Hello, everyone, and welcome to Ambarella's First Quarter Fiscal Year 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note this event is being recorded. Now it's my pleasure to turn the call over to the Vice President of Corporate Development, Louis Gerhardy. The floor is yours.

Good afternoon, and thank you for joining our first quarter fiscal year 2026 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 first quarter of fiscal year 2026. 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 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 file with the SEC. Before starting the call, I'd like to summarize our investor events scheduled for our second fiscal quarter. On June 3, we'll be participating in Bank of America's Technology Conference in San Francisco. On June 17, we'll host Redburn Atlantic's West Coast Bus Tour in Santa Clara. On June 18, we'll host Trivariate Research and NH Investment Securities Bus Tour in Santa Clara. In June, we'll be visiting Baltimore, Boston, and New York City on a non-deal roadshow. Access to our first quarter fiscal year 2026 results press release, transcripts, historical results, and SEC filings, as well as 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, then we'll be available for your questions. Fermi?

Thank you, Louis, and good afternoon. Thank you for joining us for our call today. We had an excellent start to the year with the first quarter revenue of $85.9 million, in the upper half of our guidance due to the continued strength in our AI business. Both our five-nanometer CV5 and CV7 product family, as well as our 10-nanometer CV2 product families, contributed to the revenue growth and our average selling price. Continue to increase as we capture more value per design win. AGI revenue, which we define as a product that integrates one of our proprietary deep learning AI accelerators, was more than 75% of our Q1 revenue. And this represents the fourth consecutive quarter of record AI revenue. This achievement demonstrates the execution of our AI strategy in the face of a volatile market. During the first quarter, IoT applications increased mid-single digit sequentially and now represent about three-quarters of our total revenue. With our automotive business declined low single digit sequentially, although automotive revenue was up more than 20% on a year-over-year basis. In our February 26 earning call, we provided a fiscal 2026 revenue growth estimate in the mid to high teens or approximately $327 million to $339 million. With some conservative building to our second half outlook due to the geopolitical uncertainty. Although the geopolitical uncertainty remains high, we are increasing our fiscal 2026 revenue growth estimate to the range of 19% to 25% or approximately $348 million at the midpoint. While we continue to expect that we will not face a material direct impact from the current tariffs, given the uncertainty of an indirect impact, our larger than normal range of guidance reflects our conservative. We are confident in the long-term drivers of our AI strategy and the business remain fully impact. Multiple…

I'll now review the financial highlights for the first quarter fiscal year 2026, ending April 30, 2025. I will also provide a financial outlook for our second quarter of fiscal year 2026 ending July 31, 2025. 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. Non-GAAP reporting, we have eliminated stock-based compensation expense along with acquisition-related costs, adjusted for the impact of taxes. For fiscal Q1, revenue was $85.9 million above the midpoint of our prior guidance range up 2.2% from the prior quarter and up 57.6% year over year. Sequentially, automotive revenue declined in the low single and IoT increased in the mid-single digits. Non-GAAP gross margin for fiscal Q1 was 62%, slightly above the midpoint of our prior guidance range due to a favorable product mix. Non-GAAP operating expense in Q1 was $51.8 million slightly above the midpoint of our prior guidance range of $50 million to $53 million due in part to higher engineering costs on new and existing chip development projects. Q1 net interest and other income was $2.2 million comparing to our prior guidance of $1.8 million. The increase was primarily from higher other income. Q1 non-GAAP tax provision was approximately $600,000. We reported a non-GAAP net profit of $3 million or $0.07 of earnings per diluted share in Q1. Now I will turn to our balance sheet and cash flow. Fiscal Q1 cash and marketable securities reached $259.4 million increasing $9.1 million from the prior quarter and $56 million from the same quarter a year ago. Increased cash and marketable securities benefited primarily from working capital improvements associated with increased revenue during the quarter. Receivables days sales outstanding decreased from thirty-three days in the prior quarter to thirty-one days,…

Thank you so much. And as a reminder, that is 11 if you do have a question, and wait for your name to be announced. To remove yourself, press 11 again. One moment for our first question. It comes from the line of Christopher Rolland with Susquehanna. Please proceed.

