first of all, I think for Insta360, their target market is commercial and the consumer, and the volume is significant compared to what we have seen in the market outside DJI. We are seeing definitely there's a market trend that a lot of different companies in different countries are focusing on this particular drone application. Now that autonomous driving on the car side becomes more popular, technology widely available, you can imagine that the autonomous drones will become popular. With that, that will enable many different possible applications in the near future. I think that potential trend is driving this. This is really consistent with the robotic trend that we are seeing in other applications. When the autonomy becomes popular and becomes possible, then the possible applications with those robots or drones become, you know, in the past was impossible, now definitely thinkable.
Speaker #4: Yeah. So first of all, I think for Insta360, their target market is commercial and the consumer. And the volume is significant compared to what we have seen in the market outside of DJI.
Speaker #4: And then also that we are seeing definitely there's a market trend that a lot of different companies in different countries are focusing on the drone, particular drone application.
Speaker #4: Now that autonomous driving on the car side has become more popular and the technology widely available, you can imagine that autonomous drones will also become popular. With that, many different possible applications can be expected in the near future.
Speaker #4: I think that potential trend is driving this. This is really consistent with the robotic trend that we are seeing in other applications. When autonomy becomes popular and possible, the possible applications with those robots or drones, which in the past were impossible, are now definitely thinkable.
Feng-Ming Wang: I think that we continue to engage in multiple drone design wins activities, and we think that you're going to continue to see us report our success in this market.
Speaker #4: So I think that we continue to engage in multiple drone design wins activities, and we think that you’re going to continue to see us report our success in this market.
John Young: Yeah, I think that's fluid. Just to kind of add on to that and maybe tie it into Chris's question, this is just a great example of you've got multiple high bandwidth sensors in a real-time application, collecting data and driving a higher level of autonomy, higher and higher levels of autonomy, just like in a vehicle, moving from L1 to L4. You see the same sort of trend beginning in the aerial drone market and, of course, other robotic spaces. It's all happening with the same underlying AI inference accelerator that's in common across all these markets, whether it's auto autonomy, auto safety and telematics, or any of these IoT markets. We leverage the technology across a lot of different applications. Right, thanks. I guess your energy efficiency also is very useful.
Speaker #5: You're getting it, Louis. To kind of add on to that and maybe tie it into Chris's question, you know, this is just a great example of you've got multiple high-bandwidth sensors in a real-time application.
Speaker #5: You know, collecting data and driving a higher level of autonomy. Higher and higher levels of autonomy, just like, you know, in a vehicle. You know, moving from L1 to L4.
Speaker #5: You see the same sort of trend beginning in the aerial drone market. And, of course, other robotic spaces. And it's all happening with the same underlying AI inference accelerator.
Speaker #5: That's in common across all these markets, whether it's auto autonomy, auto safety and telematics, or any of these IoT markets. So we leverage the technology across a lot of different applications.
Speaker #6: Right. Thanks. And yeah, I guess your energy efficiency is also very useful if you're going to be flying something. It has to have a battery.
John Young: If you're going to be flying something, it has to have a battery, and energy efficiency is really important. You have so many exciting things happening with your new designs. I didn't hear much about your process technology or moving on to the next generation. Is that still on track of moving to 2 nanometer?
Speaker #4: Absolutely.
Speaker #6: Energy efficiencies are really important. And you know, there are so many exciting things happening with your new designs. I didn't hear much about your process technology or moving on to the next generation.
Speaker #6: Is that still on track for moving to an animator?
Feng-Ming Wang: Absolutely. In fact, now we are, you know, our foundry partner continues to announce design wins, not only give us a lot more confidence, but also our potential customers. I think that we will continue to work on the two nanometer projects and still remain targeted to take our customer to production in early 2027.
Speaker #4: Absolutely. In fact, now our foundry partner continues to announce design wins. This not only gives us a lot more confidence, but also our potential customers.
Speaker #4: I think that we will continue to work on 2 nm projects and still remain targeted to take our customers to production in early 2027.
John Young: Great. Thank you. Congratulations again.
Speaker #5: Great. Thank you. Congratulations again.
Feng-Ming Wang: Thank you.
Speaker #4: Thank you.
Tawanda: Our next question comes from the line of Quinn Bolton with Needham Company. Your line is open.
Speaker #2: Our next question comes from the line of Quinn Bolton with Needleman Company. Your line is open.
Speaker 6: Hey guys, this is Shadi on for Quinn Bolton. Congrats on the strong results. My first question is on the guidance. Your Q3 guide implies a seasonally down Q4, and given all the progress you guys have been making and the edge AI tailwind, this feels somewhat conservative. I just want to get your thoughts and maybe the puts and takes as we think about Q4.
