Thank you for standing by and welcome to Ambarella’s Third Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to VP, Corporate Development, Louis Gerhardy. Please go ahead.

Thank you, Latif. Good afternoon, everyone and thank you for joining our third quarter fiscal year 2024 financial conference call. On the call with me today is Dr. Fermi Wang, President and CEO; Brian White, CFO; and John Young, VP of 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. 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 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. Fermi?

Thank you, Louis, and good afternoon, everyone. In a challenging market, our fiscal Q3 revenue was slightly above the midpoint 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 cynical downturn at different times throughout the next year. And considering all of the dynamics at this time, we continue to anticipate we will return to growth in fiscal year 2025. 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 remain high. And our long-term serviceable market opportunity CAGR estimate has not changed. Our CV2 family of SoCs is expected to lead us out of a cynical long term and represent a larger proportion of our total revenue in fiscal year 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 ‘24. In a single chip, the CV2 products typically provide both video processing and AI inference processing for one or more cameras. The average selling price of this product is close to $20 with a range of below $10 to above $50. In particular, I want to point out that CV5, the flagship of CV2 family and Ambarella first 5-nanometer SoC is forecast to generate meaningful revenue next year with more than 10 customers in production. Our CV3 platform is expected to generate production revenue from the automotive market in calendar year 2026 and beyond. The CV3 platform includes a founding SoC and software, and we…

Thanks, Fermi. Before I begin, I’d like to thank Fermi and the Board for the opportunity I’ve had to be 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 John’s ability to take over as CFO and the team he has to support him. I look forward to their ongoing success. I’ll now review the financial highlights for our third fiscal quarter and provide a financial outlook for our fourth quarter ended January 31, 2024. 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 expense along with acquisition-related and restructuring costs adjusted for the impact of taxes. For fiscal Q3, revenue was $50.6 million, slightly above the midpoint of our prior guidance range, down 19% to the prior quarter and down 39% year-over-year. As expected, the sequential decline in revenue was driven primarily by our IoT end market. Non-GAAP gross margin for fiscal Q3 was 62.6%, in-line with our prior guidance range. Non-GAAP operating expense was $44.1 million, down $1.9 million from the prior quarter and below our prior guidance range of $46 million to $49 million, driven by continued expense management and the timing of spending between quarters. We remain on track to our internal product development milestones. Q3 net interest and other income was [Technical Difficulty] and our non-GAAP tax provision was approximately $650,000. We reported a non-GAAP net loss of $11 million or $0.28 loss per diluted share. Non-GAAP EPS was $0.11 better than the implied midpoint of our prior…

Thank you. [Operator Instructions] Our first question comes from the line of Joe Moore of Morgan Stanley.

Great. Thank you. I wonder if you could talk about the adjustments, Fermi, that you discussed to the funnel. You had said that you saw some business kind of coming out, and I know you had a number of businesses there that were probability weighted. What’s happening to that when that happens? Is that because the programs are just moving more slowly? Is it competitive? Is it supply chain? Can you just kind of give us an indication of why there would be those adjustments?

Yes. Thank you, Joe. I think let me address that question. In fact, in the script, we talked about four different factors. The first factor is the forecast change from Tier 1 and OEMs. For example, for some of the projects that we have won, the forecast of those projects would reduce particularly in the last several months we start seeing that trend. So that’s the first factor. The second factor is we start seeing project delays. For example, for some of the projects that we have won, the production date is pushing out and also for some projects that we are in an RFQ phase, the decision of those – of the final decision of the award is also got push out. So I think that’s the second factor. But also there are – the third factor is really that we continue to have a new project or RFQ that we’re bidding on, and we have different multiplier, like you said, different confidence level for different projects, and that’s a new project will be done. The last factor is really the project that we won and lost at the end. So if you ask me, I think the first and second factor really negatively impact our funnel number, but the third and fourth – the net effect in the third and fourth probably help us to continue to add numbers into the funnel. So that’s the reason we have this minor increase on the funnel numbers.

Great. That’s helpful. Thank you. And there’s still an awful lot of growth over multiple years [indiscernible] 5 years. So how does that profile look versus a year ago? I know you’ve talked about a lot of success in China. Do you see more of a China skew to your numbers in the next – as you start to ramp the advanced CV features?

Right. So I think that first of all, this funnel – first of all, on the one portion, this is the first time we start seeing CV3 contribution there. In the pipeline, definitely CV3 continue to getting higher and high percentage of funnel number. One thing I can say that in addition to the first CV3 design win, we announced last 2x ago with Conti, we add extra non-Chinese commercial vehicle design wins with CV3 and in this pipeline. So we definitely continue to make progress on that. And the trigger for those design wins is after we demoed the working CV3-685 chip and also demoed software stack we talk about, our AI software stack that can integrate all from the fusion to the radar as well as all the past planning. So we successfully demoed those things to OEM Tier 1s. Those two factors help us to secure the design wins we just talked about.

