Ambarella : Q3 FY2024 Earnings Call Transcript

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November 30, 2023 1:30PM PST

Q3 Fiscal 2024 (October 31, 2023) earnings call script

Louis Gerhardy, VP Corporate Development

Good afternoon and thank you for joining our third quarter Fiscal year 2024, financial results conference call. On the call with me today is Dr. Fermi Wang, President and CEO, Brian White, CFO and John Young, VP Finance.

The primary purpose of today's call is to provide you with information regarding the results for our third quarter Fiscal year 2024. 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.

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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 that we file with the SEC.

Access to our third quarter Fiscal 2024, 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. 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.

Fermi will now provide a business update for the quarter, Brian will review the financial results and outlook and then we will be available for your questions.

Dr. Fermi Wang, President & CEO

Good afternoon. In a challenging market our Fiscal Q3 revenue was slightly above the mid point of our guidance. Our business appears to be in the process of stabilizing as our customers seem to be making progress with their inventory management efforts. We expect our customers to emerge from the cyclical downturn at different times throughout the next year, and considering all the dynamics at this time, we continue to anticipate we will return to growth in Fiscal 2025.

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We remain determined and focused on our strategic R&D priorities for the introduction of a portfolio of AI SoCs and software targeting more sophisticated AI inference workloads. Our confidence in the secular growth opportunity for inference AI processors and software remains high, and our long-term serviceable market opportunity (or SAM) compounded annual growth rate (CAGR) estimate has not changed.

Our CV2 family of SoCs is expected to lead us out of the cyclical downturn and represent a larger proportion of our total revenue in Fiscal 2025. As a reminder, this product family established Ambarella in the AI inference market and these SoCs are expected to approach 60% of our total revenue in Fiscal 2024. In a single chip, the CV2 products typically provide both the video processing and AI inference processing for 1 or more cameras. The average selling price of these products is close to $20, with a range below $10 to above $50.

In particular, I want to point out that CV5, the flagship of the CV2 family and Ambarella's first 5nm SoC, is forecasted to generate meaningful revenue next year with more than 10 customers in production.

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Our CV3 platform is expected to generate production revenue from the automotive market in calendar year 2026 and beyond. The CV3 platform includes a family of SoCs and software, and we began to sample the CV3-AD SoC a year ago.

I am pleased to announce during Q3 we received the first silicon for CV3-AD685 SoC, the flagship of our CV3 portfolio, and we are in the midst of a successful bring-up of this extremely sophisticated 10 billion plus transistor SoC. We expect to deliver engineering samples to customers in Q1 next year, and we are on track, through the previously announced award from Continental, for the first OEM start-of-production in calendar 2027.

CV3 SoCs are based on our 3rd generation of AI inference technology and serve significantly more challenging AI inference workloads such as partial or complete autonomy in vehicles. In addition to providing, in a single SoC, the perception processing for multiple camera inputs, CV3 SoCs for the first time enable centralized processing of raw radar data as well as deep low level fusion with data from other sensing modalities. The CV3 family of SoCs range in price from $50 to more than $400 per SoC.

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There are two additional elements of our CV3 platform, both of which are software. This includes Oculii adaptive AI radar perception software and our complete autonomous driving software stack, both optimized to run on CV3. Since November 2023 we have been providing demo rides to OEMs and T1s, based on CV3 SoCs and our autonomous driving stack with centralized radar processing, low level fusion and the Oculii radar perception software. We will be demonstrating this at the upcoming CES.

I would like to provide an update on our GenAI plans. During the last quarter, with the implementation of new LLM software building blocks on CV3-AD, we have now successfully demonstrated inference running Llama2-13B, with the SoC using LPDDR5 memory (instead of high bandwidth memory) and operating at a fraction of the power consumption of incumbent solutions.

Some of our existing customers are evaluating how they will implement GenAI and large language models (LLMs) at the edge of their networks. With our successful LLM demo and additional analysis, we have concluded the powerful and highly efficient AI inference processor embedded in our CV3 SoCs is well suited for these edge markets. We will have more updates on our strategy at CES2024.

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Once a year we update our automotive funnel, which is meant to be a reference for our automotive customer engagements over the next six years. We completed the funnel update in November, and it increased 4% from $2.3 billion to $2.4 billion. The funnel is comprised of "won" business of about $800 million and "pipeline" of about $1.6 billion. With our automotive business expected to generate about $80 million in revenue this year, the $2.4 billion six-year funnel is an indication of the strong growth we anticipate from the auto market. There were a significant number of upward and downward revisions in the funnel calculation this year, including forecast changes and project delays from both Tier 1s and OEMs, projects won or lost in the pipeline and the addition of new projects. CV3 represents a large portion of the current funnel, even though CV3 revenue is not expected to commence until calendar 2026.