Speaker #7: Hey, guys. This is Shadi on for Quinn Bolton. Congrats on the strong results. My first question is on the guidance. Your Q3 guide implies a seasonally down Q4.
Speaker #7: And given all the progress you guys have been making and the Edge AI tailwind, this feels somewhat conservative. So, I just want to get your thoughts and maybe the puts and takes as we think about Q4.
Feng-Ming Wang: Right. First of all, I think that the seasonality that we're guiding for this Q3 and Q4 is increasing the range compared to our previous year. I don't think that should be a surprise. If you look at that, you know, a lot of the products, some of the products become driven by consumer cycles. That will definitely explain to you why we are seeing the seasonality based on our guidance.
Speaker #4: Right. So, first of all, I think that the seasonality that we are guiding for Q3 and Q4 is increasing the range compared to our previous year.
Speaker #4: So I don't think that should be a surprise. But if you look at that, you know, a lot of the products—some of the products—become driven by consumer cycles.
Speaker #4: That will definitely explain to you why we are seeing the seasonality based on our guidance.
Speaker 6: Got it. That makes sense. My follow-up is on the non-security camera portion of the IoT business. How does Ambarella view this segment growing over the next few years, and at what point might the non-security segment surpass the security camera segment of the IoT business?
Speaker #7: Got it. That makes sense. And then my follow-up is on the non-security camera, a portion of the IoT business. How does Ambarella view this segment growing over the next few years?
Speaker #7: And at what point might the non-security segment surpass the security camera segment of the IoT business?
Feng-Ming Wang: First of all, thank you for that question. I think that's important. Internally, we're looking at that also because, you know, all of the new applications we announced today, none of that is really on the traditional security camera business. In fact, from the drone robots to the portable video to the edge infrastructure, those are really the new market we have been talking about that we haven't shown much of a result until this quarter. I think enterprise security and home security continue to be, the combination continues to be a large portion compared to others. I think that we do see that the growth rate on the non-security portion of the business will continue to outpace the other side.
Speaker #6: Yeah.
Speaker #4: First of all, thank you for that question. I think that's an important one. Internally, we're looking at that also. Because, you know, all of the new applications we announced today, none of them is really on the positional security camera business.
Speaker #4: In fact, that from the drone robots to the portable video to the edge infrastructure, those are really the new markets we have been talking about that we haven't shown much results until this quarter.
Speaker #4: And I think that I think enterprise or the enterprise security and home security continue to be the combination continue to be a large portion of compared to others.
Speaker #4: But I think that we do see that the growth rate on the non-security portion of the business will continue to outpace the other side.
Speaker 6: Yeah, just to be clear, Shadi, our security business, we expect to continue to deliver, you know, very good growth. Now you have these portable video and some of the robotics markets and other things kicking in that, as you observed, are causing our other IoT business outside of security to contribute to very nice growth for us. Got it. Thanks for the caller, and congrats on the progress.
Speaker #5: Yeah, just to be clear, Shadi, our security business, we expect to continue to deliver very good growth. But now you have these portable video and some of the robotics markets and other things kicking in that, as you observed, are causing our other IoT business outside of security to contribute very nice growth for us.
Speaker #7: Got it. Thanks for the color, and congrats on the progress.
Feng-Ming Wang: Thank you.
Speaker #6: Thank you.
Tawanda: Please stand by for our next question. Our next question comes from the line of Liam Farr with Bank of America. Your line is open.
Speaker #2: Please stand by for our next question. Our next question comes from the line of Liam Farr with Bank of America. Your line is open.
Speaker 7: Hi, this is Liam on behalf of Vivek. Thank you very much for taking our question. There's been a lot of media reports recently about M&A and industry consolidation, and I was wondering if you're able to address kind of what role you expect industry consolidation to play and what your strategy looks like if you remain independent.
Speaker #8: Hi, this is Liam on behalf of Vivek. Thank you very much for taking our question. There have been a lot of media reports recently about M&A and industry consolidation.
Speaker #8: And I was wondering if you're able to address kind of what role you expect industry consolidation to play and what your strategy looks like if you remain independent.
Feng-Ming Wang: Right. Obviously, we cannot address the rumors. I think we just have no comment on that. However, I want to point out that with today's earnings call, you can see that the AGI, the importance on the strategy side of AGI becomes so obvious in the market space. With that, we are probably one of the few, maybe only one, shipping 36 million units of AGI SoC so far, which puts us as a leader in that market. With the combination, I really think that the rumor base is that our strength and our focus on AGI, and I think that we're going to continue to play very well for us.
Speaker #4: Right. So, obviously, we cannot address that rumor. I think we just have no comment on that. However, I want to point out that with today's earnings call, you can see that the importance of Edge AI on the strategy side becomes so obvious in the market space.
Speaker #4: And with that, we are probably one of the few, maybe the only one, shipping 36 million units of Edge AI SoC so far. Put us as the leader of that market.
Speaker #4: So with the combination, I really think that the rumor base is that our strength and our focus on Edge AI, and I think that will continue to play very well for us.
Speaker 7: Thank you. Just as a follow-up, in terms of kind of going back to the IoT and auto side, clearly a strong quarter, what does the sustainability look like of these growth drivers through 2026, and where should we kind of expect more of an upside trajectory, more on the IoT or more on the auto side? Thank you.
Speaker #8: Thank you. And then just as a follow-up, in terms of kind of going back to the IoT and auto side, clearly a strong quarter.
Speaker #8: What do the sustainability prospects of these growth drivers look like through 2026? And where should we expect more of an upside trajectory: more on the IoT side or more on the auto side?
Speaker #8: Thank you.
Feng-Ming Wang: Right. On the auto side, I think we definitely continue to work hard to get a secure first design win on the level two plus level three. That is really what pushed our growth trajectory beyond what we have with automotive. With IoT, we are really growing significantly this year over last year, and thanks to the contribution of a few products ramping up by our customers. We believe that growth will maintain, and we're going to provide the guidance for next year. We will definitely believe that automotive, and both IoT and automotive, will continue their growth trend.
Speaker #4: Right. So on the auto side, I think we definitely continue to work hard to get the secure first design win on Level 2.
Speaker #4: Plus level three. That is really what pushed our growth trajectory beyond the what we have with automotive. And with IoT, we are really growing significantly this year, over the last year.
Speaker #4: And because, thanks to the contribution of a few products ramping up by our customers, we believe the growth will maintain, and we're going to provide the guidance for next year.
Speaker #4: And we will definitely believe that the automotive sector, along with both IoT and automotive, will continue their growth trend.
John Young: Yeah, just to put a little more color on it, it's Louis. It's not like there's just a couple of markets that are contributing to the growth. Five, six years ago, it started for us in enterprise security, and it was public and smart home, then AI video telematics and commercial fleets, certain in-cabin e-mirrors or driver monitoring. Now, more recently, in IoT, you've had portable video, which is not just one thing, but it's body-worn cameras, it's panorama cameras, it's action cameras. Now we're moving into robotics, initially with aerial drones, expected to become significant. It's not really like, are those, are you in a couple of markets, and are they going to, you know, static, and how are they going to do? It's more about edge AI touching more and more different vertical applications, and that's what's been happening to the business.
Speaker #5: Yeah, just to put a little more color on it, I asked Louis. It's not like there's just a couple of markets that are, you know, contributing to the growth.
Speaker #5: You know, five, six years ago, it started for us in enterprise security, and it was public. And smart home. Then, AI video telematics and commercial fleets.
Speaker #5: You know, certain in-cabin, you know, e-mirrors or driver monitoring. But now, more recently, in IoT, you've had portable video, which is not just one thing, but it's body-worn cameras.
Speaker #5: It's panoramic cameras. It's action cameras. And now we're moving into robotics. Initially with aerial drones, which are expected to become significant. So it's not really about whether we're in a couple of markets and how they're going to perform; it's more about how they're static and how they're going to do.
Speaker #5: It's more about Edge AI touching more and more different vertical applications, and that's what's been happening to the business.
Speaker 7: Thank you.
Speaker #8: Thank you.
Tawanda: Thank you. Please stand by for our next question. Our next question comes from the line of Kyle Smith with Stifel. Your line is open.
Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Cal Smith with Sifu. Your line is open.
Speaker 6: Hey guys, this is Kyle Smith on for Tore Svanberg at Stifel. Congratulations on the strong quarter. I think it's pretty clear that the strong revenue beat and guide is stemming from tangible design wins and product momentum. That being said, could you provide more commentary on the process that management uses to check for any potential demand pull-ins related to the tariff environment? Are you speaking directly with customers or distributors, monitoring yourself for any irregularities, or is it kind of a mix of multiple factors?
Speaker #9: Hey, guys. This is Cal Smith on for Tori Sponberg at Sifu. Congratulations on the strong quarter. So I think it's pretty clear that the strong revenue beat and guidance is stemming from tangible design wins and product momentum.
Speaker #9: But that being said, could you provide more commentary on the process that management uses to check for any potential demand pull-ins related to the tariff environment?
Speaker #9: Are you speaking directly with customers or distributors, monitoring yourself for any irregularities? Or is it kind of a mix of multiple factors?
Feng-Ming Wang: Yeah. I think that's a very important topic internally because, you know, we're all going through this industry-wide inventory correction for the last three years. Every time we're seeing some high growth of area, the first reaction is let's talk to customers. In the past few years, we built a relationship with all the customers and also our distributors to make sure that we review inventory every month. Based on that, we try to decide whether we're seeing any inventory builds. So far, I think throughout the process with this internal check, we haven't seen any inventory builds beyond the normal practice. Also, personally, every time I have a meeting with my peers in our customer base, one of the topics is always about supply chain and about the supply. I got no feeling that anybody is telling us that they are building excessive inventory, worrying about geopolitical situations.
Speaker #4: Yeah. So, I think that's a very important topic internally because we're all going through this industry-wide inventory correction for the last three years. And every time we're seeing some high growth area, the first reaction is, "Let's talk to customers."
Speaker #4: So, in the past few years, we built a relationship with all the customers and also our distributor to make sure that we review inventory every month.
Speaker #4: And then based on that, we try to decide whether we think any inventory build. So far, I think throughout the process with this internal check, we haven't seen any inventory build that beyond the normal practice.
Speaker #4: And also, every time I have a meeting with my peers in our customer base, one of the topics is always about the supply chain and about the supply end.
Speaker #4: I got no feeling that nobody telling us that they are building excessive inventory worrying about geopolitical situation. So with that, that's just from the feedback from customers.
Feng-Ming Wang: That's just from the feedback from customers. More internally, we build some kind of a checkpoint to understand, you know, look at the customers, the order patterns, and whether that's associated with any product ramping up. If there's any indication of extra inventory builds, internally, we have some read alone. So far, based on all of this internal and external discussion, I think that we feel quite confident that we haven't seen any meaningful inventory buildup in our customers.
Speaker #4: But more internally, inside, we build some kind of a checkpoint to understand, you know, look at the customer's older patterns and whether that's associated with any product ramping up.
Speaker #4: So if there's any indication of extra inventory build internally, we have some red alarm. So so far, you know, based on all of this internal and external discussion, I think that we feel quite confident that we haven't seen any meaningful inventory build-up in our customers.
Speaker 6: Perfect. Thank you. You mentioned a lot of really exciting design wins in the prepared remarks. I'm curious what the customer response has been to the Cooper development platform, particularly within these new and emerging markets. Are there any specific components of the platform showing outside positive feedback?
Speaker #8: Perfect. Thank you. And you mentioned a lot of really exciting design wins in the prepared remarks. I'm curious what the customer response has been to the Cooper development platform, particularly within these new and emerging markets.
Speaker #8: And are there any specific components of the platform showing outsized positive feedback?
Feng-Ming Wang: I think, first of all, the feedback from our Cooper development platform is very positive. Not only does it help our customers to move from one of the chips to another chip easily, because the Cooper platform covers all of the chips that we develop, for our customers, it's really become a powerful tool for them to develop the product once, and they can, you know, use the same product to many different chips under Ambarella. That's one of the most important things. With the investment now, we can easily enable our customers to play with our SDK and also play with all the neural networks we put into our model garden, and also enabling them to learn how to use our compiler to compile the neural network to our hardware. All of those features integrate into this Cooper platform.
Speaker #4: I I think first of all, the feedback from our Cooper development platform is very positive. Not only the help our customer to eat to move from one of the chip to another chip easily because Cooper platform covers all the chips that we develop.
Speaker #4: And so for our customer, it's really become a powerful tool for them to develop the product once, and they can use the same product for many different chips under the umbrella.
Speaker #4: So that's one of the most important things. But because with the investment now, we can easily enable our customer to play with our play with our SDK and also play with all the new network we put into our model garden and also enabling them to learn how to use our compiler to compile the new network to our hardware.
Speaker #4: All of those features are integrated into this Cooper platform. Of course, I'm not saying that's perfect, but definitely with the benefit to customers, they will continue to give us great feedback about how we can continue to improve it so that they can enjoy the platform more.
Feng-Ming Wang: I'm not saying that's perfect, but definitely with the benefit to customers, they all continue to give us great feedback about how we can continue to improve it so that they can enjoy the platform more.
Speaker 6: Perfect. If I could just sneak one more in, contemplating this really outsized revenue growth, do you continue to expect non-GAAP OPEX to grow at around 10% annually, or should we maybe bake in a little bit higher OPEX going forward?
Speaker #8: Perfect. And if I could just sneak one more in. You know, contemplating this really outsized revenue growth, do you continue to expect non-GAAP OpEx to grow at around 10% annually?
Speaker #8: Or should we maybe bake in a little bit higher OpEx going forward?
John Young: Yeah, thanks, Kyle, for the question. I think it's reasonable if you take this a little bit higher than 10% is probably reasonable. I think quarter over quarter, I think year to date we're at about 12%, or year to date we're at about 12% growth. I think we'll probably stay in that range for the full year.
Speaker #6: Yeah. Thanks, Kyle, for the question. I think it's reasonable if you take this a little bit higher than 10% is probably reasonable. I think a quarter over quarter, I think year to date, we're at about 12 or year to date, we're at about 12% growth.
Speaker #6: I think we'll probably stay in that range for the full year.
Speaker 6: Perfect. Congratulations again, guys.
Speaker #8: Perfect. Congratulations again, guys.
Feng-Ming Wang: Thank you.
Speaker #4: Thank you.
Tawanda: Please stand by for our next question. Our next question comes from the line of David O'Connor with BNP Paribas. Your line is open.
Speaker #2: Please stand by for our next question. Our next question comes from the line of David O'Connor with BNP Paribas. Your line is open.
Speaker 6: Yeah, good afternoon, guys. Thanks for taking my question. Maybe for me, just going back on the automotive side of things again and ADAS. You know, through this year, the L2+ adoption rates have slowed. The software is not ready. OEMs optimizing for price. I mean, you guys have talked about this through the year. As we sit here in August and from your recent conversations with customers, can you talk about any changes there on how they're viewing that kind of adoption on their next model? Any sign that they may be pulling it in or just any kind of changes that you're seeing there across that would help frame the backdrop for potential CV3 wins?
Speaker #7: Yeah. Good afternoon, guys. Thanks for taking my question. Maybe for me, just going back on the automotive side of things again, and ADAS. You know, through this year, the other two-plus adoption rates have slowed so far already.
Speaker #7: OEMs optimizing for price. I mean, you guys have talked about this throughout the year. As we sit here in August and from your recent conversations with customers, can you talk about any changes in how they're viewing that kind of adoption on their next models?
Speaker #7: Any sign that they may be pulling it in? Or just any kind of changes that you're seeing there across the kind of that would help kind of frame the backdrop for potential CB3 wins?
Feng-Ming Wang: I think the scenario is described continuously, and we continue to see OEM coming up, building on the, I would say, more lower-end level two plus than, you know, higher-end than that because the people, like you said, OEM really focus on getting a proper cost than functional features. In fact, even in China recently, we started seeing a similar trend because the Chinese government is definitely trying to make sure that autonomous driving becomes safe and the safety becomes the most important feature. I really think that the total trend of autonomous driving is focusing on safety and also lower-end of the functional performance. For example, the part that we announced a design win on an ADAS, 8 megapixel ADAS in China.
Speaker #4: I I think the scenario described continues. And we continue to see OEM coming up, building on the, I would say, more low-end level two plus than higher end than that.
Speaker #4: Because people, like you said, OEMs really focus on getting a proper cost rather than function and features. In fact, even in China, recently we started seeing a similar trend because the Chinese government is definitely trying to ensure that autonomous driving becomes safe and that safety becomes the most important feature.
Speaker #4: So I really think that the total trend of autonomous driving is focusing on safety and also the low end of the function and performance. For example, we announced a design win on an 8-megapixel ATAS in China.
Feng-Ming Wang: That just gives you an indication that while we continue to build on all kinds of different features and that we see more opportunity on the low-end level two plus and also ADAS opportunities.
Speaker #4: Let's just give you an indication that while we continue to build on all kinds of different features, we see more opportunity in the low-end level 2+, as well as ADAS opportunities.
John Young: Yeah, David, I mean, we still see very significant lifetime revenue opportunities in the auto autonomy market for sure. There's just, you know, as Feng-Ming Wang mentioned earlier, a lower frequency of decisions. The market can be subject to delays like you referenced, and there's a longer time to revenue. What's been happening is all of these other edge AI markets have more than caught up and are growing very rapidly for us now. We still have these products and are very much focused on landing these wins. It's just the frequency of them isn't as high.
Speaker #7: Yeah, David. I mean, we still see very significant lifetime revenue opportunities in the auto autonomy market for sure. But there's just, you know, as Feng-Ming mentioned earlier, there's a lower frequency of decisions. You know, the market can be subject to delays, like you referenced.
Speaker #7: And there's a longer time to revenue. So what's been happening is all of these other Edge AI markets have more than caught up and, you know, are growing very rapidly for us now.
Speaker #7: But we still have these products, and we are very much focused on landing these wins. It's just that the frequency of them isn't as high.
