Good day, and thank you for standing by. Welcome to Ambarella's Third Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will open up the call for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's call is being recorded. I would now like to hand the call over to your speaker, Luisa Hardy, Vice President, Corporate Development. Please go ahead.

Thank you, Victor. Good afternoon, and thank you for joining our third 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 third quarter fiscal year 2026. The discussions 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 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 risks that could affect our financial results, are more fully described in the documents we file with the SEC. Before starting the call, we hope to see you at one of the following investor events that we have scheduled during the fourth quarter. In December, we will be at the UBS Global Technology and AI Conference in Scottsdale, and in December at Nasdaq's London Conference. On January 6, from 4 to 5:30 PM at our CES location, we will be hosting a technology and product briefing. In January, we will be hosting more than a dozen sell-side analysts tours of our CES demonstrations, again at our CES location in Las Vegas. On January 17, at the Needham Conference in New York. Access to our third quarter fiscal year 2026 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 then we will be available for your questions. Fermi?

Thank you, Luisa. Good afternoon, and thank you for joining our call today. Before we proceed, I want to let you know that last call, our co-founder and CTO, will be stepping down from the board of directors to become our chief technology adviser. He will continue to oversee our technology direction and development but without management responsibilities, and with user time commitments. Les and I have worked closely since 1994 across four companies. I am grateful that Les will continue as my close partner for over thirty-one years and beyond. He is truly the best I could wish for. I am happy he will have more time to pursue his passions, but I will definitely miss our daily conversations on various topics. Turning to our fiscal third quarter, we are reporting another strong quarter with both revenue and non-GAAP EPS exceeding expectations. We achieved record quarterly revenue of $108.5 million, slightly above the high end of our guidance range. Edge AI, which we define as a product that integrates one of our proprietary deep learning AI accelerators, was about 80% of our total revenue, representing our sixth consecutive quarter of record Edge AI revenue. We have increased our fiscal 2026 revenue guidance, which projects an all-time fiscal year total revenue record for Ambarella. With the strength in our average selling price and the breadth of demand, we are raising our fiscal 2026 revenue growth guidance to a range of 36% to 38%, or approximately $390 million at midpoint. This compares with our prior estimate provided on August 28 for 31% to 35% year-over-year growth, or approximately $379 million at midpoint. These results are very encouraging, but I am even more excited about the Edge AI activity ahead of us. There are three key factors behind our enthusiasm and our…

Thanks, Fermi. I'll now review the financial highlights for the 2026 ending October 31, 2025. I will also provide a financial outlook for our 2026 ending January 31, 2026. 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 and acquisition-related expenses adjusted for the impact of taxes. For fiscal Q3, revenue was $108.5 million, above the high end of our guidance range of $100 to $108 million, up 13.5% from the prior quarter and up 31.2% year-over-year. Sequentially, automotive revenue increased in the low single digits, and IoT increased in the mid-teens, with IoT growth led by the adoption of Edge AI in enterprise security and portable video applications. Non-GAAP gross margin for fiscal Q3 was 60.9%, slightly above the midpoint of our prior guidance range of 60% to 61.5%. Due to product mix, non-GAAP operating expense in Q3 was $55.3 million, slightly below the midpoint of our prior guidance range of $54 million to $57 million. Q3 net interest and other income was $2.1 million. Q3 non-GAAP tax provision was $900,000. We reported a non-GAAP net profit of $11.9 million or $0.27 per diluted share in Q3. Now I will turn to our balance sheet and cash flow. Fiscal Q3 cash and marketable securities reached $295.3 million, increasing $34.1 million from the prior quarter and $68.8 million from the same quarter a year ago. Increased cash and marketable securities primarily from operating cash flow associated with increased revenue. Receivables days sales outstanding decreased from forty-one days in the prior quarter to thirty-six days. And days of inventory decreased from eighty-five to seventy-six days. Operating cash inflow was $34.3 million for the quarter. Capital expenditures for tangible and…

Thank you. And at this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Limit yourself to one question and one follow-up in the interest of time. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Tore Svanberg from Stifel. Your line is open.

