Ambarella, Inc. (NASDAQ:AMBA) Q4 2024 Earnings Call Transcript
Ambarella, Inc. (NASDAQ:AMBA) Q4 2024 Earnings Call Transcript February 27, 2024
Ambarella, Inc. beats earnings expectations. Reported EPS is $-0.24, expectations were $-0.33. Ambarella, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to Ambarella’s Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please note that today’s conference is being recorded. I would now hand the conference over to speaker host, Louis Gerhardy, VP, Corporate Development and Investor Relations. Please go ahead.
Louis Gerhardy: Thank you, Lydia. Good afternoon, everyone and thank you for joining our fourth quarter and full year fiscal 2024 financial results conference call. On the call with me today is Dr. Fermi Wang, President and CEO; and John Young, CFO. The primary purpose of today’s call is to provide you with information regarding the results for our fourth quarter and full year fiscal 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. These risks, uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are more fully described in the documents we filed with the SEC. Access to our fourth quarter and full year 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. John will review the financial results and outlook, and then we will be available for your questions. Fermi?
Fermi Wang: Thank you, Louis, and good afternoon. Thank you for joining our call today. In the fourth quarter of fiscal 2024, our revenue increased about 2% sequentially, and we slightly exceeded the midpoint of our guidance range. Thanks to the early actions we took to help our customers navigate their excess inventory, our business continued to stabilize, and it's beginning to recover. For the full fiscal year 2024, our revenue declined 32.9% year-over-year, as our customers digested inventory resulting from the industry-wide semiconductor cyclical downturn. Looking ahead to fiscal year 2025, we continue to expect both our automotive and IoT business to grow. As the cyclical challenges went and the secular growth of AI strategy emerges.
Our customers currently have a cumulative install base of more than 20 million AI inference SoCs, all from our 10-nanometer CV2 family and the 5-nanometer CV5. This is based on approximately 280 customer products that have a rich production on a cumulative basis. The CV2 family is expected to continue to be the key driver of our revenue growth in fiscal year 2025. Our AI inference business, all in-age applications, represented approximately 60% of total fiscal 2024 revenue, and it was the key factor in the meetings percent year-over-year increase in our blended ASP. The trend to a richer mix of AI revenue and higher averaging selling price is expected to continue. In particular, the CV3 SoC family enters production. At this time, virtually all of our customers' new design activity involves our AI inference processors.
In fact, this was the first year at the CES where all of our SoC demos, more than 30, were based on our AI inference products. Fiscal 2024 was certainly challenging for most of the industry. However, there were key industry developments and the company's specific achievements that we believe leave us very well positioned for growth as the market recovery plays out. For the industry, in the past, the AI process opportunity had primarily been represented by training GPUs in server located in data centers, and this is a market that we do not serve. However, in the last year, the important role and opportunity for inference processors, in particular at that age, has become better understood, and this is exactly where we have been focused on. Internally, we achieved four key milestones during the last year.
First, we have now shipped more than 500,000 units of our first 5-nanometer SoC, CV5, and we expect our shipments in fiscal year 2025 to possibly double. Most of CV5 volume is currently in our IoT business, although we expect an automotive OEM to start production in the second half of the year. The fact that we have already achieved a high volume mass production at 5-nanometer helps pave the way for our other 5-nanometer SoC, such as the CV3 family. Second, the automotive market resembles both the high-end production version of our 5-nanometer CV3, as well as a 5-nanometer version for China. At the high end, we sample CV3-AD685, targeting L3 and above autonomy, and this central domain controller is currently evaluated, is in evaluation at multiple OEMs and tier ones globally.
So far, we are finding success in L3 and above commercial vehicles. For the basic highway L2 plus opportunity in China, we introduced a CV72AQ, and we have numerous tier one design wins and OEM discussions underway. Third, we introduced our generative AI, Gen AI strategy for the age of the network, and we are sampling our 5-nanometer N1 processor, targeting age applications, ranging from IoT devices to age servers. Fourth, we'll continue to build out the CV3 automotive platform to offer our Tier 1and OEM customers turnkey options with our software stack and our centrally processed HD radar algorithms. We started the new year at the Consumer Electronics Show, CES, where we hosted over 200 customer meetings and made a number of significant announcements for automotive, Gen AI, and our new Cooper Development Platform.
We were pleased to receive a CES Innovation Award for the second year in a row, this time for our centralized radar processing architecture. In December, we unveiled our latest software stack for Level 2 Plus and the higher autonomous driving applications. This software is optimized and can scale across our entire CV3 processor family, enabling OEM to get to market faster and reduce development costs. The new software stack, including the perception, fusion, and planning layers, is primarily deep learning based, which allows software development to scale more easily, resulting in a more accurate solution. Finally, most important, we rely on high resolution camera and the radar perception data to create a real-time map inside the vehicle. And for this reason, we eliminate the use of stored HD maps that may contain stale data, which results in improved results and a reduced cost for OEM.
If needed, the software stack is available in modules and can be combined with an OEM's own software intellectual property. During the CES show, we demonstrated a stack running on a single CV3 automotive AI domain processor in our own autonomous vehicle, successfully completing over 150 autonomous drives. The demonstration integrated our Oculii radar algorithm for the first time. We also announced the expansion of our CV3 processor family with the addition of our CV3 AD635 and the 655 SoCs. The new CV3-AD635 supports a sensing suite that includes multiple cameras and radars to enable mainstream level 2 plus feature set, such as highway autopilot and automated parking, in addition to meeting the GSR2 and NCAP standards. Additionally, the 655 enables advanced level 2 plus with urban autopilot, as well as the support for additional cameras, radars, and other sensors.
With the previously announced flagship 685 SoC, along with the ChinaFolk's CV72 AQ SoC, the CV3 family of four processors now covers the full range of AD and ADAS solutions, from mainstream to premium passenger vehicles. The new CV3-AD SoCs were endorsed by our partner Continental. Kodiak Robotics, a leading autonomous vehicle company focused on trucking and defense, announced that it had selected our CV3-AD685 AI domain controller for its next generation autonomous vehicles. In IoT markets, during CES, we announced we are bringing Gen-AI capabilities to the edge through the introduction of our N1 processor for on-premises applications. This SoC supports up to 34 billion parameters, multimodal large language models, LLMs, with low power consumption, enabling Gen-AI for edge applications.
We demonstrated multimodal LLMs running on the new N1 processor at a fraction of the power per inference of leading GPU solutions. Ambarella aims to bring Gen-AI to a wide range of edge applications, including video security, robotics, and industrial applications. Quanta Computer announced it was partnering with Ambarella to develop products based on our CV3-AD685, CV72, and new N1 processor to address cutting-edge AI devices. This offering addresses the up growing market demand for a diverse range of neural networks and LLMs and the well-empowered business across sectors, including autonomous vehicles, smart surveillance, robotics, and healthcare. Quanta demonstrated PCIe add-in cards based on our N1, as well as showing automotive ECUs based on CV3-AD685.
We also introduced and demonstrated our new Cooper developer platform. Cooper offers seamless integration of software, hardware, state-of-the-art, fine-tuned AI models, and services that provide universal support across Ambarella's entire portfolio of AI SoCs. We have now successfully deployed Cooper to some of our IoT customers worldwide. I will now quickly highlight some of the customer products announced and made during the last quarter. In the Chinese automotive market, we continue to expand our position in this important market. During the quarter, GAC Auto announced Aion S Max passenger car with combination driver monitoring and in-cabin sensing based on our CV25 AQ automotive AI vision processor. GAC also introduced this Trumpchi M8 passenger car with driver monitoring and the multi-channel occupancy monitoring also based on our CV25 AQ.
And in January, XPENG unveiled its X9 minivan including an electronic mirror system based on our A12 automotive SoC. And in the enterprise IoT market, career market leader Hanha [ph] Vision introduced multiple models based on AI vision SoC including 4K and the four-channel multi-directional cameras based on our CV2 SoCs. And the AI thermal camera based on our CV22 SoCs. All Korean camera supplier IDIS introduced a 2-megapixel voice-over-IP video intercom based on our CV28 SoC. And Taiwan-based VivoTech also introduced this new 87-V3 family of IP camera based on our CV22 AI SoCs and featuring fixed-on and bully models with advanced AI capabilities. And in the home monitoring market, Canadian service provider TELUS announced its home view doorbell camera based on our CV28M AI SoC and featuring advanced AI detection.
In summary, looking forward our key objectives to restore revenue growth and profitability while continuing to drive our strategic R&D priorities for AI inference process opportunities at the edge. To achieve this goal, we're highly focused on commercialization of technology and products we have developed. And in particular, converting the multiple RFIs and RFQs we are currently working on for CV2 and CV3 into awarded business. Furthermore, returning our IoT business to its positive secular growth trajectory is very important. And this includes our early business development for our new Gen AI and one-price. In conclusion, we have not been distracted by the prolonged industry-wide cynical downturn. And we see the secular trends we address, safety, security, and automation remaining very strong.
