Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Ambarella First Quarter Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference may be recorded. It's now my pleasure to turn the floor over to Deborah Stapleton. Please go ahead.

Good afternoon, everyone, and welcome to Ambarella's First Fiscal Quarter 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 the information regarding our fiscal first quarter. 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 on potential risk factors that could affect our financial results, are more fully described in the documents that we file with the SEC, including the annual report on Form 10-K that we filed on April 4 for the 2013 fiscal year and the Form 10-Q, which will be filed shortly. Access to our first quarter results press release, historical results, SEC filings and a replay of today's call can all be found on the Investor Relations portion of our website. I will now turn the call over to Dr. Fermi Wang. Fermi?

Thank you, Deborah, and good afternoon, everyone. Our Q1 revenue was $33.9 million, up 31% from the $25.9 million we reported in the first quarter a year ago. Our Q1 non-GAAP net income was $6.2 million or $0.21 per diluted share. This compares with a non-GAAP net income of $3.5 million or $0.11 per diluted ordinary share for the same period in fiscal 2013. I would like to discuss some of our products and the market highlights, then I will turn it over to George for more in-depth discussion of our first quarter financial performance and our guidance for Q2. In the IP video surveillance market, we are seeing significant increases in design activity as security cameras continue to move from analog to digital IP, and from standard definition to high definition, where we play. During the ISC West International Security Conference held in Last Vegas in April, we demonstrated a wide range of high-definition video solutions, including our new S2 camera SoC, with a 4k or Ultra HD resolution. The 4K resolution capability enables S2-based IP camera to capture the finest details of people's face or objects, even when shot from a distance. Additionally, the S2's capability to develop images allow the design of IP cameras that use wide-angle lenses to record images captured over a wide area. Ambarella also demonstrated its Wi-Fi IP camera platform using the A5s camera SoC. This solution is helping enable design wins both in professional IP camera applications, as well as in the new home consumer applications that leverage home Wi-Fi networks, cloud services and the smartphone applications. During the ISC West show, Pelco, a leading U.S. supplier of video surveillance equipment, introduced its new Sarix professional range of IP cameras based on Ambarella's A5s family of SoCs. The extensive new product range…

Thank you, Fermi, and good afternoon, everyone. I'll start today's call with a summary of the financial results for the first quarter of our fiscal year 2014 that ended on April 30, 2013, and then move on to the outlook for Q2 of this fiscal year. 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 to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense as adjusted for income taxes. As we discussed in the past, the company has seasonality to both its revenue and gross margin, so I will include year-on-year comparisons for certain key operating metrics to assist in the understanding of changes in our business. I will now discuss the financial results for the company's key operating metrics, starting with revenues. For our first fiscal 2014 quarter that ended on April 30, 2013, the company had net revenues of $33.9 million. The Q1 revenue of $33.9 million represented an increase of 31% over the $25.9 million in revenue for the same period in the prior year. Camera market revenue is estimated at 86% of Q1 revenue as compared to 67% for the same period in the prior year. We continue to experience strong year-over-year growth in our professional and consumer IP security, wearable sports and automotive camera markets. The sports camera market was especially strong in Q1 due to the successful ramp of several new camera models introduced at the end of last year by GoPro. As discussed in our year-end call, we believe infrastructure market revenues continue to be negatively impacted by macro market conditions in the U.S. and Europe, recording lower revenues, both sequentially and year-over-year. In addition, infrastructure revenue in Q1 of the prior year was unusually high due…

[Operator Instructions] And it looks like our first question will come from the line of Joe Moore with Morgan Stanley.

The infrastructure business being weak, you talked about some of the reasons. I mean, what do you think -- do you think this was a temporary situation where it's sort of weighed down by some of the issues that you mentioned and there will be a rebound? Or do you think we'll stay at this lower level? And I have a follow-up.

This is George. I think the visibility is not great right now for our customers, so it's difficult to say where the market is heading and what opportunities they are looking at. But for now, the company is taking a conservative approach to their numbers, and we're constantly discussing when and where they're going. But we feel that because of the lack of visibility, we'll take a conservative position.

Okay, great. And then it looks like -- I mean, your gross margins have been pretty good considering that mix. Is there -- the gross margins on the camera side, is this kind of the level that you expect over the long haul? Or do you think that -- are you seeing some temporary mix benefits there that we should be cognizant of?

Well, I think, over the long haul, I have not, at this point, made any changes to what I consider my target model, which I've said 60% to 63%. And so we're still comfortable with that target model even with the current mix between camera and infrastructure revenues.

Our next question will come from the line of Quinn Bolton with Needham & Company.

Wanted to touch-base first on the professional IP camera market. Sounds like you've not only had a number of design wins, a lot of those designs start to come into production in the July quarter. Can you give us some sense are these more HD cameras based on the A5s silicon or are these some of the new 4K-by-2K cameras based on A2? And then, to the extent that they are based on the 4K-by-2K solution, does that give you better margins? Or are the margins between the HD and the 4K cameras relatively similar?

This is Fermi. I think all of the cameras, IP security camera, that will go into production this quarter or even for later this year are all going to be A5s-based camera. We don't expect any S2-based camera will go into launch this year. And the gross margin for A5s camera vary based on the feature set. So for the higher-end professional camera, our gross margin is still maintained, but also, at the same time, we are also continuing to compete in the consumer-level IP security camera, where the gross margin is lower.

Okay, great. And then just switching gears to the sports camera market. It seems like you're seeing a little bit of atypical seasonality this year where you're seeing strength in April and it sounds like sports cameras continue to be strong here in July. I guess, as you look into the second half of the year, since GoPro sort of refreshed the product line at the end of this -- sort of end of calendar 2012, do you think that, that potentially limits the normal seasonal pattern that you would typically see in the October quarter? Or do you expect another refresh of wearable cameras to drive typical seasonality in the October quarter? I know you're not guiding there yet, but I just wonder whether seasonality is a little different this year than normal years.

This is George. I think because the seasonality is driven really by the holiday season, we did have a strong initial part of the year because of product launches, but we still see the holiday season as giving us our normal Q3 sort of product build cycle.

Our next question will come from the line of Ross Seymore with Deutsche Bank.

George, just a question on the guide going forward, specifically on the gross margin side of things. It looks like, even if I adjust for the mix, that the gross margin is being modeled to come down relatively decently in either your camera, your infrastructure side of things. Can you talk about what the gross margins are doing within each of those segments that is above and beyond kind of big segment mix?

Yes, as I -- if you look at the infrastructure business, those gross margins aren't really changing much. But in the camera space, as I mentioned in my script, the consumer IP security side of the business is growing and is expected to grow in Q2, which is bringing down the overall camera margins a bit.

Okay. There's nothing beyond that? It's -- you're not having to price more aggressively due to competitive pressures or anything along those lines?

Well, it's the consumer side of the business so there is more price pressure, and we probably have a little bit of different ASP in there giving us a little bit lower margin on the consumer side.

And then I guess on the automotive side, you mentioned that it's continuing -- the dash cam is continuing to be strong. Is that already the A7L-A that's starting to ramp that you launched back at CES? Or is that some of the prior generations still going?

For the last quarter and Q2, I believe, the majority of revenues still come from A5s and older generation. We believe that A7L-A will start ramping up later this year.

And as those new products launch, if I recall right, sometimes they carry, at initial launch, lower gross margins until you get the volumes up. Is that something within auto but across the board that we need to be concerned about, as far as the gross margin implications, as we go into the back half of this year?

Probably, no. In this case, because of the feature sets and the product offering we're giving there, we expect to maintain good gross margins in the initial periods.

And I guess, as my last question, if I'm doing the math right, it appears that you're guiding the infrastructure segment down almost 25% sequentially, but year-over-year it's about the same decline as you had in the first quarter. I know you talked about macro being weak, but it seems like there's something more than that going on when you're down as much as you are year-over-year. Can you give us any confidence or any additional color in when that might rebound or if there's product cycles and refreshes that would come in to get that business back up to the $6 million, $7 million a quarter like it was last year?

Well, there's a couple of things. First of all, we mentioned that there is -- one of the customers, because the company got sold, we lost the visibility there for a short period of time. And I think they are also trying to get back to their business as usual. But I think that's one of the reasons you see there's a 25% guidance down. But I think for the long term, although we don't have enough visibility for the traditional broadcasting encoder business, we do believe that the transcoders that continue to be -- continue to grow. And in addition to that, with AmbaCast 8000, we are going to a -- getting into the contribution system market, and that's a first time for us and that's also a good gross margin business for us for the long term. So in the long run, I think the transcoder and the contribution system will help us to get our revenue back.

[Operator Instructions] And it looks like our next question will come from the line of Kevin Cassidy with Stifel, Nicolaus.

This is Dean Grumlose calling in for Kevin. I was hoping you could add some color on the growth in the IP security space. Is this going to market migrate towards Ultra HD or higher-precision video in your mind? And if so, over what time frame?

First of all, I think, like I said, today -- for this year, majority of growth will still come from the full HD or 1080p 30. And we are seeing a lot of design activity around that resolution and the new customers coming in. Like I said, Pelco and Dahua, they're all going to contribute to our top line and bottom line. For the 4K resolution, we do see the market trend start picking up, and we have a design win there. But I don't expect any significant ramping this year for 4K resolution video.

Okay. Then, as a follow-up, in this kind of product, do you see that you have a value-added image processing or some end-to-end capabilities? Or how would you describe your differentiation in both the consumer and professional security market?

Right. I think for the professional security camera, the thing that's most important is really the image quality and resolution. For example, "We can support 4K, and now our competitor has assembled a chip to do that. Could you really help us to win design?".Because when people want to design new products, they want to make sure that we have a roadmap to cover not only the low end but also across the board to the high end so that we have a better image quality and a roadmap. But more importantly, power consumption continue to play a very big role in the IP security camera because more and more people look for professional system, the form factor becomes small and that the power consumption become more and more important. And so that on the professional side, even though -- although the form factor is bigger, but that we have much lower power consumption than our competitors still is a huge advantage for us. On the consumer side, because it's limited by the Wi-Fi connectivity at home, the compression efficiency and video quality and the power consumption, all those 3 things are the key differentiators for us versus our competitors. We'll continue to see that. Because of that, we are leading on the quality, compression efficiency and power consumption help us to secure design wins.

Do you have the opportunity to do any additional analytics for these markets?

Absolutