Ambarella Inc (AMBA) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ambarella Fourth Quarter Fiscal Year 2018 Earnings Conference Call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Ms. Deborah Stapleton, Investor Relations.

Ms. Stapleton, you may begin.

Thank you, and good afternoon, everyone, and welcome to Ambarella's Fourth Quarter -- Fourth Fiscal Quarter and Year-End 2018 Financial Results Conference Call.

Thank you for joining us today.

Our speakers will be Dr. Fermi Wang, President and CEO; and George Laplante, CFO.

The primary purpose of today's call is to provide you with information regarding our fiscal 2018 fourth quarter and full year results.

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 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 that we file with the SEC, including the annual report on Form 10-K that we filed on March 30, 2017, for the 2017 fiscal year and the Form 10-Q filed on December 8, 2017, for the third fiscal quarter of 2018.

Access to our fourth quarter results press release, historical results, SEC filings and a replay of today's call can be found on the Investor Relations portion of our website.

I will now turn the call over to Dr. Fermi Wang.

Good afternoon, everyone.

Our Q4 fiscal year 2018 revenue was $70.6 million representing a decrease of 19.3% from the $87.5 million of revenue in the same period of fiscal year 2017.

For the full year ending January 31, 2018, our total revenue was $295.4 million, a decline of 4.8% although our non-GoPro revenue grew 9.7%.

During the year, we continued our focus on IP security and the automotive markets as this represented the biggest revenue activity for Ambarella.

We enjoyed strong revenue growth from IoT home monitoring applications during the year driven by multiple new applications, including doorbell, battery-powered and outdoor camera models.

Our professional IP camera business also grew as customers introduced new models supporting the new H.265 video format.

In the OEM automotive market, revenue growth was driven by multiple car recorder designs entering production in China, Japan and Korea.

At the recent Consumer Electronics Show in January, Ambarella introduced CV1 and the CV22, the first products in our family of Ultra HD computer vision processors based on Ambarella's new CVflow architecture.

CVflow combines over 20 years of pioneering research in environmental perception with advances in Deep Neural Network processing.

CV1 delivers stereovision processing and deep learning perception algorithms to a variety of automotive applications, including ADAS, self-driving, electronic mirror and surround view systems as well as security cameras, autonomous drones and robotics.

The CV22 camera SoC combines image processing, 4Kp60 video encoding and the CVflow computer vision processing in a single low-power design.

Fabricated in advanced 10-nanometer process technology, it achieves an industry-leading combination of low power and high performance in both human vision and computer vision applications.

Compared with inefficient CPU and GPU solutions, CV22 provides a powerful computer vision performance, combined with high-quality image processing, efficient video encoding and the low-power operation required for cameras to be deployed in mass production.

It will enable a new level of intelligence in cameras, including face recognition in professional security and home monitoring cameras and advanced ADAS capabilities in automobiles.

All CVflow chip families are supported by a complete set of tools to help customers easily port their own neural networks.

This includes compiler, debugger and support for industry-standard training tools, including Caffe™ and TensorFlow™.

During the CES show, we demonstrated our EVA, or "Embedded Vehicle Autonomy" car, featuring multiple CV1-based SuperCam™ cameras to provide a 360-degree short- and long-range perception and precise self-location.

SuperCam's 4K stereovision processing provides a perception range of over 150 meters for stereo obstacle detection and over [180] meters (corrected by company after the call) for monocular classification.

Its features include automatic calibration, stereo generic obstacle detection, terrain modeling, traffic light detection, 3D free space detection, lane detection and CNN classification for vehicle, pedestrian and bicycle or motorcycle.

We also demonstrated a fully-autonomous drone based on our CV1-based SuperDrone™ platform.

The SuperDrone use a single CV1 chip to process 4 stereo cameras for 360-degree vision.

The demonstration featured path planning, obstacle avoidance, multi-point navigation and a GPS-denied precise visual localization.

We had over 40 automotive OEMs and Tier 1 companies meet with us at CES and received an enthusiastic response to our EVA car demonstrations.

As a result, many OEMs and Tier 1 suppliers are now evaluating our CVflow-based solutions for a wide range of automotive applications.

On March 28, we will be hosting an Analyst Day at our headquarters in Santa Clara to demonstrate our continued progress on a comprehensive silicon and software road map for automotive computer vision.

The event will include demonstrations of our EVA car on the roads of Santa Clara, featuring the latest in Advanced Driver Assistance Systems and vehicle autonomy.

The event will be webcast with timing and details of the event in today's news release.

In the professional IP security camera market, we continue to see increasing requirements for advanced computer vision and analytics.

At CES, we demonstrated our CVflow chips running face detection and face recognition algorithms, which can, for example, be used to find persons of interest in a crowd.

Our hardware-accelerated approach enables us to run advanced convolutional neutral networks with low power and with the high accuracy required for deployment in small form factor IP cameras.

The CV22 SoC announced at the show, is an ideal solution for the IP camera market.

It features everything required for a highly intelligent security camera in integrated CVflow processor, ISP, and encoder on a single chip and with very low power.

We're enjoying very positive feedback on the CV22 from security camera customers as they can now design cameras with advanced computer vision capabilities without the need for expensive and power-hungry co-processors.

During the fourth quarter, we saw the introduction of several new models in the fast-growing home monitoring market, including indoor powered cameras, doorbells and battery-powered designs, all featuring Ambarella SoCs.

At CES, Ring introduced it's Stick Up Cam Elite.

It's first-ever indoor/outdoor camera based on Ambarella's S2L camera SoC, the camera offers 1080p HD streaming, 2-way audio and advanced motion sensors with zone detection.

The camera can now draw power from a standard wall outlet or via Power-over- Ethernet.

We are also seeing home monitoring beginning to take off in Europe, following the successful growth of the market in the U.S. During the quarter, Hive, a subsidiary of British service provider, Centrica, introduced its Hive View camera.

Based on the Ambarella S2E SoC, the Hive View features 1080p HD recording, wide 130-degree field of view, as well as a sound and motion detection.

The View camera can also run on batteries for up to 1 hour to continue streaming while moving the camera from one room to another.

Also during the quarter, European home automation company, Fibaro, introduced its Intercom video doorbell.

Based on Ambarella's S2L SoC, the Intercom includes full HD video with 180-degree field of view, while voice recognition allows the doorbell to open doors based on verbal commands.

In the OEM automotive market, Ambarella continues its success in the embedded car recorder category.

During the quarter, China-based Changan introduced its new EADO 2018 sedan series, featuring an HD car recorder based on Ambarella's S2LM SoC.

Also for the Chinese New Year, Chinese auto giant, Geely, launched its new Emgrand GL 2018 car models, featuring an HD car recorder based Ambarella's A7LA SoC.

And in the drone market category, China-based Yuneec announced the 3 new drone models based on Ambarella's solutions at the CES show.

The Typhoon H Plus use Ambarella's H2 SoC and is aimed at both photographers and videographers, featuring a 1-inch sensor and a 4K video at 60 frames per second.

The Firebird FPV is Yuneec's first fixed-wing drone, while the $200 HD Racer marks Yuneec's entry into the racing drone category.

Both feature Ambarella's A9SE SoC.

As we look back our fiscal year 2018, we are pleased with our progress in diversifying our customer base with design wins and at wide number of new automotive OEM and IoT home monitoring camera makers.

We also continue to grow our professional IP camera business with multiple product introductions based on our new H.265 SoCs.

Our multi-year investment in computer vision technology has led to the introduction of new CVflow architecture and the introduction of two new CVflow-based processors, the CV1 and the CV22.

The CV22 is our first chip in advanced 10-nanometer process node.

We will to continue invest in computer vision and automotive technology as we believe there are significant growth opportunities available to us in these markets.

On February 12, we were pleased to officially open our new VisLab computer vision research and development center on the campus of University of Parma in Italy.

The new facility will house over 50 computer vision scientists and engineers focused on computer vision and autonomous vehicle development.

Now I will hand you back to George for the financial section of the call.

Thank you, Fermi, and good afternoon, everyone.

Today, I will focus my review on the financial highlights for the fourth quarter of fiscal 2018 ended January 31, 2018, as well as the financial outlook for Q1 of fiscal year 2019.

During the call, I'll discuss 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 for Q4 and fiscal year '18, we have eliminated stock-based compensation expense adjusted for the impact of income taxes.