Thank you. Our next question comes from the line of Tore Svanberg of Stifel.

Yes. Good afternoon. This is Jeremy Kwan calling for Tore. I guess first, I just wanted to follow-up a little bit more on the adjustments you made to the funnel. Can you talk about how maybe, on a broad level, how maybe did the overall market in terms of maybe SAR impacted? And how much that may have impacted the slight increase in the funnel? And then I’ve got a follow-up after that.

I think the global market definitely impacts two things. One is the forecast of the run-rate of the project [indiscernible]. But also, I think you can read a lot of articles talking about for the Level 2+ or Level 3 cars, a lot of the new project the decision got pushed out because people are having different thoughts about their software stack, what’s the function features and particularly how to compete with China with their aggressive product line. So, I think all of those contribute to the first and second factor I just mentioned.

Great. And then moving to the AI inference accelerator business that you have successfully demonstrated, are we right to read into it that it sounds like this is something that you are moving forward with? And can you talk about maybe your competitive positioning relative to whether it’s the current incumbents, the number of private companies that are in the space and maybe other large competitors that might start to move in. Can you just talk a little bit about…?

Yes. I think you are referring to the ARM. So, I think first of all, this time a little bit different than the last time. Last time, we talked about global, a lot of different applications because we haven’t spent enough time on the marketing side. This time, we are kind of zooming to say while we understand our strength is Edge devices, particularly because we are in the market and we know a lot of customers in there. And we have also done enough demos and also talking to customers to understand our strengths against our competitor, both for large companies, also start-up companies. And our strength is, first of all, we have a working silicon that we can give demo at a very good performance, at very low power consumption. I think that’s the key. The second thing is, for us, it’s not just silicon. In fact, we also have bundled software. We are going to show a development environment that we already introduced our customer, we will publicly introduce to the CES about how we are using a software environment bundled with our current solution that enable Edge device or Edge servers quickly moving to AI model to help Edge applications. So, I think that’s where we are focusing on right now. And it’s not that we don’t want to focus on bigger cloud or hyper – much bigger application is really that I think with our current silicon and our current resources we would like to focus on areas that we know, that we are familiar with, and we want to know that we can win. So, I think that’s where we are sitting on with the current plan. Of course, we are not – we definitely need to build a roadmap. But however, like we said last time, our current commitment to ARM is using our current engineering resource, which is enough to do [indiscernible] system, developing the application, developing software for Edge applications, those are – those applications are using current resources. Had we decided to extend our roadmap or doing other applications, we probably need to talk about different engineering resource, which we haven’t committed to that yet.

Thank you. Our next question comes from the line of Christopher Rolland of Susquehanna.

Hi guys. This is Matt Myers on for Chris. So, you guys talked about first quarter potentially growing low to mid-single digits. Maybe it’s a little bit slower than we were thinking about. So, I was curious is this more end demand-driven or inventory-driven? And how should we think about inventory dynamics into the April quarter by auto or IoT with an enterprise or consumer in there? And then how are you thinking about the shape of end demand into the first quarter and then through next fiscal year?

Well, I think that the data points that we are looking at in support of the growth we talked about for fiscal Q1 is based on, number one, looking at our bookings and backlog trends, which have absolutely improved. So, our book-to-bill was much better in Q3 than what we have been experiencing for a number of quarters. And as we look at the backlog build into Q1, it’s tracking well above the prior quarter, and it’s supporting the growth range that we talked about. And so when we combine the data from bookings and billings and we compare that to the feedback that we are getting from our customers, as well as the requests that we are getting relative to push-outs versus pull-in of shipments, which have become much more balanced than they have been in the past. That gives us the confidence to talk about the beginning of growth in fiscal Q1 and then growth for the full fiscal ‘25. But certainly, we have ways to go. And so that recovery is certainly helped by the turnaround of the inventory situation. End markets also seem relatively healthy and in support of that growth. But I would say the primary driver at this point is getting to the bottom of that inventory cycle and getting through that excess material at customers.

Got it. Thanks Brian. That’s great. And then I also wanted a question on video processors. So, based off if you are talking about CV2 being about 60% of revenue, there is clearly a big drop-off in video processor revenue this year. And if CV2 is going to continue increasing next year, what’s your outlook here, particularly for video processors? And are you still investing a lot in this business or getting new wins here? And how should we just think about this particularly in the next year?

