Ambarella, Inc.

Good day and thank you for standing by. Welcome to Ambarella's first quarter fiscal year 2027 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, please press star 1-1 again. please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to the Vice President of Corporate Development, Luis Gerhardi. Please proceed.

Thank you, Carmen, and good afternoon. Thank you for joining our first quarter fiscal year 2027 financial results conference call. On the call with me today is Dr. Fermi Wong, 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 fiscal year 2027. 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're under no obligation to update these statements, and 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 SEC. Access to our first quarter fiscal year 2027 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. Before starting the call, We hope to see you at some of the following investor events scheduled during our second fiscal quarter. June 2nd, we'll be at the Bank of America's TNT Conference in San Francisco. June 23rd, at Northland's Virtual Equity Capital Markets Growth Conference. June 23rd and 24th, we'll be hosting investor meetings in Baltimore and Boston. And August 18th, at Rosenblatt's Aids of AI event. For your calendar planning in our third fiscal quarter, please note we are a sponsor at the AI Infrastructure Summit in Santa Clara on November 15th to 17th, and we hope to see you there where we will lead the physical AI track with a number of Edge AI product demos in our exhibit area. Bernie will now provide a business update for the quarter. John will review the financial results and outlook, and then we'll be available for your questions. Fermi?

Thank you, Louis, and good afternoon. Thank you for joining our call today. During our first fiscal quarter, we delivered on our key financial guidance, revenue, gross margins, and operating expenses. Most importantly, we continue to extend our HAI platform leadership with technology and product innovation, addressing existing and emerging use cases. As a recognized HAI leader, we are entering a new and significant phase for our market development, with the execution of long-term customer agreements, which can drive a more predictable revenue stream, while also offering lifetime revenue potential far in excess of what we have realized in the past. Let me provide a few comments about the current market environment. In Q1, we deliver revenue at the high end of the normal season range and slightly above the midpoint of our guidance. Demand signals and the long-term secular growth outlook for AI remain very strong, and I'm very optimistic about our ability to serve it, in particular, as AI workloads become more complex. IoT applications were about three-quarters of our total revenue and were seasonally down, with our enterprise security camera market growing in a high single-digit, sequentially offset by a double-digit sequential decline in our consumer IoT business. Our automotive revenue established a new all-time revenue record, with very strong double-digit growth led by the rapid emergency of AI within the large and growing commercial vehicle telematics market, as well as automotive safety applications. After a multiple year build out of AI training capacity in data centers, the AI market is increasingly focused on AI inferencing. And within the inferencing market, the processing is becoming more distributed. In other words, processing is moving to the edge and the physical AI layers of the network hierarchy. As the edge market evolves to chain AI, and agentic AI in particular, our positioning becomes even stronger, and I would like to explain more about this. First, before talking about Embraer's unique positioning, let me remind you of the advantage AGI offers relative to the data center. AGI processes reduce latency, lower power consumption, minimize communication expense, and improves privacy and security. So why is Embraer's HAI platform so well positioned? First, Embraer's HAI platform is comprehensive and well-established, yet expanding and under constant evolution to adapt to new AI trends. We believe a broad and highly programmable HAI platform is required to address one number of use cases, enabling customers to be more efficient by reusing software and scaling their business. Our software platform is now open and easy to use and supports a wide variety of AI models with more than 200 different AI model architectures reaching production. We have cumulatively shipped more than 46 million AI SOCs and we have 12 AI SOCs already available with up to hundreds of tops like performance. Another reason Embera is so well positioned for chain AI and the agentic AI at age is that our software tools and the AI SOCs integrates all the accelerated computing system functions into a single platform. In the data centers, the functions such as data aggregation, AI acceleration, CPUs, and other system functions are usually a collection of discrete SOCs from different vendors. However, at age, to be successful, our AI SOC integrates all the functions, fusion, perception, AI acceleration, CPUs, encoding, and other system functions into one single chip. And our differentiation is not just in proprietary processing elements and advanced VLSI integration, but also in the proprietary algorithms, full HAI stack software, and the HAI agentic frameworks that tie the entire system together. As workloads become more complex, such as with chain AI, multi-model reasoning, and autonomous agent-based workflows, our deep expertise across the full X-rated computing stack, optimized specifically for edge deployment, become increasingly rare and the strategy value in the industry. In other words, as our customers need more performance in their HDI applications, there are an extremely limited number of companies that can do this, and even fewer that are proven and established. We are now becoming recognized as one of the very few companies that can tie this all together, as AGI workload get more complex. We are entering a new phase of AGI in the fiscal AI market development, where we are engaged in multiple discussion with customers who want to enter deeper relationships, including multi-generational commitments. This can take the form of long-term agreements or LTA that involves our standard products and or our semi-customer AI associate optimized for customer's particular workload. Relative to our current customer relationships, LTAs will enable long-term partnerships that may include a structured contract involving volume and pricing, typically over five years or more. Over the long run, we expect that LTAs to be an important driver of revenue growth, improve visibility, result in less volatility, and improve the predictability of our revenue. Our first LTA example involves our first two nanometer chip and the semi-custom HAISOC, which we tape out in January. And this product is named CV8. This AI SOC will serve both consumer and enterprise applications in the IoT endpoint market. For this long-term agreement, we agreed to develop a semi-custom ASIC for customers who want to support a certain complex AI workload. We will sell this AI SOC as a standard product to a variety of other customers in other markets. And this afternoon, we announced another mature LTA. This time it was Hanwha in South Korea, for the enterprise CapEx side of IoT market. With Hanhua, this LTA is for the sourcing and co-development of Embraer's AGI technology across Hanhua's borderlines and the industry, including physical security, operational automation, life sciences, robotics, and other industry market. The agreement has a potential revenue in excess of $800 million over a period exceeding 10 years. And it represents one of the largest agreements in umbrella history and one of the first agreements of its kind in the HAI semiconductor market. The multi-generation nature of this relationship is expected to enable both companies to plan jointly across technological maps, accelerate product development cycles, and bring new category of AI-enabled product to market at scale. This relationship will involve standard AI SOCs we will sell in a variety of market to our customers. Beyond this first two LTAs, we are engaged in discussion with other companies. Today, I will also provide updates on robotic edge infrastructure and automotive markets, which represents material market opportunity for us. I'm very pleased to share that we now have a 15 plus robotic design wings, including aerial drones, with lifetime revenue exceeding $100 million with more than 30 customers in our robotic platform. Our AI SoC combines high-performance AI inference, advanced computer vision, and ultra-efficient power consumption into a single-edge optimized architecture and represents the foundation platform for robotic systems to run vision language action VLA models in drones. CV5 enabling platforms such as the anti-gravity A1 enabling capability including 8K imaging, real-time perception, autonomous navigation, obstacle avoidance, SLAM and on-device AI inferencing without relying on constant cloud connectivity for these functions. A drone evolved from flying camera into autonomous aerial robots and whereas CV4 AI accelerator architecture allow manufacturer to deliver lower latency decision-making, improve latency, longer flight time, and more advanced autonomy at an age. The robotic market is fragmented, and we are realizing design wins across a variety of other robotic applications, including industrial automation, autonomous mobile robots, or AMRs, delivery robots. Our AI associate evolves from providing perception, sensor fusion, and AI processing to also offer decision-making and the full autonomy needed for real-time robotic awareness and action. This convergence of high-quality imaging and AI acceleration and the age of autonomy running VLA models efficiently position us as a key enabler of the broader physical AI and embodied AI ecosystems. As I mentioned earlier, our automotive business established an all-time quarterly revenue record in Q1 and is on pace to establish a new fiscal year record. Third-party research firms indicate global automotive product is expected to decline 1% to 2% this year, but with semiconductor content per vehicle rising, market research firms also anticipate the automotive semiconductor market to grow 10% to 15% this year. We expect our automotive revenue growth to outpace these figures due to our success in commercial fleet telematics and safety applications. The commercial fleet telematics market offers continued and exciting growth prospects as there is an installed telematics base in excess of 100 million vehicles growing around 10% CAGR but only about 10% of this interface is so far AI-enabled. We are aligned with industry AI telemarketing leaders who are also increasingly demanding AI SOCs that can take on not only more sensors, but more complex AI workloads. And our platform of 12-H AI SOCs is very well suited to help them scale in this market. I will also provide an update on the build-out of our indirect sales channel that we announced to augment our existing direct-to-customer business. The development of our indirect sales channel is important to not only help us address fragmented robotic markets, but also to provide support for our emerging age infrastructure business. We have already onboarded half a dozen ISVs in vertical industry