Speaker 6: That's very helpful. Thanks, guys. Maybe one for John, just on the incremental kind of growth year over year. With the new guide, you're kind of up maybe $95 million, $100 million, somewhere like that for the year. Is there anywhere you can kind of split that out in terms of units versus ASP or contents? Just kind of how you would break that down as kind of a percentage, half of it unit growth, half ASP? Any kind of steer that would help us there at size the kind of difference between those two drivers? Thanks, guys.
Speaker #8: That's very helpful. Thanks, guys. Maybe one for John, just on the incremental kind of growth year-over-year. You know, with the new guides, you're kind of maybe $95 million, $100 million, somewhere like that.
Speaker #8: For the year, is there anywhere you can kind of split that out in terms of units versus ASP or content? Just kind of how you would break that down as a percentage?
Speaker #8: Is half of it unit growth, half ASP? Any kind of steer that would help us there size the kind of difference between those two drivers?
Speaker #8: Thanks, guys.
John Young: Yeah, thanks, David. I think what we've been seeing throughout this year as it's pulled together, our estimate is that that growth is roughly 50%–50% between ASP and unit growth.
Speaker #6: Yeah. Thanks, David. I think, you know, what we've been seeing through the throughout this year as it's pulled together, you know, our estimate is that that growth is roughly 50/50 between ASP and unit growth.
Speaker 6: Very helpful. Thanks so much, guys.
Speaker #2: Thanks.
Speaker #6: Very helpful.
Speaker #6: Thanks so much, guys.
Feng-Ming Wang: Thank you.
Speaker #4: Thank you.
Tawanda: Please stand by for our next question. Our next question comes from the line of Gus Richard with Northland Capital Markets. Your line is open.
Speaker #2: Please stand by for our next question. Our next question comes from the line of Gus Richard with Northland Capital Markets. Your line is open.
Feng-Ming Wang: Yes, thanks for taking my questions, and Mike, congratulations for the strong results. Just in the IoT market, could you give us a split between the security applications and the non-security applications, and which of the non-security applications are growing the most rapidly? In the non-security application, I think that portable video definitely grows the fastest. In fact, Insta360 is using a CV5 to build their next generation sports camera as well as the panorama 360-degree camera, and the ASP is high, and the unit number continues to grow. That definitely is a fast-growing market. I won't be surprised if we see a lot of growth in the future, see some growth on the drone side too, because the ASP and unit number growth can be significant too.
Speaker #8: Yes, thanks for taking my questions, and my congratulations for the strong results. In the IoT market, could you give us a split between the security applications and the non-security applications?
Speaker #8: And which of the non-security applications are growing the most rapidly?
Speaker #4: So in the non-security application, I think that portable video definitely grow the fastest. And in fact, that Insta360 using a CV5 to build their next generation sports camera as well as the panorama 360-degree camera and the ASP is high and the unit number continue to grow.
Speaker #4: So that definitely is a fast-growing market. I won't be surprised if we see a lot of growth in the future, and I expect to see some growth on the drone side too, because the ASP and unit number growth can be significant.
John Young: I guess the auto business in Q2, I think John mentioned, grew in the mid-single digits, and IoT grew in the mid-teens. That would put auto in the low 20% range as a percent of revenue and IoT to balance.
Speaker #8: For Gus, the auto business in Q2, I think John mentioned, grew in the mid-single digits in IoT grew. You know, in the mid-teens. And that would put, you know, auto in the low 20% range as a percent of revenue.
Speaker #8: And IoT, the balance.
Feng-Ming Wang: Yeah, got it. In terms of the IoT business, you've got a wide diversity of applications, and I would imagine that your customers need support from field application engineers. I'm just wondering, is that a limitation? Is that something that you need to bolster to help accelerate growth? How are you thinking about customer support in that regard? Right. First of all, that unified hardware and software platform we just mentioned is really helpful because that means our field engineering can easily switch you from one customer to another customer, although maybe a different application, different products, but the fundamental hardware and software are almost the same. From that point of view, we definitely can leverage our field engineers in different applications.
Speaker #6: Got it. And then just in terms of the IoT business, you know, you've got a wide diversity of applications. I would imagine that your customers need support from field application engineers.
Speaker #6: And I'm just wondering, you know, is that a limitation? You know, is that something that you need to bolster to help accelerate growth? You know, how are you thinking about customer support in that regard?
Speaker #4: Right. So, first of all, that unified hardware and software platform we just mentioned is really helpful because that means our field engineering can easily switch from one customer to another customer, although maybe a different application, different products.
Speaker #4: But the fundamental hardware and software are almost the same. So from that point of view, we definitely can leverage our field engineers in different applications.
Feng-Ming Wang: You are right that when our revenue grows and when we're looking at a different customer base, we continue to add to our field engineering, which is part of our growth plan that John highlighted just a few minutes ago.
