Deborah Stapleton - Investor Relations Fermi Wang - President and CEO George Laplante - Chief Financial Officer

Kevin Cassidy - Stifel Joe Moore - Morgan Stanley Quinn Bolton - Needham & Company Ross Seymore - Deutsche Bank

Thank you. Good afternoon, everyone.

And welcome to Ambarella's fiscal Q4 and 2013 financial results conference call. Thank you for joining us today.

Our speakers will be Dr. Fermi Wang, President and CEO; and George Laplante, CFO.

The primary purpose of today’s call is to provide you with information regarding our fiscal fourth quarter and fiscal 2013 performance. The discussion today and the responses to your questions will contain forward-looking statements regarding our financial prospects, market growth and demand for our solutions, among other things.

These are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements.

We are under no obligation to update these statements. These risks, uncertainties and assumptions, as well as other information are potential risk factors that could affect our financial results are more fully described in the documents that we file with the SEC, including the final prospectus for our initial public offering and the annual report on Form 10-K that we will file for the 2013 fiscal year.

Access to our fourth quarter and fiscal year 2013 financial results press release, historical results, and SEC filings and a replay of today's call can all be found on the Investor Relations portion of our website. I'll now turn the call over to Fermi Wang.

Fermi?

Thank you, Deborah, and good afternoon, everyone. In the last quarter, we continue our strong growth in revenue and the net profit.

Q4 revenue was $31.5 million, up 28.3% from the $24.6 million we reported in fourth quarter a year ago. For fiscal 2013, we reported revenue of $121.1 million, up 24.5% from $97.3 million we reported in fiscal year 2012.

Q4 non-GAAP net income was $5 million. This compares with non-GAAP net income of $2.7 million for the same period in the previous year.

Non-GAAP net income for fiscal 2013 was $22.7 million. This compares to non-GAAP net income of $13.1 million for the year ended January 31, 2012.

We ended the fiscal year with over $1 million in cash and cash equivalents. Therefore we are very pleased with our Q4 and fiscal 2013 financial results.

I would like to discuss some of our products and market highlights then I will turn over to George for more in-depth discussion of our financial performance and our guidance for Q1. First, let’s look at our professional IP camera business which was a significant growth driver in fiscal 2013.

In our professional IP camera security business, we saw significantly year-over-year growth and strong gross margin contribution. We are also enjoying increasing success in China which is the fastest growing security market.

The market continues to grow rapidly, driven by the migration from analog standard definition cameras to digital IP-based high definition cameras. In addition to strong sales of Ambarella existing A5s SoC solution, the company is seeing significant interest in the new S2 SoC solution which we announced last September.

The S2 supports the new 4K Ultra HD resolution video standard includes the opening of wide angle benefits and also provide the performance needed for both security and the business analytics. Ambarella successfully demonstrated the S2 at the China Security Show in Beijing in December.

During the fourth quarter, our customer Hikvision of China introduced a new product line IP cameras based on Ambarella’s A5s. According to IMS Research, Hikvision was a number one global vendor of CCTV and video surveillance equipment in 2011.

In addition to growth in the professional IP camera market, there are also new opportunities in consumer IP camera. These cameras are typically Wi-Fi based and offer with cloud-based service that allows video monitoring using smartphones.

The two example of this product category is Dropcam, a leader in consumer cameras operate outstanding ease-of-use cloud-based video recording and excellent video quality, Dropcam solution is based on Ambarella’s A5s SoC. An automotive is another market that we saw strong year-over-year growth.

In automative aftermarket Ambarella provide solutions for windshield mounted camera recorders. The market for this product exist in Asia, specifically Russia, China, Korea and Taiwan.

Recently this camera product received a significant world-wide attention as multiple cameras capture the flight of the meteor that exploded over Russia. During Q4, we saw strong year-over-year growth driven both by overwalky growth, as well as customer migration from standard definition to high definition resolution products.

During the Consumer Electronic Show in January Ambarella introduced its new A7L-A automotive camera solution, the new SoC family include the support of both single and dual-view cameras at full 1080p30 HD resolution. The dual-view configuration supports simultaneous recording through the windshield and real window.

The new family integrate the need for external DRAM chips and provide a unique combination of excellent low line performance through low power and support for advanced analytics features including Lane Departure Warning System. In the consumer camera market we continue to see record growth of sport camera and continue decline of the traditional camcorder and the DSC product categories.

During Q4 we saw large year-over-year revenue growth based on the rapid discussion of wearable sports camera led by the continue success of the market leader, GoPro. During the CES in January, Ambarella introduced its new A9 Ultra HD 4K resolution camera SoC.

In addition to 4K video resolution, the A9 support high frame-rate video with 1080p video at 120 frames per second or 720p video at 240 frames per second to enable the next-generation with sports camera with high-speed capture and slow motion playback. The A9 also integrated dual ARM Cortex™-A9 CPUs to provide the performance needed for wireless applications including video streaming to smartphones, fabricated in 32-nanometer seamless technology, the A9 has very low power consumption enabling cameras with small form factor and with extended battery life.

During Q4, customer product announcement in this category included iOne again action camera featuring Wi-Fi connectivity and integrated LCD display. The camera extends the sports category to enable handsfree remove recording of activity such as crosswind and supplicants.

The iOne again is based Ambarella’s A5s camera SoC. Additionally we are seeing new opportunities in wearable camera with new and unique form factors.

For example, Pivothead, a supplier of high-performance imaging eyewear introduced its range of HD Recording Sunglasses. This sunglasses offer full 1080p point-of-view recording in a variety of fashionable style.

The Pivothead sunglasses product are based on Ambarella’s A7L camera SoC. In our broadcast business we supply video conferencing solution to television broadcast and IPTV head equipment manufacturers, such as Harmonic, Ericsson, Motorola and RGB Networks.

These companies in term supply equipment to companies such as Compaq, AT&T, DISH Network and DIRECTV. During Q4, we maintained our position as the leading supplier of SoC solution in this market.

We see growth in transcoding and video over IP delivery networking solutions driven by the demand for video playback of smartphones and tablets. While seeing a lower demand in traditional power driven broadcast encoder solutions.

In the future we anticipate additional opportunities in video tanscoding, video over IP and the contributing encorders. This encorders will continue to demand high density encoding requiring higher performance for multi-stream transcoding, higher video quality and low-power consumption.

In summary, we are very happy with our Q4 and fiscal year ’13 financial results, which achieved by our growing markets. In addition, we continue making progress on advanced image and video technology with our SoC and software solutions.

With that, I will hand it over to George to talk about our financial.

Thank you, Fermi, and good afternoon, everyone. During the call today, my financial discussion will always refer to fiscal not calendar period.

I’ll start today’s call with a summary of the financial results for the fiscal Q -- fourth quarter, as well as the full year ended January 31, 2013, and then move on to the outlook for Q1 of fiscal year 2014. During the call, I'll discuss primarily non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results.

For Non-GAAP reporting, we have eliminated stock-based compensation expense adjusted for income taxes. As we discussed in the past, the company has seasonality to both its revenue and gross margins.

So I will include year-on-year comparisons for certain key operating metrics to assist in the understanding of changes in our business. Although, we have seasonality to our revenues and related gross margins, our operating expenses do not materially fluctuate with revenue.

Therefore, we may experience volatility to our operating margins due to changes in revenue from quarter-to-quarter. I will now discuss the financial results for the key -- company's key operating metrics starting with revenue.

For the quarter and year ended January 31, 2013, the company had net revenues of $31.5 million and $121.1 million, respectively. The Q4 2013 revenue of $31.5 million represented an increased of 28.3% over the $24.6 million in revenue for the same period in the prior year.

Camera market revenue is estimated at 83% of Q4 revenue as compared to 70.3% for the same period in the prior year. As Fermi said, we continue to experience growth in our professional and consumer IP security, wearable sports and automotive camera markets, contributing to the year-on-year revenue improvement.

The remainder of the revenue in each period related to our infrastructure business. Q4 2013 infrastructure revenue declined both sequentially and year-over-year.

As mentioned in our Q3 earnings call in December, infrastructure product revenue in Q4 of the prior year was unusually high includes several large projects launched by infrastructure customers. An addition, some infrastructure customers have recently experience lower demand as a result of macro market conditions primarily in the U.S.

and Europe, as well as one large customer experienced an uncertainty in its business as a result of the recent sale of the company. Revenue of $121.1 million for the year ended January 31, 2013 represents an increased of 24.5% over the prior year revenue of $97.3 million.

In fiscal 2013, camera market revenue is estimated to be 77.6% of total revenue, compared to 74.5% in the prior year. Although both camera and infrastructure markets experienced year-over-year revenue growth, faster growth in the key camera markets increased the mix of camera revenue in 2013 as expected.

Ambarella uses WT Microelectronics as our logistics partner for distribution to the majority of our ODM and OEM partners. For the quarter and year ended, January 31, 2013, sales to WT represented 50% and 63% of our revenue respectively as compared to 76% and 80% of our revenues for the same period in the prior year.

The decline for both the quarter and year reflect the transfer of a large ODM customer, Chicony Electronics Company from sales through WT to direct sales from Ambarella. Chicony builds camera products for multiple OEM customers as well as for its own distribution.

Sales to Chicony totaled 30% and 16.3% of our revenue for the quarter and year-ended January 31st, 2013 respectively, compared to 0% for the same periods in the prior year. WT and Chicony were the company’s only 10% customers.

Non-GAAP gross margins for Q4 2013 were 63.3%, as compared to 64.5% in the immediate preceding quarter and 68.3% in the fourth quarter of the prior year. In comparing the quarters, the anticipated decline in infrastructure revenue compared to camera market revenue was the primary reason for both the sequential and year-over-year decline in gross margin.

Non-GAAP gross margins for both, fiscal years 2013 and 2012 were 66.7%. Although the gross margins were the same for each year, for fiscal 2013, we experienced a decline in total gross margin as a result of lower infrastructure revenue as a percent of total revenues, offset by increases in gross margins in both the camera and the infrastructure businesses.

Non-GAAP operating expenses for Q4 2013 were $14.8 million, compared to $14 million for Q3 2013 and $13.7 million for Q4 of the prior year. Comparing Q4 year-over-year, operating expenses grew 7.7% as compared to a 28.3% increase in revenue.

Total head count at the end of Q4 2013 was 444, compared to 442 at the end of the previous quarter, with about 334 employees dedicated to engineering. Approximately, 76% of our total head count is located in Asia, primarily in Taiwan and China.

Non-GAAP net income for Q4 2013 was $5 million, or $0.18 per diluted ordinary share, compared with non-GAAP net income of $2.7 million or $0.08 per diluted ordinary share in the same period in the previous year. For the year ending January 31, 2013, non-GAAP net income was $22.1 million or $0.79 per diluted ordinary share.

This compares to $13.1 million or $0.45 per diluted ordinary share for the previous fiscal year. The non-GAAP effective tax rate in Q4 2013 and fiscal year 2013 were 3.1% and 9.2% respectively.

The effective tax rate in Q4 was positively impacted by the reinstatement of the R&D tax credit, retroactive to 2012, which was approved by Congress in January of 2013. In Q4 2013, the non-GAAP earnings per ordinary share are based on 28.5 million diluted shares as compared to 9.4 million diluted shares in Q4 2012.

For the fiscal year 2013, the non-GAAP earnings per ordinary share are based on 15 million diluted shares as compared to 9.5 million diluted shares for the fiscal year 2012. The company is required to apply the two-class method to calculate earnings per ordinary share.

In periods prior to the IPO, the two-class method allocates a portion of our earnings to preferred stock as well as eliminates the preferred shares from the outstanding share count, prior to computing basic and diluted earnings per share. This accounting treatment makes it difficult to compare our reported EPS in periods where preferred shares were outstanding for all or a portion of the period, particularly for annual periods where the impact of the two-class method is the greatest.

For fiscal 2014 and beyond, quarterly EPS, what we computed on the basis consistent with that used in the fourth quarter of 2013. We ended the quarter with cash and cash equivalents of $100.5 million, adding $1.5 million of cash from operations in Q4 2013.

In October, the company completed its initial public offering, raising $27.4 million in net proceeds. An additional $5 million of net proceeds was raised in November 2012 through the exercise of the over-allotment option by the underwriters of the initial public offering.

Total accounts receivable at the end of Q4 2013 were $20.2 million or about 59 days sales outstanding. This compares to accounts receivable of $18.2 million or 47 days sales outstanding in the prior quarter.

DSO rose due to increased sales to Chicony, reflecting the ramp of several new products during the quarter. As mentioned, Chicony manufactures cameras for various OEMs and has payment terms that are longer than those at WT.

Net inventory at the end of Q4 was $8.9 million, down from $9.1 million at the end of Q3. Inventory remains in line with the company’s targets.

I would now like to discuss the outlook for Q1 of fiscal year 2014. We expect revenues for the first quarter ending April 30, 2013 to be between $31 million and $33 million.

This represents an increase of between 20% and 27% over Q1 of last year. Q1 camera revenues are estimated to be between 84% and 88% of total revenue for the quarter, as compared to 67% in the same period in the prior year.

Infrastructure revenues in Q1 of the prior year are unusually high, due to the release of approximately $1.6 million in deferred revenue, resulting from the renegotiation of a customer contract. As mentioned above, the infrastructure business has experienced lower demand as a result of macro market conditions, primarily in the U.S.

and Europe, as well as our one large customer experience uncertainty in its business as a result of recent sale of the company. As we have discussed, the change in mix between camera and infrastructure revenues may impact gross margins.

Therefore, we estimate Q1 non-GAAP gross margins to be between 62.5% and 64.5%, compared to 63.3% in the preceding quarter and 71.1% in the same period in the prior year. The release of the $1.6 million of deferred infrastructure revenue in the prior year, contributed to unusually high infrastructure revenues compared to camera revenues, which led to the high gross margins in that quarter.

We expect non-GAAP net income for the quarter to be between $3.5 million and $5 million. We are using an estimated non-GAAP annualized effective tax rate of 10% for net income amounts.

In summary, our Q4 and fiscal year revenues, gross margins and profitability reflect to our continued expansion into our core camera markets and what we believe is the strong competitive position of our product offerings. Now, I will turn the call back to Fermi for his closing remarks.

Thank you, George. As you can see, we continue to feel confident with our opportunities for Q1 and beyond.

We are focused on growth, especially in our major camera markets, which would include IP security cameras, both on a professional and the consumer markets, sports and other wearable cameras and in the fast-growing automotive camera markets. Again, I would like to thank our colleague’s effort to make this result possible.

Operator, we will now take questions.

Thank you. Thanks for taking my question and congratulations on a great quarter.

Good outlook.

Thank you.

You’re welcome. And on the outlook, can you state some of the moving parts within the cameras where you’re seeing some growth.

It seems like this would be a seasonally slower period. But could you just say where you’re seeing some strength?

Yeah. I think if you look on a year-on-year basis, we’re seeing strength in automotive, sports as well as IP security.

All three markets are growing year-over-year as it relates to camcorder that continues to decline as it has in the last four quarters.

Okay. Maybe on the sports cameras, can you say last quarter, what’s your product mix as well as I guess, I’m just wondering, are the low-end camera selling or is it more of high end?

Currently, more of the high end.

Okay. Is that more positive for you for gross margins?

It’s more positive for us on the revenue side, obviously but not necessarily on the gross margin side at this point. That is a new chip.

And we’re in the early stages of manufacturing.

Okay. And as you look out to 2014, fiscal 2014, do you expect that mix to stay at the high end?

No. Not necessarily.

There are new cameras being introduced in the sports area all during the year. And we expect most likely the ASPs will also come down on those cameras compared to where they are today.

Okay. Great.

Thanks. I’ll get back in the queue.

Great. Thank you.

Is it right to assume from the comments that you made that security cameras were the fastest growth segment this quarter?

Not necessarily but they were right near the top. There was several of the -- sports cameras and security cameras were the fastest growing.

Okay. Great.

Got it. And then the move from WT to direct with Chicony’s, is there any inventory impact from that?

Does that mean you actually have a net lower level of inventory because you took an intermediary out. And is there any margin impact from that transition?

There is no inventory impact because WT is not a stocking distributor.

Okay.

They are primarily a logistic partners and only do back to back orders with their customers. But we do pick up some margin because we don’t pay the commission that we pay to WT for handling that logistics.

Okay. Great.

Thank you very much. Good quarter.

Hi Fermi and George. Congratulations on a good results and nice guidance.