Hey, guys. Congrats on the quarter and thanks for the question. To get to your full-year guide, I just wanna make sure I get the moving parts right. It seems like we are taking up our numbers in the first half. But just looking at the sequential growth profile, it looks at least versus prior that the back half the sequentials reduced versus our prior. And so I was just wondering, you know, has the growth profile actually changed? Is this related to the tariff, kind of pull in that you commented on last quarter. So are we taking from the first half, but taking from the second? Just what are the kind of moving parts in the growth profile for the year?

First of all, I don't think we're having concerns. At least our current annual guidance doesn't have any concerns about second-half strength. While we if you look at it, we extend guidance range. If you look at the high end of the guidance range, we have a regular seasonality and showing a strong second-half growth. So it's really about you know, there's uncertainty about with the current geopolitical situation. I want to build in some uncertainty in there. So I think we are still high confidence about our second-half growth. And with our visibility in Q3 and we're building up visibility in Q4. I think that I don't believe what's giving any signal that we have a weak second half.

Yeah. Chris, going into this this is Louis. Going into this call, you know, I think the consensus was about 51% in the first half 49% in the second half. And at the midpoint, I don't think those, you know, percents change much but the dollar figures, I think, in every quarter would probably be going up a bit. So it's another way to think about it. You know, I'd point out also that if you're in the upper half of our guidance range, you'd probably end up seasonality pretty close to normal. So it's really your call. We're just saying it's an uncertain environment. It could happen and play out a lot of different ways.

Fair enough. Thank you very much for that, Louis. I know you don't guide a few quarters ahead. But would you expect October to be up seasonally? I know January is typically down. But is there any reason to think that October should be up overall?

I think we can help you with the shape, but, you know, as far as you said, not the absolute numbers. And I think, reasonable to think that that would be, you know, a positive sequential number. And it's probably reasonable to expect you know, Q4 to be down sequentially. That's what we can answer at this stage to shape it, you know, not much more precision than that.

That's very helpful. Thank you so much, guys, and congrats.

Thank you. Our next question is from Tore Svanberg with Stifel. Please proceed.

Yes. Thank you and congratulations on the results. Fermi, you talked about edge infrastructure, and I'm sure this is something that you're gonna continue to elaborate on. But could you just explain a little bit, you know, what you mean by that? We're not talking about, you know, big AI clusters here. So yeah. If you could just add some color on what exactly you mean by introducing new products for edge infrastructure.

Right. So I think, you know, if you look at the how the device being distributed on the top is really a data center and cloud. On the bottom is really edge endpoints, which is where we are having serving our customer. But now become it's become clear with so many different of the various AI models happening and that you just cannot upgrade to the endpoints faster enough. Right? Of course, that our customer continue to the endpoints with new products or new cameras that we can run efficient events AI models. But to upgrade the existing base, you can imagine that there's a you want to integrate multiple endpoints that already in the install base and using a server or AI box that can integrate all of those endpoints, video input run the best model on that box. Right? So that can that'd in the easiest way to upgrade the installation. Right? I think that become a trend. It become obvious. And among other things, this is just one early trend that we're seeing, and we believe that has momentum on that. And in the future, there will be many other you know, on-prem servers each servers that walk a user solution to.

Yeah. That's great color. And as my follow-up, you know, I know your segment revenue is in IoT versus auto, but it sounds like non-camera IoT is really starting to proliferate here with, you know, IoT, industrial enterprise wearables, so on and so forth. Is that business sort of approaching 10% of revenue? And, you know, will you potentially eventually split that out, you know, so that you don't sort of have investors focus on the security camera part of the revenue?

