Ambarella Inc Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ross Seymore - Deutsche Bank AG - Analyst : Hi guys. Congratulations on the strong results and guide. I guess my first question for me is really what changed? I know you talked about the different waves and when they're coming, but the inflection point, growing maybe 5% above the midpoint of your range, but an impressive 30% sequentially. And I know you called January seasonal, but it seems like it's even better than seasonal. So what's the activity at your customers that's changing? And I guess what I'm really getting at is I understand it's the new product adoption, but is there also just kind of shipping closer to end demand. So is this beginning of secular growth? Or is it also bolstered by a cyclical rebound?

Question: Ross Seymore - Deutsche Bank AG - Analyst : Whatever you're doing, it seems to be working. So congrats on that. I guess for my follow-up, switching over to the automotive funnel. It seems a little bit odd that the number would go down year-over-year considering you're adding a year where the growth rate at the tail end should be larger. So I guess the big picture question is, to the extent over the last couple of years, we've kind of thought as your auto business was going to be the incremental driver of significant growth going forward. Now it seems like the IoT, edge AI, whatever you want to call it, seems to be the bigger driver. Can you just talk about has the growth profile of the company really switched more to the IoT side? And are you as optimistic as ever on automotive? Or is something different the appropriate interpretation we should have?

Question: Ross Seymore - Deutsche Bank AG - Analyst : Thank you.

Question: Tore Svanberg - Stifel, Nicolaus & Company, Incorporated - Analyst : Yes, thank you. And let me echo and congratulations on the strong results. For me, could you just give us a little bit better sense for the mix here between CV2, CV5. I mean I assume not a whole lot of CV7 revenue yet. I think on the last call, I think you talked about CV5 potentially reaching 1 million units this year. So any more color you can share with us on the mix of CV would be helpful?

Question: Tore Svanberg - Stifel, Nicolaus & Company, Incorporated - Analyst : Great. And that was actually going to be my follow-up question. So as we think about fiscal '26 and we think about the cyclical recovery and so on and perhaps even impact the gross margin. So video processing bouncing back, it's probably more of a temporary phenomenon, and you're not really expecting that to continue to drive a higher mix to fiscal 2026?

Question: Tore Svanberg - Stifel, Nicolaus & Company, Incorporated - Analyst : Sounds good. Congrats again, Fermi. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, AMBA.OQ - Q3 2025 Ambarella Inc Earnings Call

Question: Quinn Bolton - Needham & Company - Analyst : Hey, you guys, let me offer my congratulations again. I wanted to ask for me, just kind of coming back to the auto pipeline, maybe sort of a follow-up to Ross' question. You talked about some pushouts and maybe even cancellations in Level 2-plus. Can you give us a sense what percent of that pipeline is now sort of driven by the Level 2-plus opportunities and how that might have changed from the last year's pipeline?

Question: Quinn Bolton - Needham & Company - Analyst : Perfect. And then the second question is just kind of regarding the automotive pipeline. Geographically, how diversified is that pipeline? Is it pretty concentrated in China or another geography? Or do you see pretty good geographic distribution of that pipeline? Thank you.

Question: Quinn Bolton - Needham & Company - Analyst : Got it. Thank you.

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : Hey Thanks for the question. Yeah, similar to the last one, can you talk about your current geographic mix and why this might have led to outperformance versus some of your peers, those with, I guess, EU exposure in particular? And then just tying into this as well, there's a worry that there might be Chinese EV ship ahead in front of tariffs, both the EU and US. Do you think that, that's going to come back to hunt us all in the auto segment at all? Or do you think you're pretty clean from that perspective?

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : Thank you for that. And then you mentioned something about in the prepared remarks about a legacy processor, I think that continued to sustain and maybe that weighed on margins. I wasn't quite sure there. But maybe talk about that and then when we could get a margin lift in particular in next fiscal year and what the moving parts there would be for that gross margin lift. Thanks.

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : Excellent. Thanks, Fermi.

Question: Kevin Cassidy - Rosenblatt Securities Inc. - Analyst : Yes, thanks for taking my question. Maybe a slightly different subject. But can you talk more about your 2-nanometer development when you expect tape out and the target end markets for those products?

Question: Kevin Cassidy - Rosenblatt Securities Inc. - Analyst : Okay. Great. It sounds exciting. Maybe just from John's point of view, as the OpEx is all the spending for 2-nanometer as you go through the fiscal year.

Question: Kevin Cassidy - Rosenblatt Securities Inc. - Analyst : Okay, great. Thanks. Congratulations.

Question: David O'Connor - BNP Paribas Exane - Analyst : Yeah, great. Thanks for taking my questions. Maybe two from my side, if I may. Just first, you guys on the auto funnel, again, going from that $2.4 billion down to $2.2 billion. Can you kind of break that out? How much was kind of canceled and then how much was added back in just to give a sense of kind of the relative size of those cancellation. And also kind of on those cancellations, anything you can share geographically of where you saw most of those cancellations. And I have a follow-up.

Question: David O'Connor - BNP Paribas Exane - Analyst : That's very helpful. And just one follow-on. Just on China again, you mentioned -- I think John mentioned it 16% of sales today. And also you said that kind of in the pipeline, it's 15% as well China -- but then China is innovating a lot faster. So can you just go back and explain why China isn't higher in the mix? Or where should China land in kind of a steady state in terms of the mix really? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, AMBA.OQ - Q3 2025 Ambarella Inc Earnings Call

Question: Suji Desilva - ROTH MKM Partners - Analyst : Hi Fermi, hi John. So, on the L2+ us win do you have, can you talk about the competitive landscape and your design win share across those? And I'm curious how impactful the Conti and Bosch partnerships are in helping you secure those wins?

Question: Suji Desilva - ROTH MKM Partners - Analyst : Okay, thanks Fermi. And then my other question is on the customers and helping kind of adoption. You said customer software readiness is one of the factors in the timing of adoption. Is there anything you can do from your end to help that equation, help them speed that cycle along with software rates? Or is that something you just have to have the customer do then the ready to adopt you?

Question: Suji Desilva - ROTH MKM Partners - Analyst : Okay. Thanks Fermi.

Question: Martin Yang - Oppenheimer & Co. Inc. - Analyst : Thank you for taking the question. Only one question regarding the automotive pipeline change. Given where you're seeing with European customers and US customers, does it change your outlook for potential margin contribution from those automotive design wins?

Question: Martin Yang - Oppenheimer & Co. Inc. - Analyst : Got it. A quick follow-up. So again, on broad picture company-wide margin. Do you think -- where do you think -- what factors would drive the margins? Do you think it's mixed or any other factors you would point out that have a bigger influence on the long-term margin outlook?

Question: Martin Yang - Oppenheimer & Co. Inc. - Analyst : Got it. Thank you, Fermi. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, AMBA.OQ - Q3 2025 Ambarella Inc Earnings Call

Question: Richard Shannon - Craig-Hallum Capital Group - Analyst : Well, thanks for taking my questions as well. There haven't been a lot of discussion on GenAI in this call. So maybe, Fermi, if you can talk about the progress here since you announced this initiative, I mean, just over a year ago. How that's building out here. Maybe if you want to use it in the framework, you're talking about your funnel in the automotive space, talk about it to GenAI. I guess I'd love to hear about that.

Question: Richard Shannon - Craig-Hallum Capital Group - Analyst : Okay. A lot of detail there for me. I'll follow up with that one a little bit later, but my follow-on question here is -- so obviously, as you just detailed, I don't know a prior question here about the competitive dynamics here, competitive environment, where you're the smallest company out there and probably later to market. What kind of with all the pushouts that we've seen in the automotive space as exemplified in your funnel change REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, AMBA.OQ - Q3 2025 Ambarella Inc Earnings Call year-on-year here, do you think this is going to end up being a net positive for you, allowing you to catch up in any manner? Maybe just kind of discuss how these -- the changes in the environment are going to be beneficial for you?

Question: Richard Shannon - Craig-Hallum Capital Group - Analyst : Thank you.

Question: Gus Richard - Northland Capital Markets - Analyst : Yeah, thanks for taking my question and congratulations on the strong results. Just going back to the AI consumer cameras, how much of an ASP uplift would that provide you guys as that capability rolls out?

Question: Gus Richard - Northland Capital Markets - Analyst : Got it. And then just given the change in administration, securing the border, deporting a bunch of people. I would imagine that the demand for security cameras is going to increase. And I'm just wondering at this point, are you seeing any uptick from your enterprise customers or potentially government entities? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, AMBA.OQ - Q3 2025 Ambarella Inc Earnings Call

Question: Gus Richard - Northland Capital Markets - Analyst : Got it. Thanks so much.