Ambarella (NASDAQ:AMBA) Q4 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by, and welcome to Ambarella's fourth quarter and full year 2020 earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference call is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Louis Gerhardy, Corporate Development. Thank you, and please go ahead, sir. Thank you, Chris. Good afternoon and thank you for joining our fourth quarter and fiscal year 2020 financial results conference call. Our speakers will be Dr. Feng-Ming Wang, President and CEO, and Casey Eichler, CFO. The primary purpose of today's call is to provide you with information regarding our fourth quarter and fiscal 2020 results.

0:53 The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements 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. were under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents that we filed with the SEC, including the annual report from Form 10-K that we filed on March 29, 2019, for the fiscal year 2019, ending January 31st, 2019, and the Form 10-Q filed on December 6, 2019 for the third quarter of fiscal year ending January 31, 2020.

2:00 Access to our fourth quarter and fiscal 2020 results, press release, historical results, SEC filings, and a replay of today's call can be found on the investor relations portion of our website. I'll now turn the call over to Dr. Fermi Wong-Trey. Thank you, Louis, and good afternoon, everyone. Before reviewing our results, I will first provide an update on the extraordinary factors, geopolitical now, also public health, that may continue to impact our business. First, on COVID-19, we are and will continue to take the necessary precautions to ensure the safety of our employees. We express our deepest sympathies to those affected worldwide and we offer our best wishes to them for complete recovery.

2:50 We are starting to see a financial impact from the virus and we expect to continue to face an elevated level of demand and supply uncertainty. We are taking precautions to mitigate the risks to our own operation. Based on what we know at the time of this call and to the best of our ability, we have factored these risks into our Q1 guidance. Geopolitical risks are dynamic and remain high. The phase one trade deal eased tension somewhat, and our October 15th 8K update brought some clarity to the October 9th entity list. But there are a wide variety of geopolitical risks at play, including foreign policy, trade, and IP matters.

3:39 Factors potentially disruptive to our business included new export controls on advanced technologies. The risk customers in China take actions to reduce their dependence on the supply of U.S. components, potentially subject to the various geopolitical factors, changes to the entity list, and all tariffs. Market share shifts between our customers and the supply chain issues. On the other hand, our largest competitor in the security camera SOC market, High Silicon, a unit of Huawei, is facing challenges that are helping us share outside of China. As you can see, multiple factors are contributing to a wide range of potential outcomes for us.

4:27 Fiscal year 20 revenue of $228.7 million increased slightly from the prior year, with no major shift in market exposure. In fiscal year 20, just a year after taping out CV2, CV22, and CV25, these products generate production revenue from a dozen customers. And it is still very early with the CV revenue only a few percent of the total revenue, but with more than 100 different CV customers purchasing engineering parts, evaluation kits, and or development boards in fiscal year 20. This foundation of activity give us confidence our CV investment will take another major step forward.

5:12 Looking into fiscal year 21, momentum in our strategy-focused area of CV is strong, and we expect CV to reach 10% of total revenue for the year. Our goal is to grow our total revenue in fiscal year 21 despite the headwinds and uncertainties. At a recent consumer electronics show in January, We experienced a strong turnout with more than 250 customer and partner meetings. With more than 20 indoor and outdoor demos, we exhibited our latest solution for automotive and home monitoring applications, as well as for new applications such as access control, robotics, retail, and logistics.

5:58 During CES, we announced our first SOCs with automotive safety integrity level. B, also known as ASOB, for safety critical automotive applications. CV22FS and CV2FS target forward facing monocular and stereo vision ADAS cameras, as well as computer vision ECUs for L2 plus and high level of autonomy. Featuring extremely low power consumption, these two SOCs make it possible for Tier 1s and OEMs to surpass new car assessment program or NCAP performance requirements within the power consumption constraints of a single box wind shield mounted forward ADAS cameras.

6:45 ZF, a German-based Tier 1 that is one of the largest global suppliers to the passenger and the commercial vehicle market. announced it was working with Umbrella on the next generation of talented viewing platforms, including surround view visualization, driver monitoring, standalone vision processing, and the email solution used during CES. ZF chose CV4-SoC for their combination of high-quality imaging and advanced AI processing, enabling ZF to offer a wide range of viewing and interior sensing applications. German ADAS software supplier Helaglia demonstrated its latest deep learning-based ADAS software suite running on our CV22 SoC.

7:31 The AI algorithms included multi-class object detection, detection of driving area limitations, depth estimation, and the classification of the traffic lights and the traffic signs. How to choose and browse CB4 SOC due to their ability to deliver extremely high computer vision processing performance with very low power consumption? At our CES location, OE and Mercedes-Benz provided live demonstrations in one of their sprinter vans of COROS, or Cargo Recognition and Organization System. The system is designed to make the parcel delivery process more efficient and he leverages both the AI and the stereo processing capability of CV2 with multiple CV2 SOC per van.

8:23 A rapid expanding list of third-party software developers have chosen to invest resources to develop deep learning AI software on our CVflow platform with a number of these companies demonstrating as CES. For example, StrataVision demonstrated both forward-facing ADAS and the driver monitoring running simultaneously on a single CV22. Boardman 17's forward-facing ADAS and the recoding solution runs on CV25 and target fleets and passenger vehicles. EyeSight's driver and interior camera system ran three cameras on one CV22. AnyVision's retail analytics platform was based on full live CV22-based cameras.

9:10 and the SenseTimes forward-facing ADAS and the driver monitoring system ran on our CV22. At the CES, Umbrella's level four autonomous vehicle demonstration platform, EVA, or embedded vehicle autonomy, successfully completed over 140 autonomous rides on Las Vegas streets. The rides were conducted both during the day and for the first time at night. The EVA cars leverage Umbrella's CVT2-based stereo supercam cameras and Umbrella's ELFO demonstration software stack, together with radar, but without LiDAR. The demonstration included generic obstacle detection, pedestrian, vehicle, bike, motorcycle, and the traffic sign detection and the classification, traffic light detection and management, task planning, and autonomous parking.

10:08 And Varela also demonstrated at CES an AI-based three-camera and three-mirror solution running on a single CV22 SOC. This e-mirror system's left and the right side mirror not only provide an improved field of view in difficult lighting conditions, but by leveraging our CV flow processing in the same chip, we could provide a blind spot detection warning when bikes, car, or pedestrian were present. During CES, Umbrella announced and demonstrated a solution for two new AI market applications, 3D access control and robotics. Umbrella's 3D sensing platform addresses access control, security panels, smart video locks, video doorbells, and face recognition payment systems.

10:56 The platform is based on Umbrella's CV25-CV4 AI vision system on chip, on semiconductor's RGB AI image sensor, and the structural light powered by Lumintons Vixels. The system uses a single image sensor for both visible and infrared images for depth sensing. The Umbrella CV25 SoC powers depth processing, anti-spoofing algorithms, 3D facial recognition algorithms and the video encoding on a single chip, significantly reducing system complexity. and Umbrella's new robotic platform facilitates the development of robotic applications based on Umbrella's CV4 SOCs. It targets automated guided vehicle or AGV consumer robots and industrial robots.

11:50 The robotic platform provides the unified software infrastructure for the most common robotics functions including neural network processing and open source computer vision library or OpenCV functions. Our demonstration included a single CV2 chip performing stereo processing, object detection, key point tracking, occupancy grid, and the visual geometry. I will now take a little time about something, some additional customer product information from the last quarter, starting with the professional security. Motorola Solution announced in February that launch of the new edition of the video security portfolio The new H5M camera line is a cost-effective solution for budget-conscious video security projects that require a small footprint camera for auto use.

12:50 Pelco, a recent spin-out of global industrial giant Schneider Electric. intends to announce in March the Cyrix Enhanced Series 3 camera targeting critical infrastructure customers such as airports, cities, gaming, and other enterprises and the small city customers. Based on Ambarella's CVSLCs and built with industry-leading image quality, performance, ruggedness, and deep learning analytics, these cameras are expected to be shipping later this month. at IAC West, a security exhibition to be held later in March. RevoTech, a major professional security camera OEN and ODN in Taiwan, will demonstrate their new CV flow-based camera.

13:38 This outdoor fisheye camera will feature six megapixel H.265 encoding, IP66 and IK10 ratings, smart IR, WDR Pro, local dewarping, and embedded smart 360 VCA analytics. including intrusion detection, crowd detection, and loitering detection. In a consumer security camera market, home security and automation firm ADT unveiled its first do-it-yourself home security platform, Blue by ADT. And whereas H5L or H2L are designed into indoor, outdoor, and doorbell cameras in this platform, all capable of recording 1080p videos.

14:26 Chinese home monitoring camera maker SIM2 introduces a SIMCAM 1S camera, the first consumer model to feature umbrella's CV flow SOC. Based on our CV25 SOC, the camera included facial recognition, path and vehicle recognition, auto tracking, and the support for Amazon Aliza. I will now talk a little about some of the custom product introduction from the automotive markets. Gentex Corporation and Ashton Martin announced they have jointly developed a camera-based rear vision system that dramatically improves a driver's ability to monitor traffic to the rear and the sides of the vehicle. The umbrella-based prototype was demonstrated at Gentex CES booth in Ashton Martin DBS Superleggera.

