AMBARELLA INC

Previous wording

This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, includes a number of forward-looking statements that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “outlook,” “if,” “future,” “intend,” “plan,” “estimate,” “predict,” “potential,” “target,” “seek,” “project,” “forecast,” “continue” or “foreseeable” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. Such statements include, but are not limited to, statements concerning our market opportunity and our ability to compete in such markets, our product strategy, our ability to develop and introduce new solutions, our future financial and operating performance, our sales and marketing strategy, our investment strategy, research and development, our customer and supplier relationships and inventory levels, industry trends, our cash needs and capital requirements, our repurchase programs, our expectations about taxes, operating expenses, and cost recognition, the availability of third-party components and economic and political conditions. These statements reflect our current views with respect to future events and our potential financial performance, and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q. These factors include, but are not limited to: risks associated with revenue being generated from new customers or design wins, neither of which is assured; our ability to retain and expand customer relationships and to achieve design wins; risks associated with the overall economy, including higher inflation and escalating trade tensions between the U.S. and China; the commercial success of our customers’ products; our growth strategy; fluctuations in our operating results; our ability to anticipate future market demands and future needs and preferences of our customers; our ability to introduce new and enhanced solutions; the expansion of our current markets and our ability to successfully enter new markets; anticipated trends and challenges, including competition, in the markets in which we operate or seek to operate; our expectations regarding computer vision; our ability to effectively generate and manage growth; our ability to retain key employees; the potential for intellectual property disputes or other litigation; the risks described under Item 1A of Part II — “Risk Factors,” and Item 2 of Part I — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; the risks described elsewhere in this Quarterly Report on Form 10-Q and those discussed in other documents we file w…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, includes a number of forward-looking statements that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “outlook,” “if,” “future,” “intend,” “plan,” “estimate,” “predict,” “potential,” “target,” “seek,” “project,” “forecast,” “continue” or “foreseeable” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. Such statements include, but are not limited to, statements concerning our market opportunity and our ability to compete in such markets, our product strategy, our ability to develop and introduce new solutions, our future financial and operating performance, our sales and marketing strategy, our investment strategy, research and development, our customer and supplier relationships and inventory levels, industry trends, our cash needs and capital requirements, our repurchase programs, our expectations about taxes, operating expenses, and cost recognition, the availability of third-party components and economic and political conditions. These statements reflect our current views with respect to future events and our potential financial performance, and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q. These factors include, but are not limited to: risks associated with revenue being generated from new customers or design wins, neither of which is assured; our ability to retain and expand customer relationships and to achieve design wins; risks associated with the overall economy, including higher inflation and escalating trade tensions between the U.S. and China; the commercial success of our customers’ products; our growth strategy; fluctuations in our operating results; our ability to anticipate future market demands and future needs and preferences of our customers; our ability to introduce new and enhanced solutions; the expansion of our current markets and our ability to successfully enter new markets; anticipated trends and challenges, including competition, in the markets in which we operate or seek to operate; our expectations regarding artificial intelligence and computer vision; our ability to effectively generate and manage growth; our ability to retain key employees; the potential for intellectual property disputes or other litigation; the risks described under Item 1A of Part II — “Risk Factors,” and Item 2 of Part I — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; the risks described elsewhere in this Quarterly Report on Form 10-Q and those discussed …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We are a leading developer of low-power system-on-a-chip, or SoC, semiconductors providing powerful artificial intelligence, or AI, processing, advanced image signal processing and high-resolution video compression. Since inception, we have primarily served human viewing applications with video and image processors for enterprise, public infrastructure and home applications, such as internet protocol, or IP, security cameras, sports cameras, wearables, aerial drones, and aftermarket automotive video recorders. Our recent development efforts have focused on creating advanced AI technology that enables edge devices to visually perceive the environment and make decisions based on the data collected from cameras and, most recently, other types of sensors. This category of AI technology is known as computer vision (CV) or edge inference AI, and our CV SoCs integrate our state-of-the-art video processor technology together with our deep learning neural network processing technology, which we refer to as CVflow™. The CVflow-architecture supports a variety of CV algorithms, including object detection, classification and tracking, semantic and instance segmentation, image processing, stereo object detection, and terrain mapping. CVflow can process other sensor modalities including lidar and radar, and allows customers to differentiate their products by porting their own, or third party, neural networks and/or classical CV algorithms to our CVflow-based SoCs. Our latest third generation CVflow technology enables us to address incremental and computationally intense AI applications for deep fusion, deep planning, and large language models (LLMs), as well as efficiently process transformer AI networks.