Our Q4 2018 revenue of $70.6 million represents a decrease of 19.3% from the $87.5 million of revenue in the same period of the prior year.

The decrease in revenue was the result of GoPro revenues declining from $30.2 million in Q4 of fiscal year '17 to $13.3 million in this fiscal year.

In Q4, we saw solid year-over-year growth in IP security and auto OEM markets plus growth in non-GoPro wearable markets, offset by a substantial decline in year-over-year drone revenues.

In IP security, year-over-year growth was led by strong consumer product fields for the North American holiday selling season.

Solid revenue increases from OEM, automotive video recorders plus flat aftermarket shipments resulted in good year-over-year growth for the auto market.

Drone revenues in the quarter were down from last year with the majority of our revenue coming from high-end drone market, primarily at DJI.

For the year ended January 31, 2018, revenues declined 4.8% to $295.4 million.

Non-GoPro revenues increased approximately 9.7% with strong growth in security, auto and other wearable markets, partially offset by a substantial decline in drones.

In fiscal year '18, GoPro revenues declined approximately 50% from the previous year or $37.7 million.

Non-GAAP gross margin for Q4 was 64.7% compared to 64% in the preceding quarter and 67.2% in the fourth quarter the prior year.

The strong gross margin in the quarter was the result of a more profitable mix of products in the security market, which was offset by a decline in higher-margin sports cameras and drones.

Non-GAAP operating expenses for the fourth quarter were $29.5 million compared to $27.2 million for Q3 of this fiscal year and $25.4 million for Q4 of the prior year.

OpEx increased from the previous quarter primarily as a result of increased chip development cost as we continued to accelerate that 10-nanometer development of CV chips.

Non-GAAP net income for Q4 was $15.8 million or $0.45 per diluted ordinary share compared with non-GAAP net income of $32 million or $0.92 per diluted ordinary share for the same period in the previous year.

The non-GAAP effective tax rate in Q4 2018 was 5.9%.

The lower tax rate in the quarter reflected the adjustments to our annual tax rate resulting from the net impact of the new tax legislation.

In the fourth quarter the non-GAAP earnings per diluted ordinary share were based on 34.7 million diluted shares as compared to 34.6 million diluted shares for Q4 of fiscal year 2017.

Total headcount at the end of Q4 was 706 compared to 690 at the end of the previous quarter, with about 82% of employees dedicated to engineering.

Approximately 72% of our total headcount is located in Asia.

We ended Q4 with cash and marketable securities of $434.6 million, adding $25.1 million of cash from operations in the quarter.

During the quarter, the company repurchased 66,747 shares at an average price of $49.18 for a total consideration of approximately $3.3 million.

The company purchased an additional 142,344 shares from February 1 through February 9 at an average price of $48.05, bringing the total number of shares purchased since inception of the repurchase program in June of 2016 to 1,642,228 shares at an average price of $49.80 for a total consideration of approximately $81.8 million.

As of February 28, 2018, there were approximately $24.9 million available for repurchase under the repurchase program through June 30, 2018.

Total accounts receivable at the end of Q4 was $31.3 million or 41 days sales outstanding.

This compares to accounts receivable of $47.2 million or 48 days sales outstanding at the end of the prior quarter.

Net inventory at the end of Q4 was $23.4 million or about 80 days of inventory compared to $21.1 million or 55 days of inventory at the end of Q3.

The increase in inventory is primarily to support the launch of newer chips.

We had 3 10%-plus revenue customers in Q4.

WT Microelectronics came in at 49.6% of revenue compared to 48.4% of revenue in the fourth quarter of the prior year.

GoPro represented 18.8% compared to 32.4% last year.

And Chicony came in at 10.3%.

I would now like to discuss the outlook for Q1 of fiscal year 2019.

We expect revenues for our first quarter ending April 30, 2018, to be between $54.5 million and $57.5 million, representing a decrease of between 15% and 10.3%, respectively, from Q1 of last year.

In the quarter, we expect non-GoPro revenues to decline approximately 12% from the same period in the prior year.

We expect year-over-year revenue increases in IP security and auto OEM markets offset by a decline in the drone market.

We believe this forecast reflects a negative impact from the change to the new revenue recognition rules as well as the impact of potential memory shortages.