Yes. Thank you, and congrats on another record quarter. As my first question, when we think about that, let's call it, 36% to 38% growth for fiscal 2026, how much of that is unit versus ASP because, you know, obviously, you know, Edge AI now is becoming a pretty high percentage, but even within Edge AI, obviously, you have ASP increases. So just trying to understand how much of the growth has been driven by ASP versus units.

Right. So I think both of them contribute to our growth. I will say I don't have the exact number. If I have to guess, it's probably half and half. I think our unit growth definitely continues to contribute from the Edge AI side. But ASP growth is also significant, as we talked about in the script. So I think that both of them contribute to our end results.

Yeah. Thank you, Fermi. That's very helpful. And as my follow-up, you talked about the portable video market. Could you just add some more color there? I mean, it sounds like you have some new design wins. These are obviously AI-based drones. But, just you know, I know you've been in that market for a while, and, obviously, that market sort of faded. And now it seems to be coming back. So how should we just think about that market driving growth for Ambarella going forward? Thank you.

Right. You talked about portable and multiple different product lines there. I want to be a little bit more specific. In fact, we talk about action sports cameras that you said we have been here for many years. And the new category is panorama cameras that Arash is famous for. And also, we talk about drones, which are also part of the portable video. But in addition to that, our wearable cameras, web cameras, video conferencing products, all of them are part of the portable device because that's where our customers are focusing on. So overall, that's an area that is providing a big portion of our growth this year. And we believe that this market is going to continue to grow. And in fact, I have to say that I'm a little surprised by the size of the market that has grown over the year. But definitely, the momentum is there. Our job is trying to not only secure our market share but hopefully grow some market share in the future.

Hey, Tore. It's Luisa. Just technically, we call it portable video and other. So there's a lot of things in there, as Fermi said.

Yeah. Thank you for that. Congrats again.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Ross Seymore from Deutsche Bank. Your line is open.

Hi, guys. Thanks for asking a couple of questions, and congrats to Les. I guess, first, you talked about the breadth of your business in the Edge IoT side of things or Edge AI, IoT, whatever you guys are calling it now. Can you just talk a little bit about the consumer versus kind of the enterprise side? Now, I guess where I'm going is the portable side is great. But we've seen volatility around any sort of consumer applications in years past. Cycles past. I just wondered how you're managing that in this instance.

Hey, Ross. It's Luisa. The split is roughly fifty-fifty, 50% kind of enterprise CapEx driven and 50% consumer. And then within that 50% that's consumer, you've got some kind of consumer durable things like, say, smart home cameras that get replaced every five or six years. But then you also have consumer discretionary, which I think is some of the more volatile things you were referring to. So it's pretty evenly split at the highest level between the CapEx driven markets and the consumer, but different types of consumer spending.

And I guess one for John. How are we thinking about gross margin as we look into next year? Just conceptually what the pluses and minuses would be? I know you have the long-term target of the 59% to 62%. You're a little closer to the lower end of that in your fourth-quarter guide. But just running through any of the puts and takes would be helpful.

Yeah, Ross. Thanks. So as you said, our long-term model is 59 to 62. And as we said in our Q4 guide, the composition of gross margin really depends on the contribution of, like, our high-cost customers. So, you know, whatever the gross margin is from quarter to quarter, that's at least in the near term, that's a primary driver.

Great. Thank you.

Yep.

Thank you. One moment for our next question. Our next question comes from the line of Joe Moore from Morgan Stanley. Your line is open.

Yeah. Great. Thank you. I also wanted to ask about that gross margin target. And I guess just as you've kind of refocused the business around a lot of exciting opportunities, you know, is there any chance to really fully participate in some of the consumer markets that you might accept lower gross margin in exchange for growth? And then I guess you've talked a lot on this call about average selling price sort of what's driving that focus, you know, as ASP versus, you know, kind of gross profit dollar per device, things like that?

Yeah. Thanks. So, you know, as far as the ASP goes, that is primarily a function of the technology and features that come with these more advanced technology tape-outs that we're doing and products that we're developing on our roadmap. As far as the gross margin goes, you know, like I said, 59 to 62. I think as far as consumer, on a case-by-case basis, depending on the volume that we see, the opportunities that we see, we're not opposed to gross margins that are maybe not strictly within the 59 to 62% range. But the goal at the corporate level is to, over the long term, stay in that range.