Current wording

We are a leading developer of low-power system-on-a-chip, or SoC, semiconductors providing powerful artificial intelligence, processing, advanced image signal processing and high-resolution video compression. Since inception, we have primarily served human viewing applications with video and image processors for enterprise, public infrastructure and home applications, such as internet protocol, or IP, security cameras, sports cameras, wearables, aerial drones, and aftermarket automotive video recorders. Our recent development efforts have focused on creating advanced artificial intelligence, or AI, technology that enables edge devices to visually perceive the environment and make decisions based on the data collected from cameras and, most recently, other types of sensors. This category of AI technology is known as computer vision (CV) or edge inference AI, and our CV SoCs integrate our state-of-the-art video processor technology together with our deep learning neural network processing technology, which we refer to as CVflow™. The CVflow-architecture supports a variety of CV algorithms, including object detection, classification and tracking, semantic and instance segmentation, image processing, stereo object detection, and terrain mapping. CVflow can process other sensor modalities including lidar and radar, and allows customers to differentiate their products by porting their own, or third party, neural networks and/or classical CV algorithms to our CVflow-based SoCs. Our latest third generation CVflow technology enables us to address incremental and computationally intense AI applications for deep fusion, deep planning, and large language models (LLMs), as well as efficiently process transformer AI networks.

Previous wording

Our SoC designs fully integrate computer vision functionality, high-definition, or HD, video processing, image processing, audio processing, and system functions onto a single chip, delivering exceptional video and image quality at high compression rates, differentiated functionality and low power consumption. These CV-based technologies are allowing us to address a broader range of markets and applications requiring AI video features, including IP security cameras, a variety of automotive cameras, consumer cameras, and industrial and robotic applications. We anticipate that our CV technology will also enable us to capture more content per electronic system and increase our average selling price.

Current wording

Our SoC designs fully integrate AI and CV functionality, high-definition, or HD, video processing, image processing, audio processing, and system functions onto a single chip, delivering exceptional video and image quality at high compression rates, differentiated functionality and low power consumption. These CV-based technologies are allowing us to address a broader range of markets and applications requiring AI video features, including IP security cameras, a variety of automotive cameras, consumer cameras, and industrial and robotic applications. We anticipate that our CV technology will also enable us to capture more content per electronic system and increase our average selling price.

Previous wording

We recorded revenue of $54.5 million for the three months ended April 30, 2024. This represented a decrease of 12.3% as compared to the same period in the prior fiscal year. The decrease in revenue was primarily attributable to lower product unit shipments, partially offset by continued adoption of our CV-based solutions, which have higher average selling prices than non-CV solutions.

Current wording

We recorded revenue of $63.7 million and $118.2 million for the three and six months ended July 31, 2024, respectively. This represented an increase of 2.6% and a decrease of 4.9%, respectively, as compared to the same periods in the prior fiscal year. The increase in revenue for the three months ended July 31, 2024 was primarily attributable to higher product unit shipments, continued adoption of our CV-based solutions which have higher average selling prices than non-CV solutions, as well as higher nonrecurring engineering (NRE) project service revenue. The decrease in revenue for the six months ended July 31, 2024 was primarily attributable to lower product unit shipments in the first quarter of fiscal year 2025, partially offset by continued adoption of our CV-based solutions with higher average selling prices and higher NRE project service revenue.

Previous wording

We recorded an operating loss of $39.4 million for the three months ended April 30, 2024, as compared to an operating loss of $35.5 million for the three months ended April 30, 2023. The higher operating loss was primarily due to lower revenue, partially offset by lower operating expenses. The decrease in operating expenses was primarily attributable to lower personnel costs, partially offset by an increase in engineering-related expenses associated with the progress and number of chips in development, as well as higher outside professional service costs.

Current wording

We recorded operating losses of $36.3 million and $75.7 million for the three and six months ended July 31, 2024, respectively, as compared to operating losses of $35.3 million and $70.9 million for the three and six months ended July 31, 2023, respectively. The higher operating losses were primarily attributable to higher engineering-related expenses associated with the progress and number of chips in development. For the six months ended July 31, 2024, the higher operating loss was also attributable to lower revenue and gross profit, partially offset by lower personnel cost associated with lower headcount.

Previous wording

We had cash outflows from operating activities of $15.0 million for the three months ended April 30, 2024, as compared to cash inflows of $22.0 million for the three months ended April 30, 2023. The cash outflows from operating activities were primarily attributable to reductions in working capital including payments for chip development costs and a higher net loss, adjusted for certain non-cash items.

Current wording

We generated cash flows from operating activities of $1.8 million for the six months ended July 31, 2024, as compared to $15.2 million for the six months ended July 31, 2023. The lower cash flows from operating activities were primarily attributable to lower cash flow from changes in working capital, including payments for chip development costs and a higher net loss, adjusted for certain non-cash items.

Previous wording

Ability to Capitalize on AI and Computer Vision Trends. We expect that AI and computer vision functionality will become an increasingly important requirement in many of our current and future markets, including IoT, automotive, industrial and robotics markets. As a result, we believe that our ability to develop advanced AI computer vision technology, enable and support customer product development in emerging applications, such as ADAS, advanced blind spot detection, object detection, classification and tracking, people recognition, retail analytics, and machine learning, and gain customer acceptance of our technology platform and solutions will be critical to our future success. Moreover, achieving design wins, particularly for computer vision-centric applications in the IoT, automotive, industrial and robotics markets, is vital to our ability to generate revenue growth. As such, we closely monitor our design wins with our customers. However, a design win may not successfully materialize into revenue, and even if it does result in revenue, the amount generated by each design win can vary significantly.

Current wording

Ability to Capitalize on AI and Computer Vision Trends. We expect that AI and computer vision functionality will become an increasingly important requirement in many of our current and future markets, including IoT, automotive, industrial and robotics markets. As a result, we believe that our ability to develop advanced AI and computer vision technologies, enable and support customer product development in emerging applications, such as ADAS, advanced blind spot detection, object detection, classification and tracking, people recognition, retail analytics, and machine learning, and gain customer acceptance of our technology platform and solutions will be critical to our future success. Moreover, achieving design wins, particularly for computer vision-centric applications in the IoT, automotive, industrial and robotics markets, is vital to our ability to generate revenue growth. As such, we closely monitor our design wins with our customers. However, a design win may not successfully materialize into revenue, and even if it does result in revenue, the amount generated by each design win can vary significantly.

Previous wording

Ability to Develop and Introduce New or Enhanced Solutions. We operate in a dynamic environment characterized by rapidly changing technologies and technological obsolescence. To compete successfully, we must design, develop, market and sell enhanced solutions with increased levels of performance and functionality that meet the expectations of our customers. As such, we continuously invest in our research and development projects, especially AI and computer vision technologies. However, failure to anticipate or timely develop new or enhanced solutions in response to technology shifts and trends could result in decreased revenue and our competitors achieving design wins we sought. Moreover, any reliability or quality problems with our solutions could harm our reputation, increase additional development and replacement costs, and prevent us from retaining existing customers and attracting new customers.

Current wording

Ability to Develop and Introduce New or Enhanced Solutions. We operate in a dynamic environment characterized by rapidly changing technologies and technological obsolescence. To compete successfully, we must design, develop, market and sell enhanced solutions with increased levels of performance and functionality that meet the expectations of our customers, including advanced process technologies. As such, we continuously invest in our research and development projects, especially AI and computer vision technologies. However, failure to anticipate or timely develop new or enhanced solutions in response to technology shifts and trends could result in decreased revenue and our competitors achieving design wins we sought. Moreover, any reliability or quality problems with our solutions could harm our reputation, increase additional development and replacement costs, and prevent us from retaining existing customers and attracting new customers.

Previous wording

We derive substantially all of our revenue from the sale of HD and Ultra HD video and image processing SoC solutions to IoT OEMs, IoT ODMs, automotive OEMs or Tier-1 automotive suppliers, either directly or through our distributors. A substantial portion of our revenue from sales was made indirectly through one of our distributors, WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or WT, which serves as our non-exclusive sales representative and fulfillment partner in Asia other than Japan, and from one ODM, Chicony Electronics Co., Ltd., or Chicony, which manufactures devices incorporating our solutions on behalf of multiple end-customers.

Current wording

We derive substantially all of our revenue from the sale of HD and Ultra HD video and image processing SoC solutions to IoT OEMs, IoT ODMs, automotive OEMs or Tier-1 automotive suppliers, either directly or through our distributors. A substantial portion of our revenue from sales was made indirectly through our two major distributors, WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or WT, which serves as our non-exclusive sales representative and fulfillment partner in Asia other than Japan, and Hakuto Co., Ltd., or Hakuto, a Japanese distributor, and from one ODM, Chicony Electronics Co., Ltd., or Chicony, which manufactures devices incorporating our solutions on behalf of multiple end-customers.

Previous wording

Comparison of the Three Months Ended April 30, 2024 and 2023

Current wording

Comparison of the Three and Six Months Ended July 31, 2024 and 2023

Previous wording

Revenue decreased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily due to lower product unit shipments, partially offset by continued adoption of our CV-based solutions, which have higher average selling prices than non-CV solutions.

Current wording

Revenue increased for the three months ended July 31, 2024, as compared to the same period in the prior fiscal year, primarily due to higher product unit shipments, continued adoption of our CV-based solutions which have higher average selling prices than non-CV solutions, as well as higher NRE project service revenue. Revenue decreased for the six months ended July 31, 2024, as compared to the same period in the prior fiscal year, primarily due to lower product unit shipments in the first quarter of fiscal year 2025, partially offset by continued adoption of our CV-based solutions with higher average selling prices and higher NRE project service revenue.

Previous wording

Gross margin increased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily due to sales of inventory that was previously reserved and lower adverse purchase commitments recognized.

Current wording

Gross margin decreased for the three and six months ended July 31, 2024, as compared to the same periods in the prior fiscal year, primarily due to higher manufacturing costs associated with advanced process technologies, partially offset by lower inventory reserves and higher sales of inventory that was previously reserved.

Previous wording

Research and development expense decreased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily due to approximately $0.9 million of lower personnel costs, including stock-based compensation, employee benefits and incentive bonus, as a result of lower headcount, partially offset by approximately $0.6 million of additional engineering-related expenses associated with the progress and number of chips in development.

Current wording

Research and development expense increased for the three and six months ended July 31, 2024, as compared to the same periods in the prior fiscal year, primarily due to approximately $1.6 million and $2.1 million, respectively, of additional engineering-related expenses associated with the progress and number of chips in development. For the six months ended July 31, 2024, the increase was partially offset by approximately $0.6 million lower personnel costs, including stock-based compensation, as a result of lower headcount.

Previous wording

Selling, general and administrative expense decreased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily due to approximately $0.7 million of lower personnel costs, including stock-based compensation, employee benefits and incentive bonus, as a result of lower headcount, partially offset by approximately $0.5 million of additional outside professional service costs.

Current wording

Selling, general and administrative expense decreased for the three and six months ended July 31, 2024, as compared to the same periods in the prior fiscal year, primarily due to lower personnel costs and facility-related expenses of approximately $0.4 million and $1.0 million, respectively.

Previous wording

The increase in other income, net, for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, was primarily due to approximately $1.0 million of additional interest income and yields from our cash deposits and debt security investments.

Current wording

The increases in other income, net, for the three and six months ended July 31, 2024, as compared to the same periods in the prior fiscal year, were primarily due to an approximately $1.2 million impairment charge relating to an equity investment recognized during the second quarter of fiscal year 2024 that did not recur in the current fiscal year, as well as approximately $0.2 million and $1.2 million, respectively, of additional interest income and yields from our cash deposits and debt security investments.

Previous wording

As of April 30, 2024, we had cash, cash equivalents and marketable debt securities of approximately $203.3 million. We invest in highly-liquid, short-term marketable debt securities and hold these investments as available-for-sale securities. Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information. The current inflationary environment in the United States and resulting high interest rates have not had a material impact on our investment portfolio and financial position.

Current wording

As of July 31, 2024, we had cash, cash equivalents and marketable debt securities of approximately $219.8 million. We invest in highly-liquid, short-term marketable debt securities and hold these investments as available-for-sale securities. Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information. The current inflationary environment in the United States and resulting high interest rates have not had a material impact on our investment portfolio and financial position.

Previous wording

Net cash used in operating activities increased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily attributable to reductions in working capital including payments for chip development costs and a higher net loss, adjusted for certain non-cash items.

Current wording

Net cash provided by operating activities decreased for the six months ended July 31, 2024, as compared to the same period in the prior fiscal year, primarily due to lower cash flow from changes in working capital, including higher payments for chip development costs and a higher net loss, adjusted for certain non-cash items.

Previous wording

Net cash provided by investing activities increased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily attributable to approximately $9.2 million of net cash receipts from our debt security investments, and $1.2 million less in payments for the purchase of capital assets.

Current wording

Net cash provided by investing activities increased for the six months ended July 31, 2024, as compared to the same period in the prior fiscal year, primarily due to approximately $9.7 million of net cash receipts from our debt security investments, and $4.0 million less in payments for the purchase of capital assets and licenses.

Previous wording

Net cash provided by financing activities decreased for the three months ended April 30, 2024, as compared to the same period in the prior fiscal year, primarily due to approximately $1.0 million additional principal payments associated with long-term software license agreements, partially offset by approximately $0.3 million higher cash receipt from stock activities.

Current wording

Net cash provided by financing activities decreased for the six months ended July 31, 2024, as compared to the same period in the prior fiscal year, primarily due to approximately $1.1 million additional principal payments associated with long-term software license agreements, partially offset by approximately $0.8 million higher cash receipt from stock activities.

Previous wording

No ordinary shares were repurchased during the three months ended April 30, 2024. As of April 30, 2024, there was approximately $49.0 million remaining available for repurchases under the current repurchase program through June 30, 2024. On May 29, 2024, our Board of Directors approved an extension of the existing share repurchase program for an additional twelve months through June 30, 2025. Refer to Note 16 of the Notes to Condensed Consolidated Financial Statements for additional information.

Current wording

On May 29, 2024, our Board of Directors approved an extension of our existing share repurchase program for an additional twelve months through June 30, 2025. The repurchase program does not obligate us to acquire any particular amount of ordinary shares, and it may be suspended at any time at our discretion. No ordinary shares were repurchased during the six months ended July 31, 2024. As of July 31, 2024, there was approximately $49.0 million remaining available for repurchases under the current repurchase program through June 30, 2025.

Previous wording

As of April, 2024, we had purchase obligations with our independent contract manufacturers of $35.4 million.

Current wording

As of July 31, 2024, we had purchase obligations with our independent contract manufacturers of $57.5 million.