15:18 The largest bus and passenger coach OEM in China, Yutong, will use a forward-facing ADAS camera based on CV22-AQ in their commercial fleet. Based on Tier 1 MaxEye's IFVS500, the system provides autonomous emergency brake for vehicles and the pedestrian and lane keeping functions. During the quarter, Garmin introduced its Tandon dash camera featuring two lenses, each with a 180-degree field of view. to record in front and inside the car to provide complete coverage around the driver. Featuring 1440 resolution video and 9 vision, the Tendon camera is based on Umbrella's A12A automotive ISOC.

16:06 Next space, the UK and Europe's leading dash camera supplier introduced its 622 GW model Based on Embraer's H22 automotive SOC, the camera records 4K video at 30 frames per second and includes image stabilization, super slow motion, night vision, and Amazon Alexa integration. In the China OEM automotive market, Lishang introduced its Lishang One electric vehicle featuring a car recorder as a standard feature. Supplied by One Invo and based on Embraer's H2L SOC, The car recorder offers full video recording. And the Korean Dashcam leader, Thinkware, introduced new models based on Umbrella's H22 automotive SOC, the QXD3000 and QXD Mini, a two-channel, full HD design with small form factor and Super 9 vision features.

17:03 While Quantum model is a 4K plus Quad HD design. In the consumer market segment, Chinese sports and VR camera maker, Insta360, introduced its new 1R sports camera based on our H22 V75 SoC. The camera includes a 1H sensor, AI-driven editing software, and unique twin mode, which enables camera to offer 5.7K resolution, 360-degree capture, or 4K P60 wide-angle video. In summary, fiscal year 20 represented a major step forward as we begin to establish the commercial foundation for nearly $400 million investment into AI and computer vision. The three waves of CV revenue we have previously articulated are all taking shape. That's by wave one in the professional security camera market where we have seven customers in production and this wave is a very strong position to become material in calendar year 20. In wave two, the whole monitoring market, we have two customers in production and we expect design activity to remain high this year with revenue becoming material in calendar year 21.

18:28 In automotive market, we are generating production CV revenue from three fleet and aftermarket customers, and design activity is high across many different locations. We continue to expect auto CV revenue to become material in the calendar year 22 and the calendar year 23 timeframe. AI and the CV are bringing new product cycle to our existing markets like security cameras. But most importantly, as you saw at the CES, These new products are enabling a multi-billion expansion of our serviceable market into vehicle, smart cities, smart homes, industry 4.0, logistics, and other robotic applications.

19:14 Despite the global uncertainty surrounding us, I want to thank Embraer's 761 strong team for their perseverance and the successful execution during this critical phase of development for the company. and we are thankful to all of our other stakeholders including customers, vendors, and shareholders for your support. Now I'll turn the call over to Casey for the first quarter financial details and guidance for our first quarter of fiscal year 21. Thank you, Fermi, and good afternoon, everyone. Today I'll review the financial highlights for the fourth quarter and FY20 ending January 31st and provide a financial outlook for the first quarter of fiscal year 21.

19:59 During the call, I'll discuss non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP and non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense adjusted for the impact of taxes. Revenue in FY20 increased slightly to $228.7 million, with revenue by market similar to the prior year with security camera in the 60% to 65% range and the balance split between automotive and other. For FY20, non-GAAP gross margin was 58.5, down from 61.2 due to lower margins in the professional security camera and other markets, partially offset by higher auto margins.

20:48 Non-GAAP operating expenses decreased 2%, primarily due to foreign credits included in R&D. Even with non-GAAP R&D expense at 38% of revenue, Our operating cash flow was a positive 39.4 million for the year. With no debt, net cash and marketable securities totaling 404.7 million, our Q4 revenue of 57.2 million was slightly above the midpoint of our guidance, 55 million to 59 million, and in line with consensus. These results represent a decrease of 16% from Q3 and an increase of 12% when compared to the same quarter of the prior year.

21:35 As expected, auto and security were down while other revenue increased sequentially. Non-GAAP gross margin for Q4 was 58.7, up about 60 basis points from the prior quarter and slightly higher than our guidance of 56.5 to 58.5, primarily due to mix. Non-GAAP operating expense for the fourth quarter was 30.5 million compared to 29.3 million in Q3. This was close to the midpoint of our guidance of 29.5 to 31.5 million. Other income was $1.7 million and primarily represented interest income on cash and marketable securities.