like retail, in industrial automation, transportation, healthcare, and smart cities since our launch of our developer zone at the CES in January. With more ISV expected to be onboard by the end of this fiscal year. In March, for the first time ever, we have booth at Embedded World in Nuremberg, Germany, where we did live demonstrations highlighting how Embraer AI SoC software stack and developed tools deliver a competitive advantage across a wide range of AI applications, from AI-agentic automation and orchestration to physical AI systems deployed in real-world environments. One of our existing design partners will demonstrate a real-time industrial quality inspection solution on CV72 and N1655. Multiple new ISV partners will present in the our booth, including one who demonstrated retail AI solution for in-store and drive-through optimization. Another ISV demonstrated continuous training for high-speed rail network, and the third demonstrating warehouse robot solutions. In March, we also hosted an invitation-only exhibition at ISC West, showcasing how AGI is powering the next generation of intelligent security and physical AI systems. At the center of our exhibit was our newly launched CV7 HAI Vision SoC delivering advanced imaging and on-device AI processing alongside the N1655 HAI SoC enabling edge infrastructure for low power, high performance enterprise security applications. One of our ISP partners demonstrate a smart city security solution based on CV75 and N1655 solution. I will now briefly summarize our representative customer engagement Q1, and it is notable for the first time, all of the examples are based on our HAISOC, three from our CV2 family and eight from our new CV7X family. In the enterprise security, for our physical Security remains the principal driver of this market. We are seeing our customers develop AI application software by enabling their product to provide operational efficiency to a business. Examples including predictive maintenance, supply chain optimization, and automated customer support. We expect operational efficiency in the long run become an important new growth offshoot of what we refer to as enterprise security today. in particular as Gen-AI and Argenti-AI is deployed at the edge. We achieved an important milestone in March when April, when formerly Panasonic announced the first edge endpoint camera to run Gen-AI locally, based on the transformer capability in our CV72-AISOC. We also have the number of other CV70Pi and the CV72 wings in the quarter, including IDIS in South Korea, access in Sweden, now public in Canada, IQCyte, formerly Bosch, in Germany, and with major communication equipment company in the Americas. Notably, we had an additional CV72 win with C-Pro in South Korea that also utilized our AI imaging signal processing software. We also won a CV22 platform with C-Pro that had another CV5 win with the major communication equipment company in the Americas. In the industrial market, we earned another AI-based barcode reader project based on CV28. This time with Hanhua Vision, we're expanding his reach beyond the traditional physical security market. In the automotive market, our safety and the pandemic customers engagement activity remains strong. For example, we are pleased to announce Litex, an industry leader in the commercial and public sector telematics market, has designed CV75 and CV72 into multiple platforms. For the incoming pre-installed safety market, we have a CV72 wing with South Korean-based Tier 1 URA and a CV22FS wing for Western OEM in China. Our new product momentum remains very strong both in terms of fiscal 27 revenue generation as well as new product that have not start to generate revenues. While our 10 nanometer CV2 family of HAA processor for CNN application continue to lend design wins and grow, our new 5 nanometer CV75 and CV72 capable both advanced CNN and the transformer-based GenAI as well as genetic AI sorry, as well as agentic AI, are in a steep production ramp and are expected to drive material incremental revenue this year. There, on top of this, we continue to expect our new CV7 AI processor to enter production by the end of the year and in the first half of fiscal year, 2028, or less than a year from now. We expect our two nanometer CV8 AI SOC to commence production. All of these new products I have described, as well as all the new unannounced AI SOCs we have in development, target more sophisticated AI workloads and come in average ASP well above our currently $15 ASP in Q1. As you can tell, we have a lot of technology product market and the customer development activity going. I would like to summarize this quarter's call with three observations. First, the AGI market is just getting started, and the momentum is building in multiple areas. Second, Envera is clearly an AGI technology platform and a product leader, and we are already well established. I think our positioning is getting even stronger as AGI workloads get more complex. and there become fewer and fewer companies capable of integrating older age accelerated computing functions into a single chip. Third, customers are recognizing the first two points and now want to engage with us more broadly and more deeply. For example, LTA agreements can build stronger relationships and get us designed into new markets like robotic, while the indirect channel sales ecosystem bring us more scale. In conclusion, as all this comes together, we intend to drive shareholder value with strong revenue growth and a more diversified and predictable financial models that offer mature operating leverage potential for our shareholders. With that, John will now discuss our Q1 results and Q2 outlook in more detail. John?

Thank you, Fermi. I'll now review the financial highlights for the first quarter, fiscal year 2027, ending April 30th, 2026. I will also provide a financial outlook for our second quarter of fiscal year 2027, ending July 31st, 2026. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAPs 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 Q1, revenue was $100.4 million, slightly above the midpoint of our prior guidance range of $97 to $103 million, down 0.5% from the prior quarter and up 16.9% year over year. On a sequential basis, automotive revenue driven by commercial vehicles experienced a strong above-seasonal double-digit percent increase, while IOT revenue was seasonally down. Non-GAAP gross margin for fiscal Q1 was 59.9%, slightly above the midpoint of our prior guidance range of 59 to 60.5%. Non-GAAP operating expense in Q1 was $56.4 million, slightly below the midpoint of our prior guidance range of $55 to $58 million. Q1 net interest and other income was $2.1 million. Q1 non-GAAP tax provision was approximately $740,000. We reported a non-GAAP net profit of $5 million, or 11 cents per diluted share in Q1. Now I'll turn to our balance sheet and cash flow. Fiscal Q1 cash and marketable securities were $277.8 million, decreasing $34.8 million from the prior quarter, but increasing $18.4 million from the same quarter a year ago. The sequential decrease in cash and marketable securities was primarily due to an increase in our inventory levels to better service our customers in the face of a number of new product cycles. Receivable day sales outstanding of 35 in Q1 was flat with the prior quarter, while days of inventory increased from 99 to 145 days. Operating cash outflow was $25.6 million for the quarter. Capital expenditures for tangible and intangible assets were $4 million for the quarter. Pre-cash outflow was $29.6 million for the quarter. During the first quarter of fiscal year 2027, we repurchased 47,798 shares of our stock for total consideration of $2.4 million, or an average price of $51.04 per share. During the second fiscal quarter, Ambarella's board of directors authorized the new $50 million repurchase program valid through June 30th, 2027. replacing the program that expires on June 30th, 2026. The repurchase program does not obligate the company to acquire any particular amount of ordinary shares, and it may be suspended at any time at the company's discretion. We have one logistics company representing 10% or more of our revenue. WCMicroelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 60.7% of revenue for the first quarter. I'll now discuss the outlook for the second quarter of fiscal year 2027. We forecast a seasonally strong fiscal second quarter with revenue in the range of $105 to $111 million, or $108 million at the midpoint. Sequentially, both auto and IoT revenue are expected to increase, with growth in both consumer and CapEx-driven markets. We expect fiscal Q2 non-GAAP gross margin to be in the range of 59 to 60.5%. We expect non-GAAP OpEx in the second quarter to be in the range of $56 million to $59 million. We estimate net interest and other income to be approximately $1.9 million. our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 44.3 million shares. Thank you for joining our call today. And with that, I will turn the call over to the operator for questions.

