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.

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?

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…

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…

Thank you. [Operator Instructions] Now, first question coming from the line of Quinn Boulton from Needham. Your line is open.

Hey, this is Neil Young on for Quinn Boulton. Thank you for taking my questions. So you said you were seeing project delays from Tier 1s and OEMs, as well as volume reductions in planned projects, which you called out more of an inventory issue. How's that inventory improvement -- or I should say, is that inventory improvement progressing ahead of where you thought it would? And if so, are you starting to get the sense that these projects will resume soon? And then I had a follow-up.

So you are referring to what we said a quarter before?

Yes.

So I think in November, when we provide, I think early December, when we provide our final guidance for this year, I think we talk about there's a project got pushed out, and OEM Tier 1s, also some decision for a new project also got delayed. And also there's some inventory. I think what we are saying is still consistent with what we have said in December last year. I think there's no new updates. I don't think -- we haven't seen new development in terms of a further project got delayed or pushed out.

Okay. So on the auto side, regarding inventory, you aren't seeing any improvements?

We haven't seen any improvement, but we are not saying there's -- it's getting worse.

Okay. Thanks. And then for my follow-up. So in the past, you talked about how the first CV3 revenue would come from China. I believe in your opening remarks, I heard you say you're engaged in discussion with multiple Tier 1s and already have multiple design wins on the way. If that's the case, when do you think you'll see first revenue from those wins? And then maybe just an update on the demand environment in China.

Right. So for CV70 to 8Q, we expected that the first revenue from those design wins would be in calendar year 2026. We have talked about this in a previous call. And basically, that was a low end CV70 to 8Q is basically the low end of CV3 family and addressing first level of Level 2+, for example, for the ADAS plus smart parking. So that's the no market in China, and we're working on. We already have design with Tier 1 and working with OEM design wins right now. But I think for the market development point of view, I think China continues to be one of the focus areas that we are in because I think that -- I think everybody sees the EV development in China and we believe autonomous driving also will happen in China faster than other areas. So that's definitely we believe we can monetize our CV3 technology in China faster than any other areas.

Thank you. And our next question coming from the line of Christopher Rolland with Susquehanna. Your line is open.

Hi, thanks for the question. Just about your N1 product, maybe any more thoughts on how large this could be for you guys? Have you considered or has anyone talked about combining multiple chips into a server or appliance? And then lastly, does this meet the Chinese compute restrictions for import as well? Thanks.

Right. So first of all, in terms of N1, we definitely believe that -- first of all, technically we can put multiple chips together and to serve a high-end solution. But so far, we believe a single chip solution at the edge will meet demands for a lot of our current customers, maybe even new customers. But I do see a point if you want to go to the edge server side that with multiple chips will provide a better solution. Definitely that's the direction we are looking at. And the current solution that, for example, we demo with our partners building PCIe card today is a single chip solution, but it can be multiple chips in the future. In terms of the American regulation, I think N1, because our architecture, although we can provide high performance at very low power consumption. But our total tops, top number as well as the bandwidth, is much lower than our competition. And that's our strength, our architecture, that we can use a smaller top number and lower bandwidth to achieve similar or higher performance.

Great. Thank you for your comments.

Chris, in terms of the market size, we've had many discussions at CES and afterwards with customers on our Gen AI and LLM products. And we see really good feedback about what these products can do. And many customers, we found out, just were not aware that Gen AI models like Lava could run so efficiently on a sub 50-watt SoC. And so this has triggered a lot of discussions with our customers and how they're going to use the product. And we're going to wait to put some market sizing figures out until we're a little bit farther down that process. But the feedback's really good, especially doing this on a sub 50-watt SoC.

Great. Do you have a follow up, Chris?

Yeah. Maybe around the kind of edge AI and camera opportunity. Maybe if you could describe that. I mean, there's so much focus on auto. But Next Gen, like security cameras with all this AI functionality, what are growth rates for that market? Do you have now visibility into a funnel to kind of refresh that and to revigorate that market? And what kind of growth could we be talking for kind of that edge market as well with your products? Thanks.