22:20 Non-GAAP net income for the fourth quarter was $4.9 million or $0.14 per share compared to $11.3 million or $0.32 per share in the third quarter. The non-GAAP affected tax rate in Q4 was benefit of $1.66 million. Better than our guidance of 10% at the end of Q3 due to tax law change in Taiwan, foreign tax credits, and lower taxable income in foreign jurisdictions. In the fourth quarter, the non-GAAP earnings per share were based on 35.1 million shares as compared to 34.8 million shares in the prior quarter. Total headcount at the end of the fourth quarter was 761, with about 81% of our employees dedicated to engineering, most of them focused on software.

23:13 Approximately 69% of our total headcount is located in Asia. In Q4, we generated positive operating cash flow of 4.1 million. Total accounts receivable at the end of Q4 were 18.5 million, or 30 days sales outstanding. This compares to accounts receivable of 21.6 million or 29 days sales outstanding at the end of the prior quarter. Net inventory at the end of the fourth quarter was 23 million compared to 19.8 million at the end of the previous quarter. Days of inventory increased to 82 days in Q4 from 59 days in Q3. We had two 10% plus revenue customers in Q4.

24:02 WT Microelectronics, a fulfillment partner in Taiwan who ships to multiple customers in Asia, came in at 63% of revenue, and Jikoni, a Taiwanese ODM who manufactures for multiple customers, primarily U.S.-based, came in at 18.7%. I will now discuss the outlook for the first quarter of fiscal 21. We expect total revenue for the first quarter to be in the $52 to $57 million range or down 1 to 9% sequentially, which is less than our typical seasonal decline in Q1. In Q1, we anticipate all markets to decline seasonally, with the exception of the home security camera market, where we are seeing strong and broad base demand.

24:50 As Fermi discussed, the geopolitical and now public health factors are bringing significant uncertainty to our forecasting demand and supply, and we are taking measures to protect our employees and operations. In November, we estimated two professional security camera customers in China had pulled in roughly $10 million of revenue from fiscal year 21 to fiscal year 20, and while we're starting to see weaker ordering patterns from one of these customers in Q1, we still believe a vast majority of the safety stock at inventory has not been depleted. Going forward, we remain concerned about the dual China and non-China supply chain that is being created and what that means as it relates to our ability to continue to supply to our customers in China. In addition, Due to COVID-19, we have started to see some ordered pushouts and cancellations, and our Q1 guidance assumes these recent trends continue in the quarter.

25:51 Needless to say, forecasting is extremely difficult. We estimate Q1 non-GAAP gross margin to be between 57.5 and 59.5, compared to 58.7 in the fourth quarter. We expect non-GAAP OpEx in the first quarter to be between 33 and 35 million, with the increase from Q4 primarily coming from engineering headcount, payroll tax accruals, and other engineering expenses. In Q1, non-GAAP tax rates should be modeled in the 10 to 13% range versus the benefit of 1.7 in Q4. We estimate our diluted share count in Q1 to be approximately 35.4 million shares.

26:41 We are closely monitoring the public health crisis and will reevaluate external events on a case-by-case basis. We intend to limit the number of executives at each event. Currently, we intend to participate in the Morgan Stanley TMT Conference and the KeyBank Emerging Technology Summit on March 4th. Although at KeyBank, At KeyBank's request, we have converted our fireside chat to a one-on-one presentation. We also expect to participate in the Roth Conference on March 17th and the Bank of America Auto Summit on April 7th. Please contact Louis for more details. Thank you for joining our call today. And with that, I'll turn it back over to the operator for questions.

27:26 And as a reminder, ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from the line of Adam Gonzalez with Bank of America Securities. Your line is now open. Hi, guys. Thanks for taking my question. I wanted to start with a more long-term question. Fermi, you guys first started talking about this access control opportunity at CES, and you spoke a little bit about it tonight. Can you just give us a sense of what the longer-term opportunity there is? Yeah, in fact, this technology can be used in many different applications. We kind of touched on the, you know, the traditional market like , like, you know, just for example, enterprises exit control.

28:17 But it can be applied to many other applications, for example, the payment system in China, they will use the face recognition as the way to do identification. But as you know that the biggest challenge of current face detection algorithm is that it can be easily fooled by using a picture or other materials so that using some kind of 3D lighting structure to enhance the algorithm becomes necessary for those applications. and I think we quickly estimate the total market size of a unit number. We're talking about probably tens of millions close to 20 to 30 million units and growing fast in the future.

29:04 And we also believe because for the security reason, the technology required for this kind of system will continue to grow so that we need to continue to do better in terms of AI technology for different sensing technology as well as providing more fusion of different kinds of sensor to provide higher confidence on those face detection and exit control. What I'm trying to say is we think this is a new market, and we're addressing a lot of needs from the traditional as well as new applications. And the thing that really interests us is we believe the technology requirement for this market will continue to grow, which plays to our strength.

29:49 Great. Thanks. And then, Casey, I have one follow-up. In the press release, you talked about growing revenue overall this year, and I appreciate there are a lot of uncertainties with the geopolitical environment and virus concerns. You also outlined in the prepared remarks that your end market exposure is relatively the same as last year, which I think implies that consumer and your legacy non-strategic area is still 10%, 15% of overall revenues at least. Could you just help us understand, first on the consumer legacy side, how is that business going to wind down? What do you expect that business to grow? And then what are the puts and takes in terms of growing this year overall? Thanks. Well, to kind of clean up the first part of that, we've said in the past that revenue is about 60% security, 20% auto, and 20% other. And what I'm indicating is it roughly came in at that level. Obviously, we had some pull-ins in the professional security side, but we think the mix stayed about the same.

30:52 From the other section, and in particular in a couple of our consumer areas, we had some new product introductions that actually did better than we were forecasting. We saw stronger revenue there last year, and I think we'll Thank you very much. As far as the puts and takes, it kind of goes back to Fermi's comments. Between the China and the virus uncertainty, automotive industry continues to be soft. Last year continues to be soft.

31:41 And the visibility issue of how much disruption we've seen or we're going to see, it's really hard to say exactly exactly. How that's going to shake out, we're going to continue to give you good guidance on it. We continue to be excited about our penetration in the markets and probably most excited about the CV adoption, which isn't necessarily just a this year story, but it really sets up the future of the company that Fermi's been talking about. Thank you. Thank you. And our next question comes from the line of Matt Ramsey with Cowan. Your line is now open. Good afternoon. Thank you very much. For me, I wanted to talk about the CV adoption, and I think in the prepared remarks you talked about CV being on the order of 10% of revenue in the upcoming fiscal year.

32:34 I don't know if that's above your expectations about what you guys expected. I assume most of the business you're picking up from Huawei's challenges internationally is still non-CV. So maybe you could just give us some puts and takes there and what end markets and maybe what China exposure are you guys thinking about of that 10% of revenue that might be CV-based this year? Thank you. First of all, I think that you are right. The CV revenue increase that we see this year, majority come from the non-Chinese customers. and especially we announced, we mentioned five customers already in like Avigilon, which is Motorola, Hanhua Technology, Panasonic, LevoTech, Palco. You can see that trend from the professional.

33:26 This professional IP security camera that generated majority of the CV revenue this year. So you can see that it's really about the new product line introduced from the... Our non-Chinese customer at this point. And we continue to feel confident about this 10% guidance for CV revenue. And I think that we talk about we have, in addition to the 10% revenue growth, we also talk about we have more than 100 customers buying the design kit, engineering parts, and development boards in fiscal year 2020. who should really build a huge base for us to grow in the future. So I really think this is an important portion of discussion.

34:14 And also that you talk about China, I think our China exposure, you need to look in two different ways. First of all, there are a lot of product being manufactured in China. We talk about, we estimate probably 40% roughly being manufactured in China. But we also talk about how can we use our chip manufacturing in China but export to the outside China. So we think our in-customer exposure in China is roughly 20% on total revenue. I hope that helped to clarify that question. No, thank you very much for that for me. That does help. As my follow-up, Casey, I noticed that we've talked about here on the call the different uncertainties around geopolitical stuff and with the virus, but it looks like you've guided OPEX up on the order of 10% sequentially.

35:08 Maybe you could walk us through the new areas of spending and which pieces are ramping, and then also if things do get tough from some of these variables, how much flexibility you have to limit that spending growth. Thanks. A majority of that increase is coming in engineering, and that's in two places. One is we continue to hire in that area and continue to push the CV platform and the new product introduction there. That's a portion of it. It also is our largest number of employees, and when the first of the year comes around, the employee taxes kick in. and all the other things that you see in the beginning of the year typically. And so that adds to the engineering line in particular but across the board to everywhere.

35:58 The other thing that runs through engineering is as we start to go to lower geometries and CAD tools continue to get more expensive, mass costs continue to get more expensive. So the amortization of that through the P&L also builds as we start to build these higher or lower geometry, higher development projects. And Matt, this is Fermi. I would like to add, you know, you should expect that we have our first five nanometer tape out this year, which basically explains to you that, you know, the NRE, you know, we have to put into our budget as well as the CAD tools that we have to buy to get a five nanometer tape out is extremely higher than the whole pay for in the past.

