Business context and reporting period
Ambarella, Inc. develops low-power semiconductor system-on-chip solutions for video, image processing, AI and computer vision applications, serving security camera, automotive, consumer, industrial and robotics markets. This unaudited Form 10-Q covers the quarter and six months ended July 31, 2021 (fiscal 2022 Q2), compared with the corresponding 2020 periods. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Key financial metrics
| Metric | Three months ended July 31, 2021 | Six months ended July 31, 2021 |
|---|---|---|
| Revenue | $79.3 (+58.3% year over year) | $149.5 (+42.7%) |
| Gross profit / gross margin | $49.4 / 62.3% (61.8% in 2020) | $93.2 / 62.3% (60.1% in 2020) |
| Operating expenses | $55.4 | $109.3 |
| Operating loss | $(6.0), versus $(15.3) | $(16.1), versus $(30.9) |
| Net loss | $(7.2), or $(0.20) per diluted share | $(18.0), or $(0.50) per diluted share |
| Operating cash flow | Not separately provided for the quarter | $9.9, versus $5.2 |
At July 31, cash and cash equivalents were $258.4 million and marketable debt securities were $190.8 million, for $449.2 million combined. Current assets were $534.0 million and current liabilities $85.5 million (approximate current ratio: 6.2). The filing reports no borrowings; liabilities include operating leases and software-license obligations. Total liabilities were $107.0 million. Cash, cash equivalents and restricted cash increased $17.1 million during the six months. Investing cash flow was positive $2.9 million and financing cash flow was positive $4.3 million.
Material changes versus the prior comparable period
- Revenue growth primarily reflected continued demand for computer-vision solutions in IP security and automotive cameras, including recovery among major China customers. Consumer aerial-drone revenue declined, partly offsetting growth.
- Gross margin improved year over year, particularly for the six-month period, as automotive contributed a larger share of revenue; the filing also cites favorable product mix and sales of previously reserved inventory.
- Operating losses narrowed as higher revenue and gross profit more than offset increased operating expenses. Six-month R&D expense rose 15.6% to $77.4 million and SG&A rose 18.5% to $31.8 million, reflecting headcount, employee benefits, stock compensation and engineering costs.
- Stock-based compensation was $38.2 million for the six months, compared with $32.4 million. The share count outstanding was 36.6 million at July 31, 2021, up from 35.5 million at January 31, 2021.
- Inventory increased to $42.1 million from $26.1 million at January 31, primarily amid longer supply-chain lead times and increased purchases.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management expects R&D and SG&A spending to rise as the company develops AI/computer-vision products and pursues automotive, robotics and other markets. Management believes current cash and investments are sufficient for anticipated needs for at least 12 months.
- Management cited semiconductor capacity constraints and longer manufacturing lead times, and said inventory was increased to address supply uncertainty. COVID-19 could disrupt development, suppliers, contractors, customers or demand.
- Revenue and receivables are concentrated: Wintech accounted for approximately 61.6% of quarterly revenue and 62.4% of six-month revenue; Chicony represented approximately 15.8% in both periods. Wintech and Chicony receivables were $17.7 million and $12.6 million, respectively.
- Manufacturing purchase commitments totaled approximately $72.3 million, up from $48.2 million at January 31; the company reported no material loss liability for adverse purchase commitments. A Shanghai office lease signed during the period has estimated undiscounted payments of approximately $1.7 million.
- Key risks include reliance on third-party manufacturers without long-term supply agreements, customer and distributor concentration, export restrictions affecting China customers, geopolitical and Hong Kong risks, and the possibility that design wins in newer markets may not convert into sales. The company said it was not materially disrupted by COVID-19 to date but warned that future effects could be material.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of July 31, 2021. It disclosed an ongoing IRS examination of its fiscal 2017 U.S. federal tax return and $27.9 million of gross unrecognized tax benefits.
- The board extended the share repurchase program through June 30, 2022; approximately $49.0 million remained available at July 31, with no shares repurchased in the six-month period.
Important facts for investors to verify
- Whether supply constraints, manufacturing lead times and inventory levels affect shipments, customer demand, margins or cash conversion in subsequent quarters.
- Whether revenue growth continues in security and automotive markets and whether design wins in automotive, robotics and other emerging applications reach volume production.
- Exposure to Wintech, Chicony and China customers, including any changes in customer concentration, collections or export-control restrictions.
- The trajectory of R&D, SG&A and stock-based compensation relative to revenue growth and progress toward operating profitability.
- Tax examination developments, unrecognized tax benefits, and the effect of geographic earnings mix on the tax provision.