Ambarella, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended April 30, 2020; comparisons are with the three months ended April 30, 2019. Amounts are U.S. dollars.
Business context
Ambarella develops low-power semiconductor solutions for video, image processing and computer vision, serving security-camera, automotive, consumer-camera, drone, industrial and robotics markets. It sells primarily to ODMs and OEMs, directly and through distributors.
Financial results and liquidity
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $54.6 million | $47.2 million |
| Gross profit / gross margin | $32.0 million / 58.6% | $27.9 million / 59.0% |
| Operating expenses | $47.6 million | $46.1 million |
| Operating loss | $15.6 million | $18.2 million |
| Net loss / diluted loss per share | $15.5 million / $0.45 | $17.3 million / $0.53 |
| Operating cash flow | $7.6 million | $5.3 million |
| Cash, cash equivalents and restricted cash, at quarter end | $236.6 million | $204.5 million |
- Cash, cash equivalents and marketable debt securities totaled $411.3 million at April 30, 2020, versus $404.7 million at January 31, 2020. Total current assets were $458.8 million and current liabilities were $51.5 million.
- The filing reports no borrowings. Lease liabilities totaled $9.5 million; software-license liabilities were also recorded in current and long-term liabilities.
- Investing cash flow was negative $2.2 million, reflecting net investment purchases; financing cash flow was negative $0.3 million, including a $1.0 million share repurchase. Cash, cash equivalents and restricted cash increased $5.2 million.
- Stock-based compensation was $16.0 million. Income tax expense was $1.1 million despite a pretax loss.
Changes versus the prior-year quarter
- Revenue increased 15.8%, primarily from IP security cameras, sports cameras and drones. Growth in North American home-security cameras and higher DJI demand were partly offset by weaker automotive and other consumer-camera sales.
- Gross margin declined 0.4 percentage points to 58.6%, mainly due to a greater share of lower-margin professional IP security camera revenue, particularly in China.
- Operating loss narrowed by $2.6 million as higher revenue more than offset higher operating expenses and lower gross margin. R&D expense rose 3.6% to $34.2 million, while SG&A rose 2.7% to $13.4 million.
- Operating cash flow increased $2.3 million, mainly due to higher revenue and the timing of supplier payments, partly offset by customer receipt timing.
Outlook, risks and notable items
- Management said existing cash balances should meet anticipated cash requirements for at least 12 months. It expects operating and capital expenditures to increase with headcount, business expansion and IT investment. The filing provides no specific revenue or earnings guidance.
- COVID-19 had no material reported impact on the quarter, but management warned that future effects could materially harm demand, product development, supply chains, shipments, margins and cash flows. Automotive demand was already affected by an industry slowdown.
- Revenue is concentrated: Wintech accounted for approximately 63% and Chicony 15% of quarterly revenue. The company also relies on third-party manufacturing, assembly and testing, generally without long-term supply agreements; manufacturing purchase commitments were $32.6 million.
- Trade restrictions are a material uncertainty. Hikvision and Dahua were added to the U.S. Entity List; the company said it could supply some foreign-produced products to them in compliance with applicable law. Hong Kong warehouse and shipping operations are also exposed to political and logistics risks.
- The board extended the share-repurchase program through June 30, 2021. Approximately $49.0 million remained available at April 30, 2020; $1.0 million was spent repurchasing shares during the quarter.
- Unrecognized tax benefits were approximately $43.3 million; management did not anticipate significant changes over the next 12 months. No material legal proceedings or off-balance-sheet arrangements were reported.
- Management assessed disclosure controls as effective at the reasonable-assurance level. COVID-19 could nevertheless create future adverse effects, and the filing identifies customer concentration, design-win execution, competition, supply availability and rapidly changing technology as key risks.
Important facts for investors to verify
- Whether quarterly revenue growth continues and is sustained across markets, especially security cameras, drones and automotive.
- Whether customer and distributor concentration, including Wintech’s share of revenue, changes materially.
- Gross-margin trends and the revenue mix between lower-margin professional security and higher-margin consumer security and drone products.
- COVID-19 and geopolitical effects on customers, manufacturing capacity, Hong Kong logistics and sales to restricted China customers.
- Cash use, future R&D and operating-spending increases, and the scale and timing of share repurchases.