Great. Thank you for that. Then I guess, you know, yeah, there's a lot of enthusiasm for drones, which is a market that you've kind of been in in the past. Can you talk about, you know, what are the new elements of that market that probably, you know, might drive you to a higher content over time? You know? And what is it sort of think about delivery drones and industrial drones and things like that? Is that a pretty big category for you down the road?

Right. So first of all, we were big in the past, as you said, but we were stopped in that market because of the geopolitical situation, not because of our technology solutions. And this time we came back because we continue to believe a few things. First of all, there was a dominant player, but in the US, the market is wide open at this point for everybody to fight in that capacity. So with our video technology, particularly our panorama camera that we help our customers to build, is well suited for this space. So first of all, the driver for us is to continue to provide the best video solution in the drone market. But more importantly, I think moving forward, all the drones are going to be autonomous in the future. We can't talk, say, today's drone is level two. And level three, level four drones are coming and probably going to drive faster than autonomous driving cars. And we believe that to have a level three drone, it will require a really powerful chip in addition to the video processing, and that's really played to our strength also. Our investment in autonomous driving directly applies here. So from the technology point of view, the video processing plus AI is the key driver. But as you said, today, the biggest market opportunity for us is consumer for video capture, but moving forward, we start seeing opportunities on the commercial side, which is going to continue to drive growth. So we are excited that, first of all, we have technology that we think is differentiated in this market, but more importantly, the service market for us is growing fast. So that's the two reasons that we feel excited about this market.

Okay. Thank you.

Thank you. One moment. Our next question will come from the line of Christopher Rolland from Susquehanna. Your line is open.

Hey, guys. Thanks for the question and congrats on the results. I guess my first question is around an update perhaps for the infrastructure opportunity and the N1655?

Yeah. So first of all, we announced our first design wins last quarter. And after that, we continue to see very strong design win activity and interest from different types of customers. In fact, in the last few months, we see customers who want to use video-centric products and also customers who want to use N1655 for non-video-centric products. So we are seeing a wide range of opportunities. And we are also continuing to see our chance to not only build up but also bring new designs in the near future. So we are totally committed to this market with N1655 and a new roadmap that we will talk about in the near future.

Thank you, Fermi. And perhaps if there are any updates on two other opportunities, I guess the first would be the home security market with, you know, AI feature integration. And then the second would be any kind of design activity, I know it's further out, but around humanoid robots. I think that would be interesting as well.

Right. So first of all, for the home security, I think we do have design wins with our CV75 that we haven't announced yet, but definitely is in design. However, I think this is a market that's price-sensitive. So I think the progress or the movement towards this chain AI type of home security camera based on the camera solution, not the cloud solution. We really focus on just edge AI for this market. So with that, I think that market is not developing as fast as we expect, but we do have design wins. We hope we can talk about them sometime next year. From the humanoid robot perspective, I think this is a long-term market that we definitely want to participate in. However, I think it will take time to get to a humanoid robot. I think there are multiple steps for robotic from today's situation to the humanoid robot. And I think, like I said, even drones, if you treat the drone like a robotic application, there's a level two to level five. I think humanoid robots are level five of drones for different applications. But there are intermediate steps we need to go through, and we definitely have design wins and also design activities in those steps that will lead us into the humanoid. I just want to be more specific. We're offering two types of solutions to the robotics today. One is for people only interested in the video technology. So they want to have a really powerful AI that not only can see the object but also can do object detection based on CNN networks. We have that kind of solution based on our CV2 family or CV72, CV75 solutions. So that's one product line we're providing. The other product line we're providing to the robots is really a brain. Right? So our N1655 type of solution can be a central processor for any type of robotic out layer. So I think we're offering these two solutions. It will take time to develop a central domain control, like an autonomous driving car, that kind of solution will be required to do a humanoid solution in the future.

Excellent. Thanks so much.

One moment for our next question. Our next question will come from the line of Suji Desilva from Roth Capital. Your line is open.