36:46 All right, guys. Thank you very much for the call. I appreciate it. Thank you, guys. Thank you. And our next question comes from the line of Ross Seymour with Deutsche Bank. Your line is now open. Hi, guys. Thanks for letting me ask a question. Congrats on the solid guide. I guess either Casey or Fermi, I guess that's where I wanted to start with my first question is if we went 30 days ago, you talked about kind of I think low double digits was normal seasonality, and then you have the concern about the inventory digestion from the two big Chinese security camera customers. I guess what's changed since then that leads you to kind of guiding down roughly 5%? Because it seems like the world's gotten more uncertain, and yet your numbers are better despite highlighting accurately all those uncertainties. So something seems to have gotten significantly better, and so any color you can provide on that would be helpful.

37:35 Right, so first of all, the previous guidance we provided was 90 days ago, which was in the previous conference call. I don't think we provide any guidance between now. However, you are right that things changed. I think Q1 seasonally is a weak quarter for us, and we continue to see the weakness close the market, except in a consumer security, IP security camera market. and we see a broad base as well as higher demand than we expected than before and led by one large customer ring. So in general, we do see we're doing well in the market and our customer doing well in the market. That's basically the main reason showing some strength on our guidance this time.

38:25 So is it basically if it wasn't for that customer, that's kind of the primary delta? No, in fact, I say it's not less by one customer, but this is really a market we're talking about. We're talking about board-based, customer-based. In fact, we have many consumer IP camera customers, and most of them show strength in the Q4 and on the forecast on the Q1, which, of course, Ring is our largest customer in this space, and they are leading in terms of total revenue forecast. Thanks for that. And I guess a slightly longer-term question, but still the same sort of financial bent to it. The line that you have at the end of your press release saying that your goal is to grow revenue for the year, what are you trying to capture in that? Because you're starting the year up the better part of 15, mid-teens at least, year over year.

39:18 Is there a seasonality difference that you guys expect this year with that $10 million, or is it just an abundance of caution given the or abundance of uncertainty given what's going on in the world with the virus and geopolitical, et cetera? First of all, I think we established a goal this year that we definitely think, you know, we want to have a growth year this year. And before this COVID-19 situation, we do see, like I said, strong forecast in certain market segments. Although we cannot predict or forecast what's going to happen in the next three quarters, we want to maintain a goal that we want to have a growth year, particularly with our strength on the CV, which is our basis of growth. Hopefully, if we can have a stabilized market in the next three quarters, we want to achieve the goals that we set up early this year.

40:19 Got it. All right, guys. Thank you. Thank you. And our next question comes from the line of Joe Moore with Morgan Stanley. Your line is now open. Great. Just following up on the last question, as you guys have looked at these risk factors that you talked about around COVID, can you give us a sense of how much, you know, that might have changed your forecast? Like if we hadn't seen that situation, is it possible to quantify how much of an impact that was? I think it's hard for us to provide the whole year guidance at this point. And COVID-19, obviously, there's an impact to our forecast. And we try to factor that in our Q1 forecast already. And then just more for the quarter, not for the full year, just for the quarter.

41:06 For this quarter, I definitely think that with the one-month shipment already in the bag, and we look at the forecast we're going to do in the next two months, We feel relatively good about our current guidance. Yeah, Joe, it's difficult to say how much impact It's really having. What we did is we looked out what we're seeing early in the quarter and what we might expect is or anticipate is further cancellations or push-outs and tried to work that into our guidance. But we're kind of caught here because of the one month off from December in a place where all of this is happening really pretty quick in the last week or so.

41:54 And so what we tried to do to communicate is that we tried to factor it into our guidance, not only what we've seen, but what we think we're going to see for the quarter. Great. That's helpful. Thank you. And then as you talk about 10% CV for the year, you know, I assume that's still primarily in professional surveillance, and it seems like that means you're exiting the year with a pretty reasonably good percentage of your professional surveillance business having transitioned as it. Is there any context I'm missing there and just, you know, anything you can do to kind of help us with what that progression looks like? I think, you know, we end the fiscal year 20 with some initial ramp up of a professional IP can. And we made some assumption on how fast the ramp up will happen this year. And also with considering the factors of, you know, the geopolitical situation and COVID-19.