Just wanted to follow-up on Kevin’s question about what sort of the margin’s on the sports cameras, I think the high-end cameras today are based on the A7 solution, which sounds like because their newer products serve lower than -- just the initial stage of their yield. Kind of wondering how you see that progressing over the next several quarters.

Do you think that the margins on those can come up as you ramp volumes or is it really -- does it take transition to the next generation family of chips to improve the margins at that higher end of the camera market?

I think it takes to the next generation of chips. At the high end, I believe we’ll transition over the year down to the lower end chips.

And I think that will be improved margins. But in the current environment and volumes, I would expect the transition to be the bigger impact on margins.

Okay. Great.

And then just second question with the A9 being introduced at CES and you’re now about a quarter -- few months later. Can you talk about sort of the reception you're seeing from customers especially in some of the higher frame rate features of that solution?

Yeah. I think from -- in the last quarter, when we talked to a quite a few customers who are interested in this A9 and especially for that 4K.

They probably sound that, most interested on the high-priority areas you mentioned. Because of our sports camera, the slow motion is really the critical icon.

So I think that the combination that we can provide are very high resolution like 4K but also can drive the very high. Both are very, very interesting to our customers.

And we do expect that we get something that way and early next year we hope we can see products.

Early calendar ‘14?

That’s correct.

Okay. Great.

And then just lastly, it sounded like you said that the digital still camera market, which I know was a small market for you today was down. I wasn’t sure if that was sequentially or year-over-year.

But we just wondered if you could give us any update on how you see the opportunities playing out in the digital still cameras. Is that still market that you think you can focus and grow your share?

I know, you are going to sort of back away from DSCs because maybe the opportunity in margins are changing?

Right. So for DSC, I think the market as a whole continue to drop year-over-year and sequentially mainly because of the low-end basically just being clarified as smartphone.

And our playing DSC hasn’t -- it will still make you sit. We do have much of the revenue there.

But our goal is we’re going to focus on really the higher end DSC, which has much or less impact by the smartphone mainly that mirrorless and also high end DSCs that require higher features. And we certainly do not want to play in a low-end side which is really not that a market that we think we can participate.

Do you think that’s an opportunity you see ramping in fiscal ‘14 or do you think that’s really more of a fiscal ‘15 opportunity in terms of meaningful revenue?

So mirrorless camera definitely I think two years up.

Okay. Great.

Thank you.

Hi. I just had a quick question, you mentioned that you’re seeing some critical strength in the high end of your product stack.

Is there an ASP component to your pretty solid, pretty strong guide or is it -- could you give some kind of ASP versus units, just. Are you seeing ASP tailwind essentially?

If you’re looking within the total camera space, our ASPs have actually gone up slightly quarter-on-quarter and that’s just primarily mix of some of the high end. We see that continuing for a couple of quarters and then as we transition out of that high-end chip back to the lower end.

Our overall ASPs will decline.

Great. And then just finally, I’m curious if I missed it, did you give the share count number for the guidance in the per quarter?

I have not given a share count in my discussion but it is going to be published. So it’s going to be estimated to be 28.7 million shares, fully diluted.

Great. Thank you.

Yeah. Thanks for taking my follow-up.

I was just wondering on the automotive market, it seems like its getting good growth. Can you just say any progress that you’re getting in -- selling into the OEM rather than aftermarket automotive?

Kevin, I think selling to OEM is our long-term goals. And we’re just starting to engage in this process.

And I think 100% of our current revenue all come from the after market sales. But I think like I say in the past, we are definitely thinking of the long-term automotive OEM as a target.

But right now, there is nothing that we can put at its limit.

Okay. Do you have any idea of what penetration you might have for the automotive markets in Asia that you’re addressing.

Is it even percentage or is it just -- do you have any color?

Yeah. Kevin because there is really no marketing research report on this market.

The only data that we have is really formulized by our own loss sales by talking to customers and sales to supplier. So we that’s enough data that we probably should not disclose but we do believe that we continue to get market share on a high-definition video or high-definition automotive market right now.

But more importantly, the whole market is very clear transition foster definition to high definition which is benefiting for us.

Okay. Great.

Thank you.

Okay. I just want to thank everybody for joining in today’s call and special thanks to all our employees to make this happen.

Thank you very much.