Don, Les, best of luck with the step of your transition here. So, maybe in the Edge AI market, looking ahead, calendar '26 perhaps, which of the two or three segments would you describe as the highest kind of growth opportunity for you? Is it drones or other areas? Any color there would be helpful. Thanks.

I think drones definitely, what you call out, are going to be a growth area for us. And I also believe that even for the edge endpoints, we continue to see multiple opportunities coming up with different types of products. For example, wearable cameras, we talked about this for many years. But right now, we are excited because wearable cameras are not only for policemen anymore. We start seeing that go to totally even for commercial use devices. So that's just another example that the technology becomes ready in a low power and also AI on the camera. All of that enables a new application for wearable cameras. That's another really high growth area that we're seeing, and it's not only what I'm saying that if you follow our customers, you'll see that our customers are saying similar things. So those edge endpoints, families, are the first area for us. But I also want to bring your attention to the edge infrastructure. We'll talk about it last quarter. I think although that not immediately, you're going to see high revenue growth, but I think long term, that will be a very important market for us. And we'll definitely cover insight into our plan, our thoughts on edge infrastructure at CES and give you more.

Okay. Great. Then for me, in one specific question on drones, do you have any visibility in your pipeline beyond consumer commercial perhaps into any government programs? Or is that going to be a separate part of the market handling that versus you guys?

You bet the old customer fact, it's not really us. It's all cost. All cost. Right. Right. No. I think all the customers have a desire to serve multiple different market segments. But most of them, most of our common customers, are focusing on consumer commercial, and I don't think that algorithm usage is a real focus for most of our customers yet.

Okay. Great. Thanks, Fermi.

Thank you. One moment for our next question. Our next question will come from the line of Martin Yang from OpCo. Your line is open.

Hi. Thank you for taking my question. First question on IoT, especially with growing customers like Arash, could you maybe comment on this customer's growth and its relative contribution to your overall ASP and margins?

Right. So first of all, Arash is, I think, the largest customer in our top 10 list, and they're ramping roughly doubled from last year to this year. But, you know, they are using multiple chips, and if selling to multiple OEMs, it's hard for us to track exactly their revenue contribution. But we have no doubt they are the largest customer right now.

Thank you. Another question on drones. So when you're referring to next year's product, are those drones using your image processing capabilities, or do you expect them to deploy AI functions that relate to autonomous flying capabilities?

Both. I think that, like I said, there are two types of solutions we're offering. Some of them are using just video plus AI to apply CNN-type networks for simpler AI functions. But there will definitely be customers using our AI for flying to avoid objects, to determine the flying path. So both of them.

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

Thank you. And our next one moment for our next question. Our next question will come from the line of Quinn Bolton from Needham and Company. Your line is open.

Hey, guys. I know the focus has sort of shifted to Edge AI in the future, Edge infrastructure. But in the past, you gave us sort of an automotive funnel. You haven't provided that. So just wondering how should we be thinking about how are you guys approaching the automotive market? Do you still see opportunities in Level 2 plus, or are you kind of deemphasizing some of the automotive applications?

Alright. Thank you for that question because we did not decommit from that market. In fact, we continue to focus on the market. We are engaging multiple OEM tier ones at this point for autonomous driving level two, level two plus, some even level three. So from the engineering activity and business development activity point of view, we are all in on this market. Definitely, from the funnel of this discussion point of view, I said last quarter, we will provide a funnel discussion in the next quarter release. But the one modification I will do, we are stopping using probability-weighted metrics. We are going to give you just direct opportunities we're looking at. So that will be the one change we're going to offer, but we will definitely provide more guidance on how we look at this market.

Got it. Thanks for that, Fermi. And then I guess for John, just you mentioned that it sounds like the mix towards high-volume customers is pushing the gross margin down to the lower half of your long-term range. Can you give us just beyond January? Do you think that mix continues to be pretty heavy with higher volume customers? Or do you see this as sort of a temporary shift just for January and it normalizes beyond that?

Thanks, Quinn. Yeah. At this point, we don't want to give a guide with regard beyond Q4. But I think, you know, that commentary with regard to Q4 is, you know, will continue to be relevant going forward. The ratio of high-volume customers to the total revenue for the quarter.

Sorry, John, cut out there a little bit. Did you say that the mix would stay pretty similar beyond January?