42:46 But also, we're also putting some of the forecasts that early round of consumer IPK also. So between the professional IPK for the whole year revenue and some late Q4 consumer IPK revenue, that should be the big portion of our new CV revenue for fiscal year 21. Thank you. And our next question comes from the line of Quinn Bolton with Needham & Company. Your line is now open. Hey, guys. Congratulations on the nice guidance. I guess just following up on Joe's question, it sounds like you've got a pretty good backlog on hand over the next couple of months, and you've judged that down for COVID-19. So are we right to assume that if you shipped everything in backlog, revenue would have been higher than what you guided? So you're actually expecting some pushouts or cancellations from what's in backlog today?

43:43 As we said, we've seen some already, and we don't think that's over. We're going to see some. So by definition, yeah, some of that. Now, you're always hoping, of course, it's pushed, not canceled. And so initially, it tends to be pushed, and we're hoping that that's the case. But we generally see an increase in business in Q2 and then another increase in business in Q3. And so, you know, all bets are kind of off as far as ordering patterns and how things are flowing today. But we will see some of that or we hope to see some of that in Q2 because it starts, like I say, as push-outs. And what you hope is, you know, some of it at some time will get canceled possibly, but you hope you have more push-outs than cancellations. Second question. I think subsequent to the last quarterly earnings conference call, it seems like the Commerce Department has increased chatter about potentially changing the de minimis rule. It still sounds like, from your comments today, that a $10 million pull in the fiscal 20 and out of fiscal 21 is the right amount of inventory that you haven't seen further inventory build as a result of potential de minimis rule changes?

44:54 First of all, the minutes rule hasn't changed. Of course, there are a lot of discussion, but we haven't seen the rule changed. In terms of the inventory build-up for our Chinese customers, I think in Q4, they did exactly what we expected them to do. And for Q1, like Casey just reported, one of the customers showed some weak ordering patterns, so we We believe they are trying to deplete their inventory starting this quarter. So based on that, we believe that the $10 million inventory is still there and that it will take time for them to use all of that. Great. And then just lastly for me, you talked about the 10% of revenue from CV applications, mostly professional security this year. But I think in the script, you talked about three sort of aftermarket automotive applications.

45:44 Just wondering if you could give us a time frame. Do you think that those aftermarket designs could start to ramp in some meaningful way in calendar 21 or is even those aftermarket more in this calendar 22-23 time frame? No, I think for those three products we mentioned, I think the Renba will be this year, but however, the size, because of the aftermarket as well as the fleet management, in terms of the volume is not going to be as meaningful as professional security camera that we're seeing right now. So I do believe that although the three production products we talk about in the automotive side will contribute, but it's going to be less than professional IP cameras.

46:29 A little bit of the temper on the auto is obviously, as we talked about, auto is an industry software last year, and we see that somewhat carrying forward into this year. So that makes you kind of temper your comment as well. Understood. Thank you. Thank you. And our next question comes from the line of Suzy DeSilva with Roth Capital Markets. Your line is now open. Hi, Fermi. Hi, Casey. Just a quick financial question first, Casey. The fiscal 21 growth revenue guidance, what's the assumption implicit in there about the consumer legacy? Is that part stable? Is that part declining? Just any color there would be helpful. Again, right now we're seeing it pretty stable. As we saw last year, we thought we were going to start to see a bigger decline than we really saw. So for the year, we really haven't guided on anything.

47:21 But right now it feels pretty stable. This obviously, from a consumer standpoint, this quarter is typically weaker because it's after the Q4 time frame. So even if it was stronger than usual, it doesn't necessarily mean it would be up. It just would be down less than you might expect. Okay, that's helpful, Casey. And then a question on the OPEX growth in terms of, you know, what's driving it. You've reached 100 engagements on CV, so congratulations on that. Are you seeing partners and channel folks helping you kind of source new engagements, or are you still having to deploy people to, you know, to acquire and then support these additional customers, or is the engineering really for the product roadmap and support there? Any call around the, you know, where the resources are going to would be helpful.

48:08 Yeah, the go-to-market strategy is still the same. We are leveraging our partners of business contact. For example, we mentioned the five, six corporate partners. They're all, you know, demoing our system and helping us to acquire customers based on their market approach. At the same time, we still have using our own marketing and sales to try to capture customers. So we're using both. In fact, trying to get a lot more corporate partners to put our CV silicon. The main reason is trying to, you know, with their help, we can access to more customers quicker by doing everything ourselves. Okay, very helpful. Thanks, guys. You got it.

