Ambarella, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the MRLS second quarter fiscal year 2021 conference call. At this time, all participants' lives are on the list and only most. After the speaker's presentation, there will be a question and answer session, and to ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is recorded, and if requiring further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Louis Gerhardy. Thank you, and please go ahead and start.

Thank you, Chris, and good afternoon. Thank you for joining our second quarter fiscal year 2021 financial results conference call. Our speakers will be Dr. Feng-Ming Wang, President and CEO, and Casey Eichler, CFO. The primary purpose of today's call is to provide you with information regarding the results for the second quarter of our fiscal year 2021. The discussion today And the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements. were 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 SEC, including the annual report on Form 10-K, filed on March 27, 2020, for fiscal year 2020, ending January 31, 2020, and the Form 10-Q filed on June 8, 2020, for the first quarter of the fiscal year 2021, ending April 30th, 2020. Access to our second quarter fiscal 2021 results, press release, historical results, SEC filings, and a replay of today's call can be found on the investor relations portion of our website. With that, I'll turn the call over to Dr. Fermi Long.

Thank you, Louis, and glad to meet everyone. First of all, I would like to provide an update on how Umbrella is responding to the health pandemic. We are focused on ensuring the health and safety of our employees, their families, and their communities, and to safely and effectively serve our global base of customers. The majority of our global workforce has returned to their offices, although our U.S. employees continue to work from home. Umbrella's workforce has always been globally distributed and collaboratively and we believe this culture and structure helped us adapt, remain highly engaged and productive during this global health crisis. Our business is facing tremendous growth currents. On one hand, AI computer vision has become pervasive. We are embedding AI in all of our new products and we have strong and growing evidence of market acceptance. On the other hand, The pandemic and geopolitical risks are high. The economic constraints of the pandemic remain and we are managing the operational challenges. Despite the challenges, in Q2, we deliver results slightly above the midpoint of the guidance we provided three months ago. Q2 revenue of $50.1 million was down 8% sequentially and down 11% versus the same period a year ago. A healthy customer and product mix supported by strong operational execution all contributed to gross margin above the high end of our long-term model. Our AI business continues to show growing signs of acceptance with the CV revenue now representing a mid to high single digit percent of our total Q2 revenue and we are still confident that 10% of our total revenue will be earned from CV products in fiscal year 21. Our CVS has recommended ASP more than 2x our non-CV ASP, and we are now seeing our overall blended ASP increase. When revenue growth returns, we expect the higher gross profit dollars per CV unit to drive positive operating and the EPS leverage for shareholders. I will now talk about our markets and the customers. We have previously spoken about our ability to gain SOC share in the professional security camera market outside of China, and this continues to play out. With continued geopolitical uncertainty, we are now seeing additional opportunities to gain market share within China, in particular at the high end and the middle end of the market. Chinese IP camera makers have become concerned about continuity of supply of existing solutions and have We started evaluating camera designs based on umbrella solutions, including our C-Flow AI SOCs. Outside of China, we are continuing to see strong design momentum for our C-Flow SOCs in professional IP cameras in all geographies, and a very strong pipeline of new customer introductions planned over the next 12 months. During the quarter, leading Japanese camera supplier, PIPS, previously Panasonic continue to introduce more new models based on our CV4 SOCs following their extensive product rollout in the previous quarter. This include a 4K Vendel resistance or outdoor dome network camera and a 4K outdoor bullet camera both based on Umbrella's CV22 SOCs. AI features include Smart Coding Detection, Recognition, and Third-Party Application Support. And in Ogut, Motora Solutions announced the availability of umbrella-based Avigilon H4 thermal elevated temperature detection solution. It is a pre-screening solution that can be used to detect indications of elevated body temperature in a person. Composed of an infrared spectrum thermal camera and the featuring age-based analytics, it provides a contactless alternative to traditional screening methods. In the consumer IP camera market, we have seen a rebound in orders from the major home monitor camera makers following initial push-outs of orders earlier in the quarter as a result of the impact of COVID-19. Our customers offering monitored security services have seen an increase in the number of installations in the second half of the quarter, while demand for our customers in self-installation market segments