Well, for our SAM, we haven't updated it for Gen AI, kind of like the prior discussion, so we're still sizing that up. But the prior SAM CAGR, if you will, that we talked about was in the low teens range, thinking of a five-year SAM CAGR for that market. But that does not include the Gen AI products. And we're going to take a little bit longer to put those numbers in. In terms of kind of the insight into building momentum in this market and any sort of funnel, I'll pass that off to Fermi.

Yes. In fact, although we talk a lot about auto because that's a huge opportunity, but we never underestimate the importance of security camera market for us. This is really a big portion of our revenue. And we continue to believe that the edge AI application for security cameras is important for us. And we continue to develop new platform. For example, we announced the CV72 and we'll announce new chips for this market in the near future. So, I think we believe that the AI performance demand in security camera will continue to grow. And we want to continue to be the player and the dominant player on the mainstream high-end product line.

Thank you. And our next question coming from the line of Matt Ramsey with TD Cowen. Your line is open.

Good afternoon, guys. Thank you. I guess, Fermi, I wanted to follow up with you on some of the initial feedback on the N1 from an inference perspective. And I guess it's not a surprise to me, given that the engineering and architecture team is getting good feedback on low power inference. I guess my question is, as you get that good feedback and you're interacting with customers that can potentially ramp this product over time, given where the P&L is for you guys right now during the correction, what's the business model over the next 12 month to 18 months to start to really build a business around this and get something that could ramp at scale, given the software investments that you need, etcetera? Are customers willing and are you willing to do sort of NRE payment arrangements? Are people willing to invest alongside you on software? I'm just trying to figure out. I can see big potential here, but there's also some limitations on capital, given where the business is. And I'm trying to understand what the discussions are to get you from point A to point B if this is going to be a big product.

Right. So I think you make a good point. I think for the N1 development, it's going to be significant for us. But that's why we are open for any kind of business model, including from partnership to NRE numbers. I think with N1, we only can address some of the cost, particularly our existing customer demand. And also on the software, in fact, we can demo and show you that our investment on the software and tools and the silicon can be leveraged for our first-generation chip. So from that point of view, I think the majority of our investment for N1 is done. So the real question is what's our roadmap moving forward? And for example, if we look at the Cooper development, although we define Cooper for other purposes, but definitely directly apply to our N1 development. So let's talk about for our LLM or Gen AI roadmap. I think that's where the difficulty is, right? I think it's from the PR point of view, if we want to do this, we need to continue to invest in R&D for new chips and maybe even new software. So from that point of view, I agree with you that we have to look at all the possible scenarios, including a partnership as well as NDA. So some of the NRE payment for us to pay for the current cost. But I think based on the feedback, it's become very clear that LLM is not only for the data center. LLM will penetrate to the H device and our current existing customer and future customer all want LLM as a part of the roadmap. So I think that we need to be flexible to develop a roadmap for our customer and we have to figure that out sometime this year.

Thank you for all the thoughts there for me. I guess this is my follow up question where the revenue levels are right now, you guys have been consistent the last couple of quarters that you're working with the customer base to burn through inventory that they had built. And you're clearly under shipping and sell through by a pretty significant margin to do that. So, I mean, I asked this last quarter and maybe it was too early to ask, but now that we've had three more months, do you have a field now as to what the steady straight sell through revenue level of the business is currently just with the designs you've won, particularly in the security camera businesses. What sell through and what the market size right now after we've gone way up and then way down on the inventory correction, what's kind of the steady state sell through that you're under shipping to burn through inventory? You have an estimate for that, thanks.

Yes, so we are trying very hard to understand numbers. So let me give you my thoughts. I think, when I look at the number that at peak we shipped probably 92 million a quarter, at the bottom we ship roughly 50 million. And when we look at all of the statistics and the numbers that the model we built, we feel the midpoint of that two number is probably the comfortable level for us. And we are definitely working hard to go to that to reach that level. So I think roughly in the $70 million range is probably the number we are shooting for when everything get equal, equalized.

Thank you. And our next question coming from the line of Tore Svanberg with Stifel. Your line is open.