Couple things there, Tore. It's Louis. You know, most of our revenue today you know, the data is getting ingested by our AI accelerator through the lens of a camera. So know, that hasn't changed, although we have said it's likely that that becomes an incremental opportunity for us in the future, especially as we go into the edge infrastructure. But, you know, Fermi made a comment in his scripts, you know, about security as an end market for us. And, you that's less than half of our revenue now. So now we're seeing know, very good growth. As you know, auto is, you know, around 25% of our revenue. And then in other IoT markets, we're starting to see solid growth there and adoption of AI in a wide variety of markets. So everything is still ingesting data through the lens of the camera, but that probably changes in the future. And securities you know, ground zero for us because that's where AI at the edge started. You know, we led that market, and now we're leveraging that expertise and applying it to a lot of additional vertical applications.

That's a great perspective. Congrats again. Thank you.

Our next question comes from Kevin Cassidy with Rosenblatt Securities. Please proceed.

Yes. Thanks for taking my questions, and I'll also congratulate you on great results. But, yeah, speaking of those results, would you think with the strong product cycle that you're in is could there be a change in your seasonality? Maybe as the human interface devices become less relevant in your revenue?

Yeah. You are asking about our CV products versus human viewing products? Just a question with regard to whether our seasonality might not be as much of an impact. Right. So I think for this year, I think with so many uncertainties on geopolitical situation, that seasonality is definitely a question mark for us. Although we are not saying there's no regular seasonality, we'll just say that we provide a much higher a much broader range for the annual guidance to indicate there's uncertainty on the second half. But I think there's definitely a scenario that normal seasonality can happen.

I see. And you've peaked our interest mentioning these new edge devices and, you know, in the these are all your transformer-based SOC Transformer based. Go ahead.

Think the question was correct me if I'm wrong. Kevin. It was a little bit hard to hear you. On the edge infrastructure. Is do we expect that market to leverage our third-generation AI accelerator to a high degree? And the answer is yes. Yes. Obviously, because right now, the first already announced N1655 this year for that particular market. But we also understand the need for the customers who are gonna build another chip for the family of the product so we can deliver a full complete roadmap for the customer. All the chip we're talking about today is still leveraging our third-generation CVflow architecture and the software to minimize our investment, but at the same time, provide a very competitive solution to in the market. And more importantly, I think as you know that third-generation architecture can redo all of the advanced AI models based on transformers.

Okay. Great. Exciting products. Looking forward to hearing.

Thank you. One moment for our next question. And it's from the line of Joe Moore with Morgan Stanley. Please proceed.

Great. Thank you. Thanks for the update and the good numbers. As you talk about these kind of Edge AI focus, I guess is this a shift in focus for you guys? And I guess, how are you thinking about the sort of more the CV3 types of larger automotive ADAS opportunities? You know, are you moving resources maybe away from those things towards these other initiatives? Or are those initiatives still something that you're, you know, enthused about?

Oh, auto is continue to be a focus. But I think, you know, with the our current approach for auto is we only build a complete CV3 automotive series, as you know, that we have a 685, 655, and the 635. That's the company lineup for the account driving software. And also, we're continue to invest on our software side both for the this lab a time driving software stack, and the ultralight radar software software stack. So that doesn't change. However, you know, with the we finalize OECV3 family for the automotive roadmap we definitely have resources that we're going to put on the edge infrastructure. And, also, we talk about we add another another project, which is not in our annual plan, but we think we saw our revenue growth. We have a chance build another silicon for edge infrastructure, which you are doing. So we have definitely add a little bit more take allow you to improve our strength in this edge infrastructure business.

Okay. Thank you. That's helpful. And then I guess, you know, I know you don't like talking about this sort of more futuristic humanoid robots and things like that, but you know, there's obviously a lot of kind of upfront investment in kind of paving the way to those types of markets, and you have technology that should be important. So just how do you kinda frame that? Is that is that an opportunity that you're willing to invest resources into?

Yes. In fact, we are investing the resource. Let me maybe go a little bit deeper than before. The way we look at robotic patient today we look at we view that market very similar to autonomous driving five years ago. What that means is that most of our customer instead trying to most find the most efficient solution, they are still trying to piece different pieces of the solution together to build a prototype. Because the size of the market for each customer is still small. So we are starting people trying to using one box for the video perception, the other box for radar perception, and using a CPU to integrate them together. So this really reminds me five years ago of the first generation of level two car coming out is a similar architecture. And we are back in that stage right now, and we already have solution like CV5, CV7 to provide per a video perception and the RADAR perception for those kind of solution. But, however, we also believe just like auto autonomous driving car, moving forward for the high volume robotic application, you need a domain controller and you need an end-to-end AI software to try with this application. So we're gonna we're gonna definitely use our CV3 solution to compute drive this application. But everything we're doing for this AI infrastructure, you can imagine that that also can help the robotic solution. But more importantly, if that's talking about silicon and sulfur, But really go to market, you're gonna start seeing maybe in the next quarter, we're just gonna start telling introduce an idea how we're going to change our go to market because we realize that you know, in the past, focus on addressing large customers. Now we saw oh, there's a robotic application. The customer is the market is very segmented. Most of customer has small volume, so we need to find a different approach, go to market approach to address this need. And we will probably definitely start talking about that approach next quarter.

Hey, Joe. It's Louis. Just to wrap some part numbers around that. So for the coprocessing, know, like, say, the perception, that would be parts like CV5 or CV7. And then, of course, the central brain, the domain controller for me was referring to would be, like, the end family of products.

Great. Thank you so much.

Thank you. One moment for our next question. And it's from Suji Desilva with ROTH Capital. Please proceed.

Hi, Fermi. John Lewis. Congrats on the progress here. Maybe you can help me frame this Edge AI server opportunities. Is there a way to think about the size of that relative to maybe the end devices, some ratio, or some way to think about the content of these servers relative to the device content? Any way to frame it so we can think about how it's gonna grow in your revenue?

Right. So maybe let me help you to the number I that I I'm thinking about. Know, if you look at the aggregate, the current camera space, that's using security camera as a as a example. They are roughly 1.2 billion installed base camera, which you need to be upgraded. Either upgrade by a new camera with advanced AI technology or upgrade with info the as called edge infrastructure box. And those kind of box usually integrate, I will say, a sixteen thirty-two different cameras into a box. And the content for that box was is three digits and the low three digits. So that I hope that give you an idea of how we look at this market opportunity.

One thing I'd tack on there also is that, you know, having AI in the endpoint or in the edge infrastructure is not like a mutually exclusive thing. You can you can have AI in the endpoint along with the edge infrastructure servers.

No. That's great. Understood. And then my other question, around the edge infrastructure market as you're going into this, how does the competitive landscape maybe shift and some perspective there? Versus things like FPGAs, GPU CPUs that already target that market? Do you think about the competitive landscape differently, or is it similar? Thanks.

So in that market, a very new market, you know, when you're looking at the near edge and the far edge of the market. And so the SAM numbers, like, we're using are fairly small. So you do have some general-purpose type processors used in these applications, you know, whether it's FPGAs or, of course, GPUs. We approach this market with, you know, much more efficient solution when you measure it in terms of, like, performance per watt and consider thermal impacts on the total system cost. And so kind of the same advantages that we've talked about in other markets we'll be applying to this edge market, initially, say, the near edge, And your first question, you mentioned, you know, AI servers. You know, that's probably gonna be part of it too, but maybe initially, you'll hear about the progress in some of the near edge markets first.

Yep.

Okay. In particular, those that use use cameras.

Got it. Thanks, guys.

Thank you. Our next question comes from Quinn Bolton with Needham and Company. Please proceed.

Hey, guys. It's Shadi on for Quinn. For letting me ask a question. My first question is on some of the conversations you have had in regards to your customer supply chain. I know last quarter, you mentioned customers evaluating their own supply chains. Which has caused uncertainty in the back half of this year. So just curious on how these conversations have progressed.

Talking to our customer about about our supply situation. So we continue to have the conversation. You know, one of the worry last time we talked about is whether we are our customer building up inventories. I think that we continue to have that conversation with customers. I all all of them told us that they are they are not building inventory. In fact, they are watching the situation and that now they're really eager to build any inventory at this point. So from that point of view, I think we feel comfortable with that. However, there's still always a geopolitical situation every day as we we know things can change. So that we we cannot speak for what we don't know in the next in the second half. So that's where our uncertainty is.