have not recovered. We are also winning new designs for our C4 SOCs in future generations of home monitoring cameras as customers demand advanced AI features such as smart person detection. and in July, Taiwan's baby monitor and sleep analytics company, Kubo, introduced its Kubo AI Plus marker based on our H2L63 SoC. The camera's face detection technology will alert you if you recognize that your baby's mouth and nose are covered or if they are stuck when rolling over. During the quarter, we held two online webinars to promote our generous access control reference platform which enables contact-free access control and face recognition. The design has been developed jointly with On Semiconductor and Lumentum and the features of our CV25 SOC to enable 3D sensing capability using a single camera. The two webinars hosted by Lumentum and IPVN, the leader in video surveillance reporting and research, attracted over 200 potential customers and partners helping to secure our first design wins for the new platform. And in the automotive market, we are seeing strong interest in our ASOC solutions for a variety of the new OE applications, including front ADAS, level 2 plus autonomous vehicles, electronic mirrors, and car recorders applications. In particular, our CV4 of ASOC winning designs their combination of a low-power advanced initial processing, AI processing performance, and ability to process multiple video streams. Since the beginning of the year, we have won now new OEM design wins that we estimate will generate approximately $200 million in revenue over the lifetime of their production, typically between two and seven years. During the quarter, we won two designs for Japanese automaker Nissan. Chinese tier-one Longhong introduced a pre-installed single-channel Wi-Fi DVR for Dongfeng Nissan passenger cars based on our A12A automotive SOC, while tier-one Hansen also introduced its dealer-fit dual-channel DVR for global Nissan models based on both our A12A and H20 SOC. And during the quarter, Shanghai MaxEye began shipping its front ADAT solution in Shangqi Trots, a leading commercial vehicle maker in China. This is a new customer for MaxEye, in addition to the Yutong Wing which we announced on March 3rd. The ADAT system is based on Embraer's CV28, CV4 SoC, and the round MaxEye is deep learning algorithms to achieve high accuracy, visual perception, or 3D scene modeling using molecular vision. In August, UK and European dash cam leader MaxBase launched its next-generation 622 GW 4K dash cam. The first dash cam to offer life-saving emergency SOS alert capabilities. Based on Embraer's H22 SoC, the dash cam provides 4K HD recording and image stabilization, while a real-time camera module also supports 1080p video. Also during the quarter, IONI introduces dual-channel car recorder for leading e-commerce company Sound Valley. The aftermarket car recorder features 4M plus 2M resolution recording and is based on H22A automotive SOC. As we mentioned in previous earning calls, we are winning designers for automotive fleet management designs where our CV4 SOC provides the required AI performance for driver monitoring and the front ADAS applications. During the quarter, EyeSight Technology, an Israeli company providing driver and the cabin monitoring systems and software announced it has selected CV25 for its telematics fleet device. The device will implement EyeSight's fleet sense drive monitoring solution with eyesight algorithm based being executed on umbrella CV25, CV4, SOC. The CV25 has been selected for its capability to run sophisticated AI algorithm at low power, best in class image processing and ability to support additional applications such as video recording and streaming. In summary, we are addressing AI mega trends such as the security, safety, and Efficiency, all enabled by the integration of our leading video processor and our new computationally intense AI processor. We continue to offer evidence of a broad and expanding customer adoption of SOCs. For example, during Q2, we had a record quarter of CV activity with more than 80 unique customers purchase engineering parts Evaluation Kits, and our development boards with activities roughly split between our security and automotive defenses. We are comfortably on track to achieve our guidance for professional security CV revenue on wave one to become mature this year, and we are on track to reach our similar wave two goal for the small home market in calendar year 21. Our Wave 3 guidance for auto CV revenue to become material in calendar year 2022 and 2023 is also on track. For example, during Q2, we had six automotive CV production customers. Our long-term automotive revenue funnel is just starting to build with multiple projects, either one or in a bidding pipeline. For example, year-to-date, we have one automotive project representing approximately $200 million in lifetime revenue. Some of the more significant programs start production in calendar year 22 or calendar year 23. And we will be providing further updates as the overall sales funnel develops. I would like to thank our employees worldwide for adapting to the changing conditions and delivering strong results. and I am thankful for the support of our customers, vendors and shareholders during these volatile times. I will now turn the call over to Casey who will give you more details about what we are seeing and expect for the business. Thank you.