Yes, thank you. My first question for me, so you talked about fiscal 2025 you expect to see growth in both auto and IoT. I was just hoping you could give us a little bit more sort of the puts and takes and how you think the year to progress. Obviously, there's still probably some lingering inventory, especially on the auto side. But yes, any more color you can give us as far as the growth you're expecting in both segments this year?

You are talking about CV5 or overall?

No, I'm talking about your -- you mentioned you expect both segments to grow this year. So if you could just give us a little more sort of the dynamic.

Right. So I think for the -- let's talk about IoT first. I think for IoT, it's pretty clear that with the CV2 product line that we've been growing CV revenue from close to 60% last year. And we believe that the momentum of CV2 family will continue, particularly after the inventory problem is behind us. So I think at that point, I think CV2 family will drive the growth for us. But more importantly, I think in our script, we talk about CV5, what's our ramping. Last year, we did half a million units, and this year, we're probably going to double it. And that will also, if you consider ASP, that could be meaningful growth for us. So I think that's square on the IoT side. On automotive side, I definitely think that, first of all, we’ll continue to announce the CV2 design win in ADAS, in the OMS, CMS, on the electronic mirror, and the recorders. Those continue to be a big portion of our revenue, but also we are announcing some partnership with CV3 early customer that we have started delivering samples and also partnership with NREs. That will definitely play a role in our automotive revenues in there. So I think overall, although that automotive market continues to be weak based on the feedback from the market, but I still believe that we are a small player in the automotive space and we are trying to be a big one throughout the process. Because we're looking at more along the line, our growth with the current design wins. So I think that's how we feel comfortable that automotive will also have growth this year.

Yes, Tore, from a product point of view in fiscal 25, our AI inference products, it's almost all CV2, will be more than 100% of our growth. That means the video processor business will, which was down substantially, as John mentioned, in fiscal 2024, it dropped about $80 million. That rate of decline in video processors will begin to really taper off in fiscal 2025. Did you have a follow-up, Tore?

Yes, that was very helpful. As my follow-up, I was pretty impressed with the new Cooper development platform when I saw your samples at CES. And I was just wondering how that development platform is helping you secure more business activity? Because it does seem like it was an important piece of the pie that was missing, but obviously now that you have it readily available.

In fact, all our existing customers are eager to get their hands on Cooper. Tells me a lot about how much they like this development because now it's become very easy for them to port software to different umbrella platforms, different silicon means. And also it's easy to transfer the software and the functional AI algorithm from chip to chip. So this whole development is important not only for us, but also for our customers. And I think for the existing customer, that will make their development work even more comfortable and faster. So it will help us to keep those customers, but also for the new customer, even in the LLM part, I think that we can provide an environment for customers to quickly convert their software algorithm to run on our chip. It's important for our designers.

Thank you. And our next question coming from the line of Ross Seymore with Deutsche Bank. Your line is open.

Hi guys. Thanks for -- asking the question. When I think about the ASPs that you mentioned, going from CV2 to CV5 or even backwards looking to the CV2 itself, can you just walk us through again, kind of orders of magnitude or pricing ranges, how much for ASPs a tailwind in calendar year 2024 and what do you expect them to be in calendar 2025?

Right. So first of all, right. So for CV2 family, I think we talk about the price can be anywhere from the high single digit to the probably $30 range. And that's the average ASP probably high teens. That's a CV2 family. And CV5, we're talking about anywhere from the low 30s to high 40s in that range. And that's, and with our run rate, we think that we can maintain very healthy, not only ASP but also cost margin in that product line. Then CV5, in fact we have CV72 that we mentioned. The price range is similar to CV5, but for AIoT, it's a different part of the line. So I think, and then we talk about CV3, the ASPs anywhere from the $40 to $400 from CV72 to a CV3, 685. So that just gives you an idea of ASP changes.

Great. Thanks for that detail for me. And then I guess you talked about the year and growing in both sides of the business. Obviously we have the first quarter guidance and talked about a little bit of the trajectory in a prior question on both your two sides of your business. But if we think about the kind of the second half versus the first half, it seems like you need some relatively sizable sequential increases on a percentage basis to get to that sort of number. Do you think you will be well within those kind of those average of roughly 70 million true sell through numbers? And if so, is that kind of a second half dynamic? And I guess, is that more just about shipping to demand? So the inventory headwinds debate, or is it about new products ramping?

Right. First of all, we didn't guide any quarter to be 70 million in our guidance. We talk about, we believe that we're going to have growth this year and also believe that our Q1 guidance. But overall, I think when I look at the number that Street's predicting, I think it's reasonable. And also that based on what we have seen with our customer demands and as well as our booking, I feel comfortable with the current Q1, Q2 guidance. Of course, Q3, Q4, we haven't seen enough booking, but however the momentum is there. So I think I'm comfortable that we're going to grow. But in terms of our quarter-to-quarter growth, we haven't provided any guidance on that yet.

Yes, and Ross, just to follow up on the ASP question, our ASP in fiscal 2024 grew about 15% year-over-year. And looking into the next year, it really depends on the mix of video processor versus CV, but even within the CV2 family, the ratio of CV5s to some of the lower end CV2s, then of course we won't have CV3 revenue contributing in fiscal 2025. So should be some increase, but it's just hard to say how much now. Lydia, we can move on to the next question.

Certainly. And our next question coming from the line out, Kevin Cassidy with Rosenblatt Securities. Your line is open.

Yes, thanks for taking my question and congratulations on the strong results. Just on your N1, as you're talking to customers about it, what is the competitive landscape What are some of the alternative designs that they're looking at? And is the GPU still being considered even as an edge processor?

Well, some low-end GPU being considered, but as an edge processor, you really need an SoC with very low power consumption. And with that, GPU is much less considered. But however, I do believe that Qualcomm definitely have an ambition to come to this market. And when we compare to them, just like when we compare to them in the automotive space, I think we can deliver higher performance at low power consumption. That's consistent to be the case. So I do believe we are looking at very similar competitors like our automotive market.

Great. Thanks. And it seems to me you're getting a lot of leverage out of the 5-nanometer process. You've got lots of parts, price performance ranges with this 5-nanometer. Is there anything in your roadmap looking to go below 5-nanometer now?

Yes, we have to. I think there's no chance we'll stay at 5-nanometer for long. But however, I think it's really driven by two things. One is whether we can justify the cost and also whether the performance requirement. But I definitely believe that you'll start hearing us talk about next generation of process selections in the near future.

Thank you. [Operator Instructions] And our next question coming from Joe Moore with Morgan Stanley. Your line is open.

Great. Thank you. Fermi, you had alluded to some OEM wins for CV5 that start to ramp in the second half of the year. Can you talk about what applications you're addressing there?

It's an EV truck in western space. And we definitely have been working on this case for several years. And the customer doesn't allow us to talk about it just yet. But I think that since they are close to announce their product, and I feel that we should, we feel comfortable to share with this news, but not to mention the customer names.

Great. Thank you for that. And then I guess as far as the N1 product goes, you guys have kind of always shied away from doing anything in a phone because you don't want to become a feature in a chipset. But obviously a lot of the potential large language model inference could be in devices like phones. So can you just talk about are there opportunities around that to do co-processors or where do you kind of draw the line at your participation?

Since both Qualcomm and MediaTek are very eager to come in to introducing products in the phone space for LLM, I feel that our opportunity is limited. Because my idea is that even LLM on the phone, because you have 5G connectivity, you might be able to use some LLM at edge but still leverage the 5G so you can connect to the cloud to run most of the LLM functions on the server side. So with that, cell phone become a limited opportunity for us, not only because Qualcomm MediaTek has an advantage in terms of a market share there, but also the usage model is really not purely age, it's a combination of age and the cloud. So my feeling is we are going to look at pure age devices that focusing on the battery sensitive and also the latency sensitive applications just like what we had before.

Great, thank you very much.

Thank you.

Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Dr. Fermi Wang for any closing remarks.

And I want to thank all of you for joining us today. I'm looking forward to talk to you in a different conference. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.