Ambarella(US:AMBA)2023-09-08 17:48PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended July 31, 2023, show a decrease in total assets and shareholders' equity compared to January 31, 2023, with a wider net loss for both the three and six-month periods driven by lower revenue and gross profit, though the company maintains a strong cash and marketable securities position Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2023 | January 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $286,647 | $304,632 | | Total Assets | $696,244 | $710,195 | | Total Current Liabilities | $74,690 | $83,462 | | Total Liabilities | $93,926 | $104,107 | | Total Shareholders' Equity | $602,318 | $606,088 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $62,121 | $80,884 | $124,263 | $171,189 | | Gross Profit | $38,462 | $51,064 | $75,981 | $107,611 | | Loss from Operations | $(35,339) | $(20,188) | $(70,881) | $(30,686) | | Net Loss | $(31,198) | $(23,650) | $(67,100) | $(34,472) | | Diluted Net Loss Per Share | $(0.79) | $(0.62) | $(1.70) | $(0.91) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,187 | $33,003 | | Net cash used in investing activities | $(7,969) | $(10,311) | | Net cash provided by financing activities | $1,756 | $1,209 | | Cash, cash equivalents and restricted cash at end of period | $122,523 | $194,954 | - The company's two largest customers, distributor WT Microelectronics and ODM Chicony Electronics, accounted for approximately 53.9% and 13.7% of total revenue, respectively, for the three months ended July 31, 202394 Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a significant revenue decline of 23.2% for the quarter and 27.4% for the six months year-over-year, primarily due to customers reducing inventory levels, leading to increased operating losses, while the company focuses on advanced AI and computer vision SoCs for IoT, automotive, and industrial markets - The company's development efforts are focused on creating advanced AI technology, known as computer vision (CV), with its CVflow™ architecture, aimed at a broad range of applications including IP security cameras, automotive ADAS, and industrial/robotic applications98 - Future revenue growth is expected to depend significantly on the expansion within camera markets with AI and computer vision technology, particularly in IoT and emerging automotive and industrial markets100 - Global economic conditions, including high inflation and uncertainty in customer demand, have led some customers to reduce their inventory levels, which has negatively impacted and may continue to reduce demand for the company's products107 Results of Operations For the three and six months ended July 31, 2023, revenue decreased significantly compared to the prior year due to lower product shipments and customer inventory reduction, leading to a decline in gross margin from unfavorable product mix and increased inventory reserves, while operating expenses rose due to R&D investment Revenue Performance (in thousands) | Period | Revenue (2023) | Revenue (2022) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months | $62,121 | $80,884 | $(18,763) | (23.2)% | | Six Months | $124,263 | $171,189 | $(46,926) | (27.4)% | - The decrease in revenue was primarily due to lower product unit shipments resulting from customer inventory reduction efforts and lower nonrecurring engineering (NRE) services, partially offset by the continued adoption of higher-priced CV-based solutions104133 Gross Margin Performance | Period | Gross Margin (2023) | Gross Margin (2022) | Change | | :--- | :--- | :--- | :--- | | Three Months | 61.9% | 63.1% | (1.2)% | | Six Months | 61.1% | 62.9% | (1.8)% | - Gross margin decreased due to unfavorable product mix, increased inventory reserves from market weakness, and lower NRE project services135 - R&D expenses increased by 4.9% for the quarter and 10.4% for the six-month period year-over-year, driven by higher personnel costs, increased SoC development costs due to the timing and number of chips in development, and higher engineering-related expenses136 - A tax benefit of $3.4 million was recorded for the quarter, compared to a $3.4 million provision in the prior year, primarily due to the release of a $3.6 million valuation allowance on deferred tax assets of Oculii Corp and a tax benefit for Oculii's current year losses139140 Liquidity and Capital Resources As of July 31, 2023, the company held $216.5 million in cash, cash equivalents, and marketable debt securities, with net cash from operating activities decreasing to $15.2 million for the first six months of fiscal 2024, though management believes existing cash is sufficient for the next 12 months Cash Flow Summary (Six Months Ended July 31, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,187 | $33,003 | | Net cash used in investing activities | $(7,969) | $(10,311) | | Net cash provided by financing activities | $1,756 | $1,209 | - The decrease in cash from operating activities was primarily due to an increased net loss, partially offset by higher collections of accounts receivable and lower inventory purchases145 - The Board of Directors extended the existing share repurchase program through June 30, 2024, with approximately $49.0 million available for repurchases as of July 31, 2023, though no shares were repurchased in the six months ended July 31, 202371148 - As of July 31, 2023, the company had manufacturing purchase obligations of $24.6 million and future payment commitments for software licenses of approximately $8.8 million152 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations and foreign currency risk, with its investment portfolio subject to interest rate changes without material impact, and foreign currency risk arising from operating expenses in local currencies, for which no hedging instruments are currently used - The company's investment portfolio is exposed to interest rate risk, but this is minimized by investing in a variety of highly liquid, low-credit-risk debt securities, with high interest rates generating higher interest income without a material negative impact158 - Foreign currency risk exists as operating expenses in international locations (e.g., Taiwan, China, Europe) are paid in local currencies, while all product sales are denominated in U.S. dollars, and the company does not currently engage in hedging activities159 Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of July 31, 2023, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of July 31, 2023, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level162 - No changes in internal control over financial reporting occurred during the fiscal quarter ended July 31, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting163 PART II. OTHER INFORMATION Legal Proceedings As of the reporting date, the company is not engaged in any material legal proceedings - The company is not engaged in any material legal proceedings at this time165 Risk Factors The company identifies numerous risks to its business, including global semiconductor supply shortages, weak economic conditions, reliance on customer design wins and a limited number of major customers, challenges in penetrating new markets, competition, U.S.-China trade tensions, intellectual property litigation, cybersecurity threats, and the cyclical nature of the semiconductor industry - The business is exposed to risks from global semiconductor supply shortages and uncertain macroeconomic conditions, which have led some customers to reduce inventory levels, potentially reducing future demand173174 - Revenue is highly dependent on securing 'design wins' with OEMs and the subsequent commercial success of their products, a process that is lengthy, costly, and uncertain175176 - A significant portion of revenue comes from a limited number of customers, including distributor WT and ODM Chicony, where the loss of or a substantial reduction in purchases from a significant customer could harm financial results196 - The company is subject to U.S. governmental export controls which could impair its ability to compete in international markets, particularly China, with several Chinese customers added to the BIS Entity List, restricting the company's ability to supply them281282 - The semiconductor industry is highly competitive and litigious regarding intellectual property, exposing the company to risks of infringement claims from third parties, which could result in significant costs and potential indemnification obligations to customers314318 Other Information During the fiscal quarter ended July 31, 2023, director Christopher Paisley adopted a Rule 10b5-1 trading plan for the potential sale of up to 12,000 ordinary shares - On June 21, 2023, director Christopher Paisley adopted a Rule 10b5-1 trading arrangement for the sale of up to 12,000 ordinary shares, with the plan extending until June 28, 2024, or until all transactions are completed339 Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications required under the Sarbanes-Oxley Act and Inline XBRL data files - The exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Securities Exchange Act of 1934 and Section 1350 of U.S.C. Title 18344 - The report includes Inline XBRL documents for financial data tagging, as required by the SEC342