Right. So, first of all, I want to point out, although we haven’t really paid down [ph] on a video processing only chips, but video processing technology continued to be a very important part of offering in our AI chip. So CV2, all the CV family chip has a big portion of the AI – sorry, the image processing or video processing technology in there. So, I just want to clarify that. So, the – this year, our CV total revenue approached to 60%. Obviously, it was what I just said and also, if you look at the design win momentum, we have majority of that is CV. So, I think the potential continue to go to the favor of CV. But however, I think the decline of a video processor will slowdown because that we have a big jump reduction in the last 2 years, but we still have a long tail of a video processor chip that sell into different markets, including the enterprise security camera as well as automotive. So, I think that we should expect much less reduction on the video processor and with a very long tail.

Thank you. For our next question, which comes from the line of Kevin Cassidy of Rosenblatt Securities.

Yes. Thanks for taking my questions. This quarter, Hokuto, the Japanese auto distributor, came up as a 12% customer at the first time in a year or more. Is there anything happening there or is it just because the overall revenue is down, or is there some new designs happening in Japanese automotive?

Well, I think it’s really that if you compare to the previous quarter, our other business dropped quickly. And Japan automotive, usually, they just take at a fixed rate and is starting to change the forecast. So, it’s not particularly anything happening in Japan, but it’s really that outside Japan, the drop is significant.

Okay. Thanks. And just as you are going forward with the consumer, and even as we – consumer surveillance cameras and with large language models being used, is there a time when the input for the consumer will be just their voice, they can program their device? Is that something you are working towards?

We are working. Now, just the language, we are working on multi-modality. I think in fact, we think that the ARM for us, for our customers’ application, most important thing is processing text that, also speech as well as image all of them together. That adds the biggest advantage to our customer and also that’s probably one unique function that we can really differentiate against other ARM suppliers.

Thank you. Our next question comes from the line of Quinn Bolton of Needham & Company.

Hi guys. This is actually Neil Young on for Quinn. Thanks for taking my question. Wanted to ask, so it’s been about a year since you announced the partnerships with Continental and Bosch, when do you believe we will start to hear about design wins from these partnerships?

Well, we already announced a design win with Conti. We couldn’t mention the OEM name, but I think we did that. And you should – in fact, I would say that our relationship with Conti continued to improve and we are bidding on projects with OEMs together. In fact, that we cannot announce OEM design win with our customer’s approval. But one thing I can say is that activity with Conti is heavy. And also we continue to believe that the engagement between Conti and us are getting tighter and tighter, both on the hardware design as well as the software design.

Okay, great. Thanks. And just another follow-up. So, there has been some press reports suggesting that Continental is considering divesting its automotive assets, including its autonomous mobility business. How would a divestiture of this business affect your guys’ partnership? Thanks.

Well, yes, we heard similar reports. I think one thing I can say is based on our conversation with Conti, we continue to believe this division that we are working with is – continue to be strategically important for both Ambarella and also Conti. And like I have said and with the close development that we continue to have, we didn’t see any signs of slowdown on the Conti side. So, we continue to believe this relationship is important and also the product that we are working on is continually important for both Ambarella and Conti.

[Operator Instructions] Our next question comes from the line Martin Yang of Oppenheimer & Company.

Hi. Thank you for taking my question. Just one question, can you maybe comment on the progress for customer design engagement regarding your CV72 products in automotive markets?

Yes. CV72 automotive product is designed for Chinese market because it’s not ASO, so that only Chinese – only applicable to the Chinese market. And also last time we talked about, we have multiple Tier 1 design wins, and also, at that time, the last time we talked about multiple – all of the Tier 1s are working on building a demo system to show to OEMs. In fact, one of our Tier 1, just yesterday, demoed live, the broadcast live demo driving a car based on CV72 ECU from the Shanghai Airport to the Downtown Shanghai autonomous driving. So, I think that we continue to make huge progress and we are ready to – in fact, we only start demo to OEMs. And also, like I have said before, I think CV72 position in a very favorable price performance for the middle end of Level 2+ solution in China. And we continue to believe that we have a competitive solution for that particular market. And we are working closely with the Tier 1 to talk to OEMs. Hopefully, we can announce some design wins soon.

Thank you, Fermi. A quick follow-up on the CV72 activity, can you maybe remind us on the expected timeframe of design win and shipments?

All the projects we are bidding on is production the end of 2025 and the revenue coming from 2026. So, the design win has to be maybe first half of next year and spending 18 months development cycle to get it done.

Got it. Thank you.

Thank you. I would now like to turn the conference back to Dr. Fermi Wang for closing remarks. Sir?

Thank you and thank you everybody for joining us today. And I am looking forward to talking to you soon. Thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect.