Ambarella, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended January 31, 2019. The filing also provides unaudited results for the quarter ended January 31, 2019. Ambarella develops video, image-processing and computer-vision semiconductor chips, primarily for camera applications.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $227.8 million | $295.4 million | Down 22.9% |
| Gross profit / margin | $138.1 million / 60.7% | $187.7 million / 63.6% | Margin down 2.9 percentage points |
| Operating income (loss) | $(40.4) million | $24.4 million | Turned to loss |
| Net income (loss) | $(30.4) million | $18.9 million | Turned to loss |
| Operating cash flow | $24.5 million | $85.4 million | Down $60.9 million |
| Cash, cash equivalents and marketable securities | $358.9 million | $434.6 million | Down $75.7 million |
At January 31, 2019, working capital was $370.6 million, total liabilities were $47.4 million, and shareholders’ equity was $419.5 million. The balance sheet reports no borrowings. Cash and securities totaled $358.9 million, including $205.1 million of cash equivalents and marketable debt securities. Management said existing cash was expected to cover anticipated requirements for at least 12 months.
For the quarter ended January 31, 2019, revenue was $51.1 million and net loss was $4.5 million, compared with revenue of $70.6 million and net income of $1.3 million in the year-earlier quarter.
Material changes and drivers
- Revenue fell mainly as demand declined in wearable-camera markets and drones; a major drone customer shifted consumer products to competing solutions. Growth in automotive and IP security cameras partly offset the declines.
- Gross margin contracted as a greater share of sales came from lower-margin IP security cameras and sales declined in higher-margin sports-camera and drone markets.
- Operating expenses rose 9.3% to $178.6 million. Research and development increased 10.9% to $128.1 million, reflecting engineering headcount, chip-development costs and investment in computer vision, automotive OEM and robotics applications.
- Operating cash flow declined to $24.5 million. Investing activities used $79.1 million, primarily reflecting purchases of debt securities; financing activities used $98.0 million, including $99.9 million of share repurchases.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in this 10-K. Management expects research and development spending to increase as it develops computer-vision products and pursues automotive OEM and robotics markets.
- Management identified professional and consumer IP security, automotive OEM and robotics as important growth opportunities, while noting that adoption, design wins and conversion of design wins into sales are uncertain and may take time.
- Customer and channel concentration is significant: Wintech accounted for approximately 58% of FY2019 revenue and direct ODM customer Chicony for 16%. Sales to customers in Asia represented approximately 87% of revenue.
- Key risks include continued weakness in wearable and drone markets, competition and pricing pressure, customer order cancellations and inventory changes, reliance on Wintech and a limited customer base, and dependence on third-party foundry and assembly capacity. The filing also highlights potential U.S.–China trade restrictions and their possible effect on major Chinese customers.
- FY2019 adopted ASC 606, changing distributor revenue recognition from sell-through to sell-in. On an ASC 605 basis, FY2019 revenue would have been $220.5 million and net loss $35.1 million, versus reported revenue of $227.8 million and net loss of $30.4 million. FY2018 was not restated, limiting direct comparability.
- The company recorded an $8.0 million release of valuation allowance for federal research and development credit carryforwards, contributing to a $4.1 million income tax benefit. Other income included an approximately $1.8 million foreign-government grant related to research and development.
- The company repurchased 2.49 million shares for approximately $99.9 million during FY2019; about $31.9 million remained authorized for repurchases through June 4, 2019. It reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether new IP security and automotive design wins translate into material shipments and revenue, and on what timeline.
- Whether customer concentration, Wintech dependence and China-related restrictions affect future demand or distribution.
- How reported revenue, margins and deferred revenue compare across periods under ASC 606 versus ASC 605.
- Whether operating cash flow stabilizes as losses and operating expenses evolve, and how much liquidity remains after investments and repurchases.
- The composition, maturity and credit quality of marketable securities, as well as the status of $37.5 million in unrecognized tax benefits.