48:56 Thank you. And our next question comes from the line of Charlie Anderson with the Doherty & Company. Your line is now open. Yeah, thanks for taking my questions and congrats on all the CV progress. Wanted to start with some of the commentary around CV more material in OEM for automotive in the 2022-23 timeframe. I wonder to what degree you guys have visibility today on any wins there and then, you know, as you kind of consider how this year plays out, what would be some of the goals in terms of achieving those wins and what areas specifically do you think you'll see the early success? that resulted in that 2022-2023 ramp. Thanks. And I got five. Right. So for the OEMs, I think there's a multiple direction that we are following up, right? So one thing is, for example, we talk about electronic mirrors, and we finally start seeing momentum there, and we do believe that will help us to address that Wave 3 ground mirror for the calendar year 2022-2023, as well as the...

49:58 Dragon Monitor as well as the cabin monitor system that definitely is happening. And we are, but more importantly, the most important thing for us is to continue to talk to the tier ones and OEM for the ADAS and the L2 Plus. I think that's the biggest area that we spend most of our engineering marketing resource to secure design wins as well as helping our customers. So all the three areas are the key focus for us right now. Great. And then for my follow-up, Casey, just a couple of housekeeping. On gross margin, it was obviously strong. I'm sort of curious what you view as the trajectory there. And then inventory, you've been sort of bringing it down, but you did build a little bit this quarter, so I'm just kind of curious your thoughts there as well.

50:43 Thanks. Yeah. You know, from an inventory basis, I feel that we're still pretty lean. Obviously, when we came into the beginning of the quarter we had a little bit more inventory and that's because we saw a little bit more opportunity or a little bit more activity in month one and so we had built inventory a little bit but there really isn't much to read in As far as from a margin perspective, we don't give longer-term guidance other than our model or our target. We're kind of hovering around the bottom of that target right now, as I think Fermi mentioned or we both mentioned in the past. Although you aren't going to see significantly higher margins on the CB products, you are going to see twice the ASPs, which gives you the operating leverage that we're really looking for.

51:36 So depending on the mix and what we see happening in the professional business, in particular in China, That will really guide kind of where we are in our range, but we're going to maintain the range at 59 to 62 and work to get back not only in it, but higher up into it than where we are. Okay, perfect. Thanks so much. Thank you. And our last question comes from the line of Torrey Svambert with Steve. Your line is now open. Yes, thank you. My first question is on the R&D efficiency. So you announced the CV22 and CV2FS products in January. Are these sort of very simple derivative products from a cost perspective, or is there still a lot of heavy R&D that goes into those products?

52:27 I'm just trying to understand, you know, because it does seem like those are very specific for auto products. Yes, so from a purely video processing and AI technology point of view, CV2 and CV2FS, for example, are similar. However, the biggest challenge for CV2FS is to build ASOB, which is auto-grade silicon. The amount of engineering effort, not to be developing new technology, but follow the process, follow the standards so that we can say we can pass the ASOB qualification. That's a significant investment and has been viewed as a big barrier to get into the automotive business.

53:13 Now we've reached that, and we are confident we're going to pass the ASOB qualification. I think that investment is behind us, but however, that's really, I think that's basically, if you view that as a barrier that we have to cross over to get an auto. But from the engineering development point of view, from the technology point of view, it's just similar to the CV2. That's really helpful. And Fermi, you mentioned cloud nanometer. When should we expect products to be in production on FIBE? Well, what I say is we are planning to take our first 5 nanometer chip, but we haven't talked about the product plan, how we're going to, what kind of product we're going to build based on 5 nanometer. But based on our history, you should expect that we're going to build 5 nanometer product across the board for auto, for security camera, for smart city, smart home. and it will be a family of chips.

54:09 I think that, you know, we kind of basically say we're going to skip 7 nanometer, go to 5 nanometer directly as our engineering investment. But you should see that in the next few, after we take out 5 nanometer, we're going to provide much more detailed description about our plan for products with the 5 nanometer process. Sounds good. One last question for Casey. Casey, the R&D is obviously stepping quite a bit there and in the April quarter. Will it kind of flatten out, do you think, a little bit for the remaining quarters, or will we continue to see these types of step-ups? Yeah, so again, we don't typically guide beyond one quarter, but what I'd say is you're not going to see a step function like that throughout the year. Like I say, there's some unusual things that come in, like the payroll taxes and some of those that tend to feather out as you get further in the year.

55:03 So I think you're going to see us continue to invest in the R&D, and our OpEx will continue will stay fairly consistent where we are today, but you're not going to see us back off R&D or really accelerate it much more. Very helpful. Thank you very much. Thank you. And this does conclude today's question and answer session. I would now like to turn the call back to Dr. Wong for closing remarks. And thank you for joining us today. I will talk to you the next time. Thank you. Bye. Thanks. ladies and gentlemen this concludes today's conference call thank you for participating you may now disconnect