Ambarella(AMBA) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION The first part of the report presents the company's financial statements and management's discussion and analysis Item 1. Financial Statements The unaudited condensed consolidated financial statements for the three months ended April 30, 2022, are presented, showing key financial performance and position Condensed Consolidated Statements of Operations | Financial Metric | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | | :--- | :--- | :--- | | Revenue | $90,305 | $70,133 | | Gross Profit | $56,547 | $43,765 | | Loss from Operations | $(10,498) | $(10,136) | | Net Loss | $(10,822) | $(10,818) | | Diluted Net Loss Per Share | $(0.29) | $(0.30) | Condensed Consolidated Balance Sheet Highlights | Asset/Liability | As of April 30, 2022 (in thousands) | As of January 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $200,639 | $171,043 | | Total current assets | $278,329 | $266,748 | | Total assets | $668,665 | $657,545 | | Total current liabilities | $74,855 | $89,284 | | Total liabilities | $94,317 | $110,369 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $33,560 | $(4,547) | | Net cash used in investing activities | $(3,952) | $(11,230) | | Net cash provided by (used in) financing activities | $(12) | $2,012 | | Net increase (decrease) in cash | $29,596 | $(13,765) | Notes to Unaudited Condensed Consolidated Financial Statements Detailed notes support the financial statements, outlining business operations, accounting policies, and significant revenue concentration with key distributors and customers - The company is a developer of low-power semiconductor solutions for applications including video security, ADAS, autonomous driving, and industrial robotics[29] - A substantial portion of revenue is derived from two major distributors, WT Microelectronics Co., Ltd. (WT) and Hakuto Co., Ltd. (Hakuto), and one ODM customer, Chicony Electronics Co., Ltd. (Chicony)[35] Revenue by Geographic Region (Bill-to Location) | Region | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | | :--- | :--- | :--- | | Taiwan | $53,636 | $44,587 | | Asia Pacific | $21,555 | $18,637 | | Europe | $8,393 | $3,018 | | North America (ex-US) | $4,886 | $2,690 | | United States | $1,835 | $1,201 | | Total Revenue | $90,305 | $70,133 | - For the three months ended April 30, 2022, major customers WT, Chicony, and Hakuto accounted for approximately 57%, 11%, and 10% of total revenue, respectively[82] - On May 27, 2022, the Board of Directors approved an extension of the current share repurchase program for an additional twelve months, ending June 30, 2023, with approximately $49.0 million remaining available for repurchases[83] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, discussing revenue growth drivers, operating expenses, and the company's strong liquidity position Overview and Factors Affecting Performance This section outlines the company's strategic focus on AI and computer vision technology, key growth drivers, and the impact of external factors like supply chain disruptions - The company's development efforts are focused on creating advanced AI technology, known as computer vision (CV), with its CVflow™ architecture supporting a variety of algorithms for markets like IP security, automotive, and robotics[87] - The COVID-19 pandemic has caused significant disruption of orders and logistics throughout the Asia supply chain, leading to longer manufacturing times and a reduction in near-term inventory purchases[95] - Future success is critically dependent on the ability to develop advanced AI computer vision technology and achieve design wins in applications like ADAS, object detection, and AI-enabled security cameras[96] - Since fiscal year 2018, the professional and consumer IP security camera markets and automotive markets have been the largest end markets, collectively generating the majority of revenue[102] Results of Operations A detailed comparison of operating results highlights revenue growth, gross margin changes, and increases in research and development and selling, general and administrative expenses Revenue Comparison | Period | Revenue (in thousands) | Change Amount (in thousands) | Change % | | :--- | :--- | :--- | :--- | | Q1 FY2023 | $90,305 | $20,172 | 28.8% | | Q1 FY2022 | $70,133 | | | - The revenue increase was primarily driven by higher sales in the professional IP security and automotive OEM sensing and fleet markets, despite decreased revenue in consumer-related markets due to pandemic lockdowns in China[120] Operating Expense Comparison | Expense Category | Q1 FY2023 (in thousands) | Q1 FY2022 (in thousands) | Change % | | :--- | :--- | :--- | :--- | | Research and development | $46,690 | $37,874 | 23.3% | | Selling, general and administrative | $20,355 | $16,027 | 27.0% | - The increase in R&D expense was primarily due to an $8.5 million rise in personnel costs from headcount growth (including from the Oculii acquisition) and a $1.4 million increase in engineering-related expenses[123] Liquidity and Capital Resources This section details the company's cash position, operating cash flow improvements, and the status of its share repurchase program - Cash and cash equivalents increased to $200.6 million as of April 30, 2022, from $171.0 million as of January 31, 2022[128] - The increase in net cash from operating activities was primarily due to decreased accounts receivable from the timing of sales and lower inventory purchases resulting from pandemic-related disruptions in the Asia supply chain[131] - In May 2022, the Board of Directors extended the stock repurchase program through June 30, 2023, with $49.0 million remaining available for repurchases[134] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk stems from foreign currency exchange rate fluctuations impacting international operating expenses - All product sales and inventory purchases are denominated in U.S. dollars, mitigating foreign currency risk in revenue and cost of goods sold[142] - The company is exposed to foreign currency risk as operating expenses in international locations (principally Taiwan, China, and Europe) are denominated in local currencies[142] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that as of April 30, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[144] - There were no changes in internal control over financial reporting during the quarter ended April 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[145] PART II. OTHER INFORMATION The second part of the report covers legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not engaged in any material legal proceedings at this time[147] Item 1A. Risk Factors This section details various risks, including supply chain disruptions, customer concentration, and geopolitical tensions, that could adversely affect the company's business - The COVID-19 pandemic continues to pose a risk, potentially causing disruptions to operations, supply chain logistics, and customer orders, particularly due to lockdowns in China[160] - The company faces risks from semiconductor industry shortages, which lengthen manufacturing lead times and could impact the ability to meet customer demand[169] - A significant portion of revenue comes from a limited number of customers, including distributors WT and Hakuto, and ODM Chicony. The loss of or a significant reduction in purchases from any of these customers could harm financial results[177] - The company's ability to sell to certain Chinese customers, such as Hikvision and Dahua, has been restricted by their inclusion on the U.S. Department of Commerce's Entity List, which could have a long-term adverse effect on business[243] - The company faces political and other risks from conducting business in Taiwan, where it has significant operations and many of its suppliers are located, particularly due to Taiwan's relationship with China[247] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including employment agreements and required certifications - Exhibit 10.1 is the employment letter for Brian White, dated March 18, 2022[300] - Exhibit 10.2 is the Change of Control and Severance Agreement for Brian White, dated March 28, 2022[301] - Exhibits 31.1, 31.2, and 32.1 contain the required certifications by the Principal Executive Officer and Principal Financial Officer[302][303][304]