Speaker #4: But you are right that when our revenue grows and when we're looking at the different customer base, we continue to add to our field engineering, which is part of our growth plan that John highlighted just a few minutes ago.
Speaker 6: Got it. Thanks so much.
Speaker #6: Got it. Thanks so much.
Feng-Ming Wang: Thank you.
Speaker #4: Thank you.
Tawanda: Please stand by for our next question. Our next question comes from the line of Martin Yang with Hotco. Your line is open.
Speaker #2: Please stand by for our next question. Our next question comes from the line of Martin Yang with Topco. Your line is open.
Feng-Ming Wang: Hi, thank you for taking my question. On the strengths you've called out on portable video products, can you tell us if the strengths are driven by a single key customer, or have you expanded your customer base with new design wins with new OEMs in the past quarter? In fact, we continue to have a multiple customer base in this space. However, Insta360 definitely is the largest one that we mentioned because they, you know, they switched from H22-based video processor-only solution last year to this year's CV5-based solution. That ASP growth definitely is one of the main reasons we continue to see the growth from them. We continue to engage multiple, you know, portable video players throughout our careers.
Speaker #8: Hi. Thank you for taking my question. So on the strength you called out on portable video products, can you tell us if the strengths are driven by a single key customer?
Speaker #8: Or have you expanded your customer base with new design wins with new OEMs in the past quarter?
Speaker #4: Well, in fact, we continue to have multiple customer bases in this space. However, Insta360 is definitely the largest one that we mentioned because they switched from an H22-based video processor only solution last year to this year’s CV5-based solution. The ASP growth is definitely one of the main reasons we continue to see growth with them.
Speaker #4: But we continue to engage multiple portable video players throughout our careers.
John Young: Hey, Martin. I think you're familiar with the company, but we're selling into like seven different portable video product lines there. That would include, you know, action, camera, sports, panorama, but also body worn, webcam, video conferencing, and now, you know, aerial drones. It's a lot of different product categories. It's not just a few.
Speaker #5: Hey, Martin. I think you're familiar with the company, but you know we're selling into like seven different portable video product lines there. That would include action camera, sports, panorama, but you know also body-worn, webcam, video conferencing, and now, you know, aerial drones.
Speaker #5: So, it's a lot of different product categories. It's not just a few.
Speaker #6: Right. Got it. Thank you. A follow-up question on Insta360: do you assume business as usual with them, without any potential impact from their ongoing lawsuit in the U.S.?
Feng-Ming Wang: Got it. Thank you. A follow-up question on Insta360. In your guidance, do you assume business as usual with them without any potential impact from their ongoing lawsuit in the U.S.? First of all, yeah, we look at it, and you know, it's not in our position to make a judgment on the outcome of the lawsuit. I will leave that to the two parties. Our assumption is based on the POs we receive from our customers, and that's the only thing we're counting on to forecast our business.
Speaker #4: Well, first of all, yeah, we look at it. And, you know, it's not in our position to make a judgment on the outcome of the lawsuit.
Speaker #4: And we'll leave that to the two parties. Our assumption is based on the POs we receive from our customers, and that's the only thing we're counting on to forecast our business.
Speaker 6: Got it. Thank you, Fermi. That's it.
Speaker #8: Got it. Thank you, Feng-Ming. That's it.
Feng-Ming Wang: Thank you.
Speaker #6: Thank you.
Tawanda: Thank you. As a reminder, ladies and gentlemen, that's star one-one to ask the question. Please stand by for our next question. Our next question comes from the line of Richard Shannon with Greg Hallam. Your line is open.
Speaker #2: Thank you. As a reminder, ladies and gentlemen, that's star 1-1 to ask a question. Please stand by for our next question. Our next question comes from the line of Richard Shannon with Craig-Hallum.
Speaker #2: Your line is open.
Speaker 6: Greg, thanks, guys. Let me ask you a question. First one is on the broader edge AI opportunity. I talked about your first design win, hoping to ship near the end of this fiscal year. Maybe you could describe what the, you know, the pipeline looks like, maybe describe it, even quantify a number of design opportunities and kind of any maybe new applications you're seeing here versus what you described in the past.
Speaker #8: Hello. Great. Thanks, schedule. Let me ask you a question. The first one is on the broader Edge AI opportunity. I talked about your first design when helping to ship near the end of this fiscal year.
Speaker #8: Maybe you could describe what the, you know, the pipeline looks like? Maybe describe it, even quantify it, a number of designs, opportunities, and kind of the, any maybe new applications you're seeing here versus what you described in the past.
Feng-Ming Wang: Edge infrastructure.
Speaker #4: 18+1 today.
Speaker 6: I think, Richard, was your question about just edge IoT overall or just the infrastructure?