Overall, we have assumed the combined negative impact will be less than 2% of total revenue for -- in the quarter.

We estimate Q1 non-GAAP gross margin to be between 60% and 62% compared to 64.7% in Q4 of 2018 and 64.3% in Q1 in the prior year.

As forecasted, we are seeing the increase in China professional security revenues and a decline in drone revenues as having the large negative impact to margins in the quarter.

We expect non-GAAP OpEx in the first quarter to be between $30 million and $32 million, with the increase from Q4 primarily coming from increased chip tape-out fees and engineering headcount increases.

We estimate our diluted share count for Q1 to be approximately 34.8 million shares.

With regard to the fiscal year '19 tax provision, we are still working through all the details of the various tax law changes but can confirm that as a non-U.

S. operation, we are not impacted by the mandatory toll charge on foreign earnings, the global intangible low-taxed income tax, known as GILTI, or the base erosion and anti-abuse tax, known as BEAT.

At this point, we are estimating our annual non-GAAP effective tax rate to be in the range of 15% with several potential impacts to fiscal '19 tax remain to be worked through with our advisers.

I would like to thank you -- thank everyone for joining our call today, and I will turn it back to the operator to manage the Q&A session.

(Operator Instructions) Our first question comes from the line of Kevin Cassidy with Stifel.

This is John Donnelly, on for Kevin.

Could you detail for us how much of the fiscal year '19 OpEx spending is expected to be for the CV development?

Well, what we have said on breaking out R&D in total is we're running at about 60% of our R&D costs are related to CV and auto.

Okay.

Great.

And for the surveillance camera CV chip, could you compare how you're seeing early engagements with the professional market compared to the home consumer market?

Well, I think we got overwhelming positive feedback from our professional security customer because they are definitely very aggressive to push this technology.

And we talked to all our main customers in China, in Europe, in the U.S., in their road map, they all demand a single-chip solution like CV22 that we proposed, and we showed it, and we believe that CV22 will be a very important product for us moving forward for professional.

On consumer side, we've seen a demand there, but I think that trend will probably a little slower than the professional, not because they don't want that, it's just really that I think the professional guy has been preparing this trend for a long time, and they are ready to jump on the solution, and consumer guy is definitely planning for it.

So maybe I will say it's off by 6 to 12 months, but I -- although I think CV22 will be a very important product for us for both professional and the consumer security camera.

Our next question is from Quinn Bolton with Needham & Company.

George, just wanted for clarification for the (inaudible) guidance.

Did you say that you would have decline in drones offset by year-on-year growth in auto and security?

I just want to make sure I got that right.

That's correct.

Great.

And then I think in perhaps, the last quarter call, as you look forward to fiscal '19, I think you sort of had given indications you thought the non-GoPro business could be up 10%.

Is that still sort of the right range to be thinking about for the non-GoPro business this fiscal year?

Yes.

I think at this time, we're still looking at somewhere around 10% growth this year in non-GoPro.

Great.

And then just lastly, in the drone market, obviously, you talked about the [Turkey] drone manufacturers having a pretty tough time.

Your large customers are seeing sort of a mix toward lower-priced drones.

I mean, is your outlook for the drone market -- I mean does that revenue become, at some point, de minimis to overall revenue?

Or do you still think that, that's a market where you're going to see a fair amount of focus at Ambarella?

Yes.

We are seeing drone revenues will decline in fiscal '19 from fiscal '18.

But I think we're still looking at drones longer term in that the commercial side of the market as CV starts to roll out in the drone market, I think we have opportunities in the commercial side.

So no, although it's going to be a smaller part of our business, I think it's still going to be one we offer products for and support.

Our next question is from Ross Seymore with Deutsche Bank.

This is JiHyung for Ross.

Fermi, you mentioned that at CES, Ambarella met with over 40 other OEMs and Tier 1s.

So can you talk a little bit about any sort of early design indications that you've heard from the auto OEMs and Tier 1s?

You mentioned that you're excited about the engagements there.

Yes.

I think the feedback from those OEM and Tier 1 is a positive.

And as a result I think we have seen more people start evaluating our CVflow platform.

And in addition to that, we are taking orders from a long-range and short-range SuperCam that we demo at CES and was taking order for that.