The increased market attention on inference processing, in particular at the edge, is aligned with where we have been investing. In the new year, we are very excited about the opportunities we are working on and look forward to move more business into one column. And I'm excited about what we will achieve in the years ahead. With that, John will now discuss the Q4 and the full-year fiscal year 2024 results and outlook in more details.
John Young: Thank you, Fermi. Before I begin, I would like to say that I'm honored to assume the CFO role. I've been working with the team for seven years and I'm very excited to help the company as it pursues growth in its target markets. I'll now review the financial highlights for the fourth quarter and full fiscal year 2024, ending January 31st, 2024. I will also provide a financial outlook for our first quarter of fiscal year 2025, ending April 30th, 2024. I will be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense, along with acquisition-related and restructuring costs adjusted for the impact of taxes.
Fiscal year 2024 revenue decreased 32.9% to $226.5 million. IoT revenue was about two-thirds of the total revenue and declined about 40% for the year. Auto revenue represented the balance of revenue and declined about 14% for the year. From a product point of view, a large majority of our fiscal 2024 revenue decline was from our human viewing video processor, SoCs. For fiscal year 2024, non-GAAP gross margin was 63.3% versus 63.9% in fiscal 2023. Non-GAAP operating expense increased 3.9% for the year versus 17.6% in the prior year. Ending cash and marketable securities totaled $219.9 million up from $206.9 million at the end of the prior year. For fiscal Q4, revenue was $51.6 million, slightly above the midpoint of our prior guidance range, up 2% from the prior quarter, and down 38% year-over-year.
Non-GAAP gross margin for fiscal Q4 was 62.5% in line with our prior guidance range. Non-GAAP operating expense was $44.1 million, approximately flat with the prior quarter, and below our prior guidance range of $45 million to $48 million, driven by continued expense management and the timing of spending between quarters. We remain on track to our internal product development milestones. Q4 net interest and other income was $2.1 million. Q4 non-GAAP tax provision was approximately $119,000. In fiscal Q4, we recorded a one-time GAAP non-cash tax charge of $22.7 million, establishing a valuation allowance on certain U.S. deferred tax assets that were deemed more likely than not to be unrealizable in the foreseeable future. This valuation allowance was excluded from fiscal Q4 non-GAAP tax provision, consistent with our historical practice for changes to tax valuation allowances.
This adjustment is a non-cash tax charge required by GAAP based on the proportion of taxable income in the United States. We reported a non-GAAP net loss of $9.8 million, or a $0.24 loss per diluted share. Now I'll turn to our balance sheet and cash flow. Fiscal Q4 cash and marketable securities decreased $2.4 million from the prior quarter to $219.9 million. Receivables days of sales outstanding increased from 42 days in the prior quarter to 44 days, while days of inventory decreased from 145 to 131 days. Inventory dollars declined 6% sequentially and declined 28% from a year ago. Operating cash outflow was $4 million for the quarter, and for the full year we generated operating cash inflow of $19 million. Capital expenditures for tangible and intangible assets were $1.9 million for the quarter and $12 million for the year.
We had two logistics and ODM companies representing 10% or more of our revenue in Q4. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 55% of revenue for the fourth quarter and 53% for the full fiscal year 2024. Chicony, an ODM who manufactures for multiple end customers, was 14% of revenue for both the quarter and the full fiscal year 2024. I'll now discuss the outlook for the first quarter of fiscal year 2025. Our early actions during the cyclical downturn in the semiconductor industry have helped our customers navigate their high inventory balances, and these actions are now enabling our business to stabilize and begin to recover. For fiscal Q1, we estimate our total revenue will be in the range of $52 million to $56 million.
We expect sequential growth in both IoT and auto. We expect fiscal Q1 non-GAAP gross margin to be in the range of 61.5% to 63%. We expect non-GAAP OpEx in the first quarter to be in the range of $46 million to $49 million, with the increase compared to Q4 driven by new product development costs and employee-related expenses, which we were able to delay in previous quarters. We estimate net interest income to be approximately $1.5 million, our non-GAAP tax expense to be approximately $500,000, and our diluted share count to be approximately 40.8 million shares. Ambarella will be participating in a fireside chat and hosting one-on-one and group meetings on February 29th in New York City at Susquehanna's Technology Conference. We will also be participating in Morgan Stanley's TMT Conference in San Francisco on Monday, March 4th.
On March 18th, we will participate in the ROTH Conference in Southern California. We hope to see you at one of these events. Please contact us for more details. Thank you for joining our call today, and with that, I will turn the call over to the operator for questions.
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