No. What I tried to say was that, you know, we don't want to make any guide beyond Q4. But that the commentary about Q4 with high, you know, the ratio of high-volume customers to the total revenue, that dynamic will continue to be a factor going forward. So to the extent that the high-volume folks are a higher percentage of the revenue, that will, you know, have its impact.

Got it. Okay. Thank you.

Thank you. And once again, that's star 11 for any questions, star 11. One moment for the next. We have a follow-up question for Tore Svanberg from Stifel. Your line is open.

Yes. Thank you. John, just a follow-up for you. So, you know, this year, you guys demonstrated some pretty good operating leverage. I'm just thinking, as we look at fiscal 2027 and OpEx growth, obviously, you're not giving a growth target per se, but we should assume that OpEx would grow at a slower pace than revenue growth for fiscal 2027?

Thanks, Tore. Yeah. We're not giving a guide at this point, but I think, you know, what we have said in the past, kind of as you articulated, is that long-term, we expect to create operating leverage by having revenue and obviously gross profit outpace the increase in OpEx on a non-GAAP basis.

Great. Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Kevin Cassidy from Rosenblatt. Your line is open.

Yes. Thanks for taking my question, and congratulations to Les for a legendary career. You know, again, I am interested in that, but I want to know how much of your software and development that you've been able to work on with the automobiles for L2 to L4. Can you apply, you know, is it a relatively easy market for you to transition into, or are there other software or other issues that would happen in robotics that isn't in automotive?

You know, I think, Kevin, you point out that it's really a great direction because, you know, like I continue to say, autonomous driving is just a special kind of robot. And so is a drone. And in fact, if you look at the details of functions inside an autonomous driving car, you know, level three drone and also robots. IDN is really a bunch of sensor fusion. And you make a decision on your environment, then you decide money. That you control. Either a car, drone, or some mobile robots moving around performance. From that point of view, a lot of hours have a commonality. In fact, a lot of software, if you want to do all the sensor fusion side with the perception, there's a huge among all the robotic applications. So in fact, we definitely believe that a lot of our investment both on hardware and software side for autonomous driving will directly apply to all the future phone and other robotic applications that we're talking about.

Okay. Great. Thanks.

Thank you. One moment for our next question. Our next question will come from the line of Ross Seymore from Deutsche Bank. Your line is open.

Hi, guys. Thanks for asking. A couple of follow-ups. On the consumer percentage being about half of your IoT business, what was that mix last fiscal year, a year ago?

I don't have that figure for you, but I would say the dominant part of our mix was enterprise. CapEx driven markets.

Got it. Thanks, Luisa. And I guess the follow-up to that is if the consumer business does sound like it has increased, does that change the seasonality of your company? I know kind of the first and the fourth quarters tend to be relatively speaking the weakest sequentials, and then the mid-two quarters are the largest. Does that change at all either directionally or kind of magnitude just because consumer is a bigger portion than it used to be?

Yeah. Go ahead. You know the question. Yes. That's a very good point. And the answer is yes. And I would look at, you know, the next question is what's normal. And, really, the last three, four, five years hasn't been very normal. So I'd look at the last ten years because those first five years and the ten years, over that, did have more consumer like you're asking about. So I'd look at the average ten-year period rather than just the last two or three years, which really weren't normal.

And then maybe one last follow-up. How do we think about taxes, either dollars or percentages, next year and the year after? I know it kind of goes between the dollars and percentages, and the former might be more applicable. But just an idea of how we should think about that.

Yeah. Thanks, Ross. So we tend to think about it from a dollar's perspective as opposed to a rate based on the way the company is structured and where the profits are located and various jurisdictions internationally. So I would expect, well, if the dollars will increase, but it won't be, you know, they'll increase with revenue. But it won't be a significant change to the story. I think on a full-year basis, if you look at the rate on a non-GAAP basis, that'll give you some indication to be able to model going forward, I would say.

Thank you.

Thank you. That's all the time we have for the question and answer session. I would now like to turn it back over to Dr. Fermi Wang for any closing remarks.

Thank you, and thank you all for joining our call today. And I hope to see some of you during our January event at CES. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.