I will now discuss representative customer engagements in the quarter.

In automotive, we are continuing to win new designs in China, the world's largest automotive market. The open architecture of our CVflow AI SoCs enables leading Chinese tier 1's and ADAS software providers to develop highly differentiated, fully featured solutions.

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During the quarter, GAC introduced four new passenger car models incorporating Ambarella's CV22AQ automotive SoCs in intelligent ADAS systems. These include the GAC Trumpchi E8 and ES9, the AION Hyper HT and the AION S Max.

Hycan introduced its V09 mini-van with an ADAS system also based on our CV22AQ.

And SAIC introduced its Maxus Dajia 7 minivan including a camera monitoring system, replacing left and right mirrors and based on our CV22FS functional safety SoC.

In the automotive aftermarket, Asian market leader Thinkware introduced its QXD1 DVR based on our CV25A AI SoC and the F200Pro 2-channel DVR based on our A12A SoC.

And European market leader Nextbase introduced its IQ Smart Dash Cam product line using our CV22 automotive SoCs, featuring 4K resolution and advanced AI-based threat detection.

In the enterprise security market, a number of leading manufacturers introduced new cameras based on our flagship 5nm CV5 and CV52 families.

Motorola introduced its new H6A product line featuring AI-based video analytics and up to 8MP resolution based on our CV52 AI processors.

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Japanese market leader iPro announced its new X series featuring a total of 9 models spanning box, indoor dome and outdoor dome models up to 8MP based on our CV52 SoCs.

Korean market leader Hanwha introduced its C34404 multi-directional outdoor camera based on our CV5 SoC.

Also during the quarter, Verkada introduced its CP52 E pan tilt zoom camera based on our CV22 SoC, offering camera operators dynamic coverage of wide areas and featuring 5MP resolution and 28X optical zoom.

And Germany's IDS introduced its first Ambarella-based camera, the NXT Malibu, for live imaging analysis based on our CV22 AI SoCs.

In the smart home segment, Signify, the Philips lighting spin-off known for its Hue lighting products announced its Philips Hue Secure cameras. Based on our CV AI SoCs, the cameras can work with Hue lights to control lighting and sound alarms to deter intruders.

Also during the quarter, Ecobee, a leading home automation company, announced its Smart Doorbell Cameras, based on our CV28 AI SoCs.

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In November Insta360 introduced its Ace Pro and Ace action cameras based on our CV5 and CV52 AI SoCs. The Ace Pro is the first 8K consumer action camera and both cameras include advanced AI features such as neural network-basednoise reduction, 48MP computational photography, voice and gesture control and automatic video editing.

Collectively, you can see overall design activity is healthy across 13 different representiatve customers for 17 different projects; 9 in auto and 8 in IoT. Furthermore, 16 of the 17 representative engagements utilize our higher value AI SoCs. You can also see we are successfully implementing more sophisticated AI workloads in our SoCs, as highlighted with the identification of four different CV5 customer engagements. Looking forward, we believe our newer products, such as CV5, CV72 and CV3 are well positioned to support increasingly sophisticated AI inference workloads. As these new products ramp, and as we also capture more software value, we believe we can capture more value per design win.

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I would like to give an update on changes to our management team we previously announced on October 18, 2023. Brian White will retire from his role as CFO at the conclusion of the current Fiscal year ending January 31, 2024. I want to thank Brian for his contributions to the company, including helping navigate the challenging inventory correction the semiconductor industry is currently experiencing, as well as continuing to strengthen our financial team and position us for success as we continue our transition into larger markets. I'm also pleased to announce that John Young, currently our VP of Finance, will assume the role of CFO on February 1, 2024. John has been with Ambarella for more than six years, serving in a variety of finance and accounting roles, and we are confident he will continue to be a valuable contributor as we seek to drive our transformation forward and grow shareholder value.

I will now hand it over to Brian to discuss the Q3 results and the outlook in more detail.

Brian White, CFO

Thanks Fermi. Before I begin, I'd like to thank Fermi and the board for the opportunity I've had to be a part of the special team here at Ambarella. The timing of my upcoming transition is facilitated by the progress we've made in developing the people, processes and tools to support Ambarella at the next levels of growth and profitability. I have complete confidence in

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