Thank you so much. As a reminder, if you do have a question, please press star 1-1 on your telephone and wait for your name to be announced. To remove yourself, press star 1-1 again. Our first question is from Ross Seymour with Deutsche Bank. Please proceed.

Hi, guys. Thanks for asking the question. You mentioned earlier about the auto side growing faster than the end market itself. I think you said that end market would be 10% to 15%. In the past, you've given full-year fiscal year revenue guidance. I think you said 10% to 15% on your last call. How are you thinking about that for this year now?

So, yeah, I think for the whole year, we're still thinking it's about 10% to 15%. We're not changing that. And the automotive is stronger, grows faster than the other market.

Okay. And then on the LTA side of things, and maybe the one that you announced tonight in the 8K with the $800 million over time, but more conceptually, how are you thinking about those? Are they going to be guaranteed revenues? I think you said the word potential revenue. How do we build that into the estimate as we think forward for the company?

Right. First of all, we already have a round rate with Hanhua for the last 15 years, and we know we only take a percentage of their current market share. So we expect with this LTA, we're going to gain market share on their annual round rate, as well as this is a multi-generational commitment on both sides so that this is, so we can talk about, you know, at least two generations of silicon that will be, you know, co-developed between these two companies. So I think from that point of view, we believe that it's a long period time of commitment as well as getting market shares from the hardware. But at the same time, if you look at our current ASP or our corporate ASP, is $15 per hour. CVASP is a lot higher than that. So if you calculate, put all the things together, that's how we calculate this potential $800 million.

Yeah, Ross, just a little background on Hanwha. You know, it's a major multinational conglomerate with more than $60 billion in annual revenue. It's involved in aerospace, defense, robotics, physical security, life sciences, industrial, you know, ocean solutions, chemicals, you know, a lot of different things, retail services. And so an important part of this relationship and the intermediate to long-term is moving beyond what has just been, you know, the physical security relationship that Fermi described as our current run rate. So we can gain share on that business, but at the same time, You know, the press release talks about, in addition to physical security, things like operational automation, life sciences, robotics, other industrial markets. That's another very important angle of this relationship. Thank you.

Thank you. One moment for our next question. It comes from Torres Bamberg with Stifel. Please proceed.

Yes, thank you. Maybe a question to follow up on the LTA and not the Hanwha one specifically, but how should we think about these sort of folding in here over the next few years? Obviously, these could be quite large. I'm sure you can say yes to all of them. Is there also going to be potentially some OpEx sharing with some of these customers that you sign LTAs in? Any more policy you could offer us as far as, you know, how we should think about, you know, the magnitude and, you know, how it's going to be funded over the next three years? Thank you.

So, first of all, I think I want to go a little higher level of saying, most of LTA discussion is based on two things. One is really, when you look at all the fast AI trend, and our customer continue to look at the new AI model, they implement higher performance requirement, lower power efficiency. So to meet this kind of AI demand, while for the most AGI application, power efficiency is probably the most important thing. it's getting harder and harder to build a platform of silicon that can address all of these new applications. So I think that trend really helped our customers think about how to partner with somebody that can build a platform of silicon that can help not only on the enterprise security, but also other associated market they are trying to address. I think that's probably how the LTA started. And in this kind of LTA, most of the discussion will involve NRE, but also will involve a product mutually beneficial. So I think those are two things that we definitely want to make sure that we develop a software platform that can go across our current silicon platform that offer a complete roadmap to our customer. And in exchange, they were willing to help us to fund those platforms with NRE, particularly, not only on the silicon side, but also on the sulfur side.

That's very helpful. And that was my follow-up, and maybe related to that platform approach for me. So, just thinking about the competitive landscape, you know, obviously, there's big, processor companies, there's obviously, you know, analog companies and so on and so forth. But how flexible can your software platform really be? Because obviously, the use cases at the edge are going to be quite different from use case to use case.

Thank you. Yeah, so I think our unique architecture, you remember that we have been talking about Elkwood and Ferris. So our, let's say, how we accelerate like our Our image processing and our CV flow AI accelerator has been really passed many battles and has been proved to our customer. It's not only power efficient, but also programmable enough to adapt to many different applications, different AI models. For example, we just talked about our CV flow architecture can do 200 different AI, sorry, model architecture, not 200 models. We're talking about 200 model architectures. and we took all of them into production. I'll show you how flexible our accelerator is. But more importantly, with the latest agentic AI approach, you need to integrate everything together, so that including not only the ISV and the CV flow or MPAC encoder, H2C4 encoder. On top of that, you need to integrate a complete SOC interface. for CPU and also IO and DRAM activity to provide very, not only power efficient, but also cost efficient solution to our customers. So that's where we are basically having a reputation to deliver those kinds of products consistently in the last 20 years. And when we look at the competitive landscape, we see NVIDIA, we see Qualcomm, obviously, but I really don't see any other people keep coming out with, one, a complete silicon platform that we have 12 AGI SOC can go from very low performance to few hundred top performance with power efficiency. On top of that, all the silicon was covered by one unified software development SDK that our customers, if they develop one product on one SOC, can easily go to a different SOC providing a different price and performance point on their product platform. And this kind of flexibility and the width of our product format, I don't think there are many people can match.

That's great, Carla. Thank you.

Thank you. One moment for our next question, please. It comes from the line of Quinn Bolton with Needham & Company. Please proceed.

Thanks for taking my question.

I guess I wanted to follow up for me on the Hanwha LCA. In the press release, it talks about the internal SOC that Hanwha continues to design. And so I wonder, you know, it sounds like you're co-designing multiple generations of shifts. Is there an opportunity to get a bigger percentage of share away from that? internal SOC, or do you think that internal SOC continues to hold a portion of Hanwha's requirements, and then I've got a follow-up?

I think it's a mutual intention that they're going to use more of this co-developed platform into more product lines, so we fully expect we're getting more market share from Hanwha with this new development.

Excellent. And then, you guys have talked about the fleet telematics markets for you know, a number of years, and it feels like it may finally be starting to inflect on the script. You mentioned an installed base of over 100 million units with less than 10 of that being AI, but what do you think is driving the inflection? Is there anything you can point to in particular that's driving the pretty strong growth here in the first and second quarter?

Yeah, hey, Quinn, it's Lewis. Just in terms of the market opportunity, telematics, you know, there's about 100 million subscribers. And third-party research firms, you know, like ABI or Gartner, see it growing maybe 10%, you know, CAGR. Within that 100 million subscriber base, maybe only 15%, 20% of the market is using AI and AI video as an additional resource. ARPU generating feature in their platforms. And so what you have is the overall telematics market growing. You've got AI video growing into that. And at the same time, there's demand for more sophisticated AI workloads and multiple sensors, which is causing our ASP, the demand for more sophisticated edge AI chips to go up. So those are the dynamics that we're facing. And You know, we're doing a very good job with share. For example, this quarter we announced LITX, as Fermi mentioned, you know, multiple platforms with CB72, CB75, which is one of the leaders of this market. So any follow-ups on that?

No, that's great. Thank you, Fermi.

Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed.

Yes, thank you. I wonder if you could talk about, are you guys impacted at all by shortages of DRAM or storage in any of the surveillance markets or consumer markets? Just, are you seeing any impact on any of that?

Yeah. So, first of all, obviously, just like everybody else, we are impacted, but not directly. We are impacted indirectly. You know, in the last quarter, when we talk about this, we definitely talk about our customer-facing much higher DRAM price and flash price as well as potential shortage in second half. So that situation didn't change. The biggest direct impact to us is most of our customers are handling this DRAM shortage by doing, first of all, they are trying to source different DRAM supplier or to cut down the DRAM utilization per product or basically try to optimize the DRAM utilization in a chip so that they can use a smaller DRAM size. And all those activities require we putting our FAA support to help our customer. We're happy to do that because that's definitely something we need to do to help our customer. But at the same time, I think that's probably the biggest direct impact to us on the engineering resource requirement.

Okay, thank you. And then as a follow-up, the inventory, you sort of described it supporting product grants, but it was a pretty big increase. I just didn't give it any more color. you know, make us feel comfortable with that amount of inventory built.

Thank you. Hi, Joe. Yeah, I mean, if you look back in the last couple of quarters, we were running kind of lean. And over the last few quarters, we have looked at kind of the opportunities that are coming to us with the strong growth that we had last year. We wanted to position ourselves in the right direction. product categories to be able to, you know, continue to serve our customers. And so going from, you know, a fairly low number of days of inventory at points in last year, we wanted to build a bit of inventory heading into this year to be able to do that.

And Joe, just for me to add another color on this, you know, Samsung has officially informed us that their supply chain is getting tighter. Obviously, we have secured our supply, but we feel it's prudent for us to build up a little inventory just in case we run into a different supply issue. So from that point of view, I think you also heard that supply chain becomes a problem for everybody. We just try to be prudent to build up some inventory just in case.

Makes sense. Thank you so much.

Thank you. Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Please proceed.

Hi, thanks for taking my question, and congratulations on all the great progress. And along those lines, you're building out the indirect sales channel. I think you mentioned six groups hired. Maybe if you could describe these a little better geographically, and then also do they have application engineers involved? yeah, I'll just stop with those questions.

Right, so first of all, there are many in the United States right now, obviously, but we are definitely trying to go to Japan and Europe to expand our ISV, but today, all six of them are US-based. In terms of size of those ISVs, it's really from large to small, but more importantly is really about what's their current engagement with the end customer. We're looking at ISV can add value, can easily pull their software onto our platform, and so they can go to their existing customer with our solution. So those are ISV or engagement. And more importantly, they are really enabling applications that we have not touched in the past. So overall, from that point of view, we are happy with the progress that we made in a short period of time since we announced this at CES. But I think six of them is just the beginning. I think our goal is to double that in this year. and hopefully we can continue to build on the momentum based on that.

Yeah, Kevin, it's Louis. In addition for this indirect effort, in addition to the ISVs we just talked about, there's significant effort, you know, building out channel partners and even system integrators as part of this effort. This is really important to help us serve

you know markets like edge infrastructure that need a lot of technical support are very fragmented markets like robotics so a lot of efforts going into the isv channel partners and even system integrators okay great yeah that was going to be part of my uh follow-up question of you know how much of a i hate to use the term that the cookie cutter approach can it be that that someone can go in with with uh you know a lot of the solution already and help out a customer is that the idea

Yeah, you might have multiple ISVs working on one project. So, if I understood the question right, it's not just, you know, always something right off the shelf, you know, cookie cutter, as you said, but you might have ISVs, you might have channel partners, and you might have system integrators all involved on one project. I think it's pretty far from, you know, being cookie cutter. It's very sophisticated software as these workloads get more complex. You need that whole indirect ecosystem to play a role in many of these designs we're pursuing.

And, Kevin, just to add, you know, part of the decision-making engaging with some of these ISVs is seeing the expertise that they have in different verticals. And some of these, you know, some of them are they have, expertise across multiple verticals. And so it's really trying to take a holistic approach to that engagement and cover as many verticals as we can with folks who specialize.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Christopher Rowland with Susquehanna. Please proceed.

Thanks so much for the question, guys. My question is, I think a few quarters ago you talked about doing some infrastructure, putting your chips basically into servers. I think it was for security camera applications, but potentially other. Have you had any other further engagements there on the infrastructure side?

Yes, we do. H infrastructure continues to be a focus, and we have N1655. We have, you know, not only engaging with customers, we also have design wins that we're working on. The first product will probably come out, I would say, second half of this year. And in the same time, we are definitely building a roadmap to continue to address this opportunity. We haven't talked about our next generation chip and also the potential updates on that. But I think next time we should give you more updates on the edge infrastructure. That's meant to be a very important direction for us.

Yeah, just to put it in perspective, you know, based on the products we have now, you know, it's a couple hundred million dollars, Sam, for things like AI Vision Box. But as we come out with more products and build out this indirect ecosystem that, as we mentioned, will help the edge infrastructure business, you'll see us update the SAM appropriately, you know, when we have more products here. So definitely a high-focus area, and it's part of that indirect channel we were just talking about.

Great. Thank you, Louis. Thank you, Fermi. And then for my second question, just the robotics opportunity, I think last quarter you mentioned warehouse robotics. Any other engagements there? And then if you could talk about humanoids and engagements there, that would be interesting too.

Right. So we talk about different applications. This time, in fact, last time we talked about the warehouse design win, and now we are definitely in an extensive engineering development cycle with that. And but more importantly, on top of that, we have multiple design wins in this quarter in the span of many different applications. I talk about it in my script. But I think the most important things now we focus on that for any robots, there are multiple different solutions today. One is just purely video. The other one is perception. Three, the third one is using fusion to put a different sensor together. and the fourth one is really become the controller or decision maker for this whole robot system. Our design is in all these areas, but more focused on the perception side because our expertise on the video and also future side. So I think it's across different applications and also focused perception, and also decision-making part of the robotic solution. There are some of the humanoid type of applications in that design, but we are not in a place to talk about just yet.

Excellent. Thank you, Fermi.

Thank you. One moment for our next question. That comes from Martin Young with Oppenheimer. Please proceed.

a particular question. First, a couple questions on LTA. Are you able to say or quantify how many other potential partners you have in your LTA discussion?

We only announced two. We're talking about potential, but there's no other concrete information we can disclose at this point.

Got it. And then also on LTA, so for example, the one with HEMWA, are spending over multiple years. Do you need to also secure wafer supply from your foundry partner regarding those LTEA agreements?

First of all, I believe that our relationship with Samsung, although we only try to secure wafer commitment every year, but in the last 18 years, we never have any problem with to secure the wafer we want. for our customers. So I expect that our wafer supply for 5 or 2 nanometers from Samsung will not be an issue for us, although there's a lot of discussion that Samsung is also gaining momentum on those process nodes. And obviously, we don't have any long-term contract with any suppliers. That might be a question you're asking, but I don't think that's a contract we're going to sign with any supplier at any time soon.

Got it. And last question, also on LTA, do you view your relationship with Samsung and your design capabilities as a key value prop when you try to secure long-term agreements with other customers?

Absolutely. Because, you know, one long discussion with any customer on LTA is how you secure your wafers, particularly on the full nano, true nanometer process node. In fact, some of the time we have to really bringing our supplier partners into a conversation to make sure they, our customer, feel comfortable with it. By the way, I can say that, you know, we, you know, today, you know, Senso announced at their, Senso has their official company-wide event talking about the 2-nano process, and they made an announcement that, NVIDIA and the umbrella are the true two nanometer customers that come into their process node. That's official press release from Samsung.

Okay. Thank you, Fermi.

Thank you. And as a reminder, to ask a question, simply press star 11 to get in the queue. That is star 11 to get in the queue. Our next question is from Suje De Silva with Roth Capital. Please proceed.

Hi, Fermi. Hi, John. So, quick question on robotics as well. I'm curious, are those – you have a breadth of wins there. Are those across the board on your product portfolio, or does that category lean toward the leading-edge products, the leading-edge nodes? Just want to understand, you know, where robotics is intercepting your product portfolio.

All the products that we have designed win is our CV product line. It's really – And most of it is our 5-nanometer products. There are some 10-nanometer, but majority is 5-nanometer products. In fact, there are also our 4-nanometer products in there, too. So, this is really covering our CV flow architecture. That's the main reason people are using us, but more focused on the 5-nanometer for the performance efficiency.

Got it. Okay. And then a question perhaps for John. Should we expect typical seasonality this fiscal year and this calendar year, or are there factors that might be swinging it differently than prior years?

Suzy, I think the expectation is to continue to see the seasonality that we've seen in the past at this point.

Okay, great. Thanks, John. Thanks, everybody.

Thank you. Our next question is from Ross Seymour with Deutsche Bank. Please proceed.

Hi, guys. Just one follow-up for you. Given the change in the business, more automotive this year relative to the IoT side, and then longer term, some of the robotics and IoT and edge AI, physical AI, everything you've talked about on the call, how do you see that impacting either benefiting or being a little bit of a headwind to your gross margin in both the near term and long term from those dynamics, please?

All right. So, Ross, in fact, since three quarters ago, we started really watching our gross margin carefully. I think that today what I can say is based on all the things we just discussed, we believe that we are going to stay with our current long-term gross margin model that's between 59% to 62%. Got it.

Thank you.

Thank you. And this concludes our Q&A session, and I will pass it back to Dr. Fermi-Wang for closing comments.

And thank you for joining our call today, and I really hope I can see you at some of our events this quarter. Thank you. See you next time.

This concludes our conference. Thank you for participating, and you may now disconnect.