Speaker #8: I think Richard, was your question about just Edge IoT overall or just the infrastructure?
Feng-Ming Wang: Edge infrastructure.
Speaker #6: Edge, I'm sorry. I misspoke. Edge infrastructure. Sorry about that.
Speaker 6: I'm sorry, I misspoke. Edge infrastructure. Sorry about that.
Feng-Ming Wang: Right. Exactly. First of all, you know that we have been working on the NY655 product for a while, talking to many customers, and this particular design win is our first design win that we can talk about. You can imagine that we're definitely engaging with multiple customers, new and old, or existing customers, with potential design wins. You should expect that we continue to talk about our progress in this particular market. There are so many different types of potential appliances that people can build. In general, you can imagine that this kind of appliance is really trying to aggregate multiple edge endpoints and apply most advanced AI models on that to provide different services. That's just in general terms to describe the opportunity out there.
Speaker #4: Right. Exactly. So first of all, you know that we've been working on the NY 655 product for a while, talking to many customers. This particular design win is our first design win that we can talk about.
Speaker #4: You can imagine that we're definitely engaging with multiple customers, both new and existing, with potential design wins. You should expect that we will continue to talk about our progress in this particular market.
Speaker #4: And in particular, I think there are so many different types of potential appliances that people can build. But in general, you can imagine that this kind of appliance is really trying to aggregate multiple edge endpoints, apply the most advanced AI models on that, and provide different services.
Speaker #4: That's just in general terms to describe the opportunity out there. And definitely, this kind of appliance needs to run not traditional computer vision, but more importantly, all the large language models or vision-language models are probably the focus area where our customers want.
Feng-Ming Wang: Definitely, this kind of appliance needs to run not traditional computer vision, but more importantly, all the large language models or vision language models are probably the focus area where our customers want.
John Young: Yeah, Richard, we talked about a SAM for this market of, you know, in this year, this fiscal 2026, being around $125 million, and in five years, you know, approaching $500 million. You know, we feel those figures are conservative. We're still learning about the market. As Feng-Ming Wang said, this is our first design win, but you know, we're pretty excited about the level of interest from customers, both new customers and existing customers for Ambarella.
Speaker #5: Yeah, Richard, we talked about a SAM for this market of, you know, in this year, this fiscal year 2026, being around $125 million and in five years, you know, approaching $500 million.
Speaker #5: And you know we feel those figures are conservative. Well, we're still learning about the market. As Feng-Ming said, this is our first design win.
Speaker #5: But you know we're pretty excited about the level of interest from customers, both new customers and existing customers, for Ambarella.
Feng-Ming Wang: The success of this market will continue to drive up our average selling price.
Speaker #6: And the success of this market will continue to drive up our average selling price.
Speaker 6: Okay, great. Thanks for that, guys. Second question here is on the portable video opportunity here, following on the questions and responses from the past couple of questions. To what degree are these opportunities or applications more consumer-oriented versus enterprise in nature?
Speaker #8: Okay. Great. Thanks for that, guys. The second question here is on the portable video opportunity, following on from the questions and responses from the past couple of questions here.
Speaker #8: To what degree are these opportunities or applications more consumer-oriented versus enterprise in nature?
John Young: It depends on the market, but I say overall across all, you know, seven that I just described for like Insta360, more weighted to consumer. They're still being sold into enterprise applications. For example, body worn cameras is a market that at least today is very heavy enterprise and public safety-driven, and that's one of the categories. If you switch over to, you know, some of the other portable video markets, it might be more on the consumer side. Overall, I'd say they are weighted more heavily to the consumer side, which is one of the factors that allows them to get the revenue faster.
Speaker #6: Well, it depends on the market. But I say overall, across all seven that I just described for like Insta360, it's more weighted to consumer.
Speaker #6: And, but there's still being sold into enterprise applications. For example, body-worn cameras are a market that, at least today, is very heavily enterprise and public safety driven.
Speaker #6: And that's one of the categories. But if you switch over to, you know, some of the other portable video markets, it might be more on the consumer side.
Speaker #6: And overall, I'd say they are weighted more heavily to the consumer side, which is one of the factors that allows them to get the revenue faster.
Speaker 6: Okay, great. Thank you, guys.
Speaker #8: Okay. Great. Thank you, guys.
Feng-Ming Wang: Thank you.
Speaker #6: Thank you.
Tawanda: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Feng-Ming Wang, CEO, for closing remarks.
Speaker #2: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Feng-Ming Wang, CEO, for closing remarks.
Feng-Ming Wang: Thank you for joining us today. We are going to see you next time for sure. Thank you.
Speaker #4: And thank you for joining us today. We are going to see you next time for sure. Thank you.
Tawanda: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.