And also, we are receiving and responding to RFQs from the different auto OEMs.

Okay.

And George, on gross margins, last quarter, it was mentioned that gross margins in the first half of fiscal '19 were expected to be at the high end of the target range of at 59% to 62%, and Ambarella guided 60% to 62% for the first quarter.

So what has changed in the gross margin profile that is different from last quarter?

Well, there's not any major change.

It's just the mix towards China has increased a little quicker than we had anticipated in the fall.

Our China security business in Q1 is expected to be reasonably strong, a little stronger than we had looked at there, and that is our lowest-margin business.

So it's really driven by the mix in the professional security marketplace.

And our next question is from the line of Joe Moore with Morgan Stanley.

I wonder if you could talk a little bit about the demo that you'll discuss for the Analyst Day.

I know at CES, you showed the sort of perception engine capability of CV1.

But I know you also have a software stack that handles some of the driving functionality.

So where are you emerging those 2 things?

It is important to display that for end customers?

Or is the focus more just on CV at this point?

And just kind of give us a general state of where you are integrating the 2 functionalities.

Right.

So as you say, Joe, at CES we demo our stereo mono perception technology.

But in -- at our Analyst Day, we -- well, based on our CES demo and we were going to show Ambarella sensor fusion technology, our localization and mapping and as well as high-level control such as path planning.

So basically, we're saying that we're going to demonstrate some of our EVA car on the roads of Santa Clara with all those technology integrated.

And our next question is from Charlie Anderson with Doherty & Company.

Kind of a follow-on to the discussion around the 40 automakers and Tier 1s you engaged with and what you [saw posted] yet.

I wonder between level 2, level 3, level 4, level 5 kind of along that stratum of ADAS, where are you seeing the most engagement in terms of the capabilities you're showing off?

Or do you think you have the most differentiation versus what's out there?

And then I've got a follow-up.

Well, based on the current feedback, in fact, we see a lot of level 3 and level 4 requirement at this point.

Okay great.

And then, George, operating expenses for the year, do you have any view there?

I'm still in line with what I said on the last call, somewhere between $120 million and $130 million for the year.

And the wide range is just a function of how fast we can hire employees particularly in the CV area engineering.

And our next question is from Andrew Uerkwitz with Oppenheimer.

I just have a quick one.

On consumer, I don't know, in consumer camera market, looks like Amazon has made a couple of acquisitions in the space over the last couple of months.

How do you view their entry into the space?

Positive?

Negative?

I mean, that's the -- what's your overall -- could they help accelerate the use of CV in that space at all?

So -- and I think you're right.

First of all, it's very early on, so the deal -- the Ring deal was announced yesterday.

So it's -- we are still evaluating the outcome, but however, what I can say is we think at least it's a short-term positive for us because we announced several products with Ring just recently.

And Ring, as an independent company, has done very well.

And with Amazon's marketing and the channel capability, we believe those product can do very well for us and for -- of course, for Ring and Amazon, but also well for us in the short term.

In the long term, we definitely want to -- need to talk to Amazon and Ring to understand their road map.

Hopefully, we can continue to support them on the technology.

This really reminds me that when Dropcam was acquired by Nest, and at that time, we -- is also very uncertain about the outcome.

But if you look at 3 years down the road, we continue to be supporting -- supplying chips to Nest on their consumer product line.

So I hope that will be the case for Ring, but well, that remains to be seen.

And then just bigger picture, did you just view this as just one more sign that validates the ultimate road map towards CV and some of the use cases that CV brings to the broader camera market?

Absolutely.

Internally, we try to speculate the result.

Of course, the consumer IP cam market is very important for Ring and for Amazon.

But I think, in addition to that, if you look at Amazon Go, that's a product.

That's an idea based on the camera to do video analytics and computer vision functions.

So I think that's a perfect match for the -- for Amazon and Ring.

So definitely, it's a way.

We believe that, that's endorse our CV technology moving forward.

And I'm not showing any further questions.

I'll now turn the call back over to Dr. Fermi Wang for closing remarks.

Thank you.

I would like to thank all of our colleagues for their contribution to our company.

And talk to you, guys, next time.

Thank you.

Ladies and gentlemen, this does conclude the program.

You may now disconnect.

Everyone, have a wonderful day.