Got it. And my follow-up is on gross margin. Sounds like some of your new CV chips have been tailwinds to ASP. However, gross margin is expected to decline next quarter. So I was just curious on what is driving the decline?

Yeah. So and I mean, from any quarter to quarter, it's really a combination of customers and product mix. That that is the primary driver of of, you know, how that corporate gross margin rolls up. And so ordering patterns of different customers and and know, their contribution that's really the I guess, could say the primary driver for any one quarter's gross margin guide.

Got it. Thank you.

Thank you. Our next question comes from Gus Richard with Northland Capital Markets. Please proceed.

Yes. Thanks for letting me ask a couple of questions. You know, the video management systems that the 32 cameras or 16 whatever are attached to, those are coming out with with, obviously, AI capabilities and the camera has AI capabilities. And I've wondering if you could help me understand how that AI split happens and, you know, why you need it in both places.

Right. So the quick answer to that is know, with in-store base, you just cannot replace all the install base camera faster now with the advanced AI cameras. So, you know, to enable install base with advanced AI models, you this box this kind of box is required and probably easiest way to upgrade. So that's just a first answer. The second answer is with a lot of different AI improvement, every month or every quarter. I can imagine that in the future, you're continue to see more and more advanced model coming up. The camera can run portion of it, but every time there's a this camera comes out, it's easier to upgrade the service with with a box approach. So think the combination of this two really drive this the upgrade cycle.

Hey, Gus. It's Louis. Just to add some comments John kinda touched on it earlier, but you could have know, CV2 based cameras in the field doing detection and classification with CNN networks. And then you could provide an incremental layer of service with one of our GenAI chips that could accommodate much larger parameter models. On the infrastructure infrastructure side, the point of aggregation. And so, you know, maybe that's one example of how it would be architected.

Got it. And then just thinking about the market, at this point, China is not part of your market. And I was just wondering if you could you know, comment on how big the not China market is for security cameras and sort of what you see your market share is currently?

You know, when we talk about our seven, 10 numbers, we don't include China number anymore in any security card market. So that's we are at. And in terms of market share, outside China, I would say we definitely have a majority of the market share for the security camera in the middle mid and high end. On the low end side, there are plenty of Chinese and Taiwanese supplier trying to compete with the low end with 2 to $3 chip, which we don't compete there. So if you look at the if you separate the line with the mainstream high end to the low to the low end, On the on the top, we are we are probably the majority leader and the on the bottom, know, just watch as one of the players.

Got it. Thanks. That's helpful.

Thank you. And as a reminder, to our teleaudience, if you do have a question, simply press star 11 to get in the queue. Okay. We have a question from the line of Martin Young with Oppenheimer. Please proceed.

Hi. Thank you for taking my question. First question is, on the Edge AI infrastructure product. Is the second chip something new, meaning that you are pulling forward the development React to end market demand or something you have long planned in the in the roadmap?

It's a first case. In fact, I've we talked to so many customers and what they need, we realized that you know, a one six five five is great for the first product. But we do need to have a second chain to come to keep competitive. And so I think that second chip but, however, the second chip is leveraging our current CV3 our third-generation CV4 architecture and software. So the development is going to be fast. And also, the cost will be we think or can be easily controlled. But the add value is really helping customer have a better performance per watt and higher, higher, performance in a in a sense silicon.

Got it. And then in this quarter, accounts payable trends a little higher than normal. Is that associated with this new chip development?

Not specifically, Martin. No. It I think you know, as we started to to grow the the Q2 top line guide it's really more a function of of building the inventory for to support the the demand. That we're seeing. And so the corresponding with that is the accounts payable associated with it.

Got it. Thank you. That's it for me.

Thank you so much. And ladies and gentlemen, this concludes the Q&A session. I will pass it back for final remarks.

And thank you all for joining us today, and I'm looking forward to talk to you next time. Bye.

Thank you. And this concludes our program. Thank you for participating, and you may now disconnect.