Ambarella, Inc.

Thank you for standing by and welcome to Umbrella's second quarter fiscal year 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. We ask that you please limit yourself to one question and one follow-up. You may get back in the queue as time allows. To remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Lewis Gerhardy, Vice President, Corporate Development. Please go ahead.

Thank you, Jonathan. Good afternoon, and thank you for joining our second quarter fiscal year 2024 financial results conference call. On the call with me today is Dr. Fermi Wong, President and CEO, and Brian White, CFO. The primary purpose of today's call is to provide you with information regarding the results for our second quarter, fiscal year 2024. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are based on our currently available information and subject to risk 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're 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. Access to our second quarter fiscal 2024 results press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the investor relations page of our website. The content of today's call as well as the materials posted on our websites are Ambarella's property and cannot be reproduced or transcribed without our prior written consent. Fermi will now provide a business update for the quarter. Brian will review the financial results and outlook, and then we'll be available for your questions.

Thank you, Louis, and good afternoon, everyone. Our fiscal Q2 revenue was approximately flat sequentially and consistent with our guidance. Our AI business goes sequentially and year over year, while our video processor business was down sequentially and down about 50% from a year ago. Our blended ASP in Q2 revenue was above $12 and is on track to grow about 20% year-over-year, thanks to the richer mix of AI SoCs, highlighting the value of our emerging AI inference business. Our mid- to long-term growth outlook for the AI inference process of business remains positive. However, the near-term environment is very challenging for our overall business. Customers are now more aggressively reducing their inventory. and we are now seeing some pockets of a weak in-market demand, which complicates our customers' ongoing inventory reduction efforts. Given this, we have reduced our second half outlook. We are not expecting a recovery in calendar 2023, but we do anticipate our customers' inventory will normalize by the end of the year and set us up for return to growth in calendar 2024. We continue to expand our position in the rapidly evolving AI inference processor market. Cumulatively, we have shipped more than 17 million AI inference processors into device endpoints for IoT and automotive applications. And we are now expanding our AI inference processor reach into vehicle autonomy. As announced on the last earning call, we continue to evaluate the AI inference accelerator market opportunity. I will now summarize the status of our three major SOC product families, video processors, CV2, and the CV3. First, video processors are human viewing are expected to be about 40% of total revenue this year, down from 55% last year, and they typically command a single digit ASP. For several years, we have been prioritizing our limited resource on AI technology and products. And for this reason, we anticipate our video processor revenue to continue to contract. However, the revenue impact from the video processor contraction in fiscal year 2025 is anticipated to be significantly lower than what we are experiencing this year. Second, our CV2 family of SOCs established umbrellas in the AI-influenced market, and these SOCs are expected to approach 60% of our total revenue in fiscal 2024, up from 45% last year. This family of AI-influenced SOC commands an ASP close to $20 and serves computer vision applications for auto and IoT. CV2 remains an important growth market for umbrella in the mid to long term. Third, our CV3 family SOC first began to sample a year ago. Based on our third generation of AI inference technology, this SOC target more challenging AI inference workload, such as partial or complete mobile system autonomy. The CV3 family SOC range from $50 to more than $400 per SOC, and the autonomous driving software stack optimized to run on CV3 can add hundreds of dollars per unit of incremental software value. The AI inference processor embedding our CV3 SOC is a starting point for our evaluation of the Gen AI acceleration market. In the last quarter, we began to port Meta's LAMA2 to the CV3 AD high, and we expect to have chatbot demos available later this year. We will provide updates on our continuing evaluation and encourage to see generative AI opportunities emerging on both the server, and the device side of the market. I will now summarize representative customer activity in the quarter. Design activity in the enterprise security camera market remains robust at major customer worldwide. Motorola introduced its H5A multi-sensor camera based on our CVE-2 AI SoC. The camera offers up to 360 degree view utilizing to full image sensors with up to 32 megapixel resolution and AI analytics. Access, a unit of Canon, announced the 2 megapixel M4215 cameras and the 4K M4218 cameras, both based on our CV25 AI inference SOCs, targeting indoor surveillance applications. Japanese market leader iPro announced the expansion of its Rapid PTZ X series and the S series with 16 new models based on our CV25 and CV22 AI inference processors. DynaColor introduces Model Q next-generation multi-directional camera using our CV5 AI processor to support four 5-megapixel sensors. And in South Korea, Hanwha launched three new bi-spectrum AI cameras based on our CV2 AI SoC. These cameras provide 4K video and thermal view simultaneously for the rapid detection and the classification of vehicles or intruders. I will now talk about representative customer activity in the automotive market. In our May 30 early call, I mentioned the positive feedback we received at the Shanghai Auto Show for our CV72AQ AI inference processor, a derivative of the CV3 family of SOCs. During Q2, I visited Tier 1 in China, and I am pleased to report multiple Tier 1 wins for Level 2 Plus applications. We expect some of these Tier 1 projects to commence production in the second half of the calendar year 2025. We are pleased to announce our first CV5 win in a passenger vehicle. We expect this win to enter production in the next 12 months. In this application, the CV5 will support AI-influenced processing for multiple cameras. Additionally, in July, GAC Motor in China unveiled its Hyper-GT intelligence group, including an L2 plus ADAS intelligent driver assistance system based on our CV22AQ. And recently, the Chinese government passed a new policy allowing camera monitoring system, CMS, to replace conventional left and the right side mirrors. The policy also covers interior rear mirrors with the CMS-enabled models being legal beginning in July 2023. This CMS system represents a significant opportunity for umbrella the CV2 family of AI inference processors. During the quarter, BAIC, one of the largest automotive OEMs in China, began selling SUVs equipped with a CMS system based on our CV22AQ. In the automotive aftermarket, Toyota introduced its wireless backup camera system for trailers based on our H32AQ video processor. The camera will be an option for Toyota's model year 2024 Sequoia and Tundra trucks. Canopy, the startup resulting from Ford and ADT's 2022 joint venture, introduced its first product, the Canopy Pickup Cam. Based on our CV25 AI-influenced processor, the camera provides a full HD recording, 180-degree field of view, person detection, and the reaching detection for the back of a pickup. And in June, action camera maker Insta360 announced its Go3 camera, a lightweight but powerful 2K camera that utilizes our H22 video processor. This representative engagement indicates a healthy pace of continuing customer design activity for AI-influenced processors. Our investment strategy is aligned with the anticipated market demand for more sophisticated software-intensive AI-influenced applications. In the last three years, thanks to the CV2 family, we have demonstrated the ability to capture more value per win as customer demand migrate to AI from video processors. Looking forward, we believe our newer products, such as the CV5, CV72, and the CV3, are well positioned to support the increasingly sophisticated AI inference workloads our customers are anticipating. As this new product ramps and as we also capture more software value, we anticipate our blended ASP will continue to rise. While actively managing expenses through the current market turmoil, we will continue to drive our strategic R&D investment to fully realize the AI-influenced market opportunities we have discussed today. With that, Brian will now discuss the Q2 results and the outlook in more detail.