Hi all,
Below are my notes from the Q3 earnings.
Anirban
Earnings release: http://investor.ambarella.com/releasedetail.cfm?ReleaseID=88…
Transcript: http://seekingalpha.com/article/2732735-ambarellas-amba-ceo-…
Highlights
o Revenue for the third quarter of fiscal 2015 was $65.7 million, up 42.8% from $46.0 million in the same period in fiscal 2014.
o For the nine months ended October 31, 2014, revenue was $153.6 million, up 30.5% from $117.6 million for the nine months ended October 31, 2013.
o GAAP gross margin was 63.3%, compared with 63.7% for the same period in fiscal 2014. For the nine months ended October 31, 2014, GAAP gross margin was 63.6%, compared with 63.1% for the nine months ended October 31, 2013.
o Non-GAAP net income was $22.1 million, or $0.68 per diluted ordinary share. This compares with non-GAAP net income of $11.1 million, or $0.37 per diluted ordinary share, for the same period in fiscal 2014. That’s an awesome 84% YoY increase! Also, note that this shows the operating leverage, as more of the top line is making its way to the bottomline as the revenue grows.
o Non-GAAP net income for the nine months ended October 31, 2014 was $41.8 million, or $1.31 per diluted ordinary share. This compares with non-GAAP net income of $25.0 million for the nine months ended October 31, 2013, or $0.84 per diluted ordinary share. This is also an impressive 56% increase.
o Cash and marketable securities of $186.3 M; $17 million cash added from operations this quarter. Balance sheet is strong.
o Guidance: Q4 15 revenue between $57 and $60 million, which would represent about 43 - 50% YoY revenue growth. Non-GAAP net income between $15M and $17M, with diluted share count around 33M.
Trailing Twelve Month (TTM) Numbers:
o Data in thousands except share count and per share data.
o Diluted share count: 32,382,526
o Revenue: $193, 545 ($173,846 - $45,990 + $65.686)
o Non-GAAP EPS: $1.56 ($1.25 + $0.68 - $0.37)
o On non-GAAP basis, trailing PE using stock price of $54.50 (as of today’s close) is about 34.9. That’s pretty much where the trailing PE was when I wrote my Q2 notes on Sept 26, 2014. Here’s what I had from the earlier notes:
“On a non-GAAP basis, trailing PE is $41.79/$1.25 = 33.4”
Conference Call Notes
o Products that implement the new H.265 video compression (HVEC) standard; Products that encode H.264 Ultra HD video at 60 fps .The HVEC standard is expected to enable significant bitrate reduction for high resolution videos, include Ultra HD videos, and this technology is likely to find use in varying applications (IP Cameras, broadcast infrastructure, live action sports cameras, license plate recognition, etc)
o Q3 revenues primarily driven by strong sales of GoPro wearable cameras
o Professional IP security cameras market growing strongly in China as analog CCTV is being replaced.
o Quadcopter and drone used for video shooting and this could be a new opportunity for the company.
During the third quarter, market leader DJI introduced its Inspire 1 quadcopter, featuring an integrated 360 degree video camera for ultimate aerial filmmaking. The Inspire 1 leverages Ambrella’s A9 SoC to shoot up to 4K Ultra HD video and to capture 12 megapixel photos.
o They expect strong sales in wearables camera market, drone market, IP camera market, and automative aftermarket in the coming quarters.
o There was some interesting talk about the ASP for wearable cameras. It appeared to me that while there are some high-end camera where the ASP is showing significant improvement (about 30%), the improvement is somewhat dampened by the entry level $129 models. They still expect this market to improve YoY.
o There was some discussion around long-term growth rates. Here that means looking out next year. The company is projecting 20-25% growth in revenues. So for Q4 15, they are modelling between 45 - 50% growth but looking ahead to Fiscal 2016 they are expecting some slowdown in growth. They said that the second half of fiscal 2015 saw high growth because of new product launches. Right now, they are not in a position to talk about product launches in 2016.
Concluding Thoughts
With the earlier run-up in the share price, I did sell half of my stake in AMBA. I ‘m happy with that decision. AMBA is growing strongly, no doubt about that, but its fate seems to be tied too closely to GoPro’s progress. Personally, I ‘m not really sure if GoPro is here to stay or a fad that will fade away … hence my hesitation to allow the AMBA position to become bigger and bigger with the share price appreciation. I do like their positioning with the other markets, specifically their interest in the drone market, IP security camera market, the automotive market etc. On a trailing basis, AMBA is actually decently priced. On a non-GAAP basis, it’s going for a PE of low 30’s and with longer-term outlook being revenue growth of 20 - 25% this seems to me to be a fair enough pricing by the market.
Going forward, we need to watch how fiscal 2016 will unfold. Is the camera market slowing down? Management is modelling significantly lower growth for fiscal 2016 compared to 2015. AMBA is working in wining designs in the automotive sector and these take some time to work out. Some may fizzle out as the thing with Google seems to have fizzled out (It was noted in one of the answers by the CEO.). So, right now, I ‘m going to just keep my position as it. I ‘m going to watch what they say in Q4 and I will be looking to add if there is some non-sensical drop in the price. I ‘m targeting trailing PE below 30, say mid 20’s would be where I would actually look to add some. If opportunity arises, I might write some shorter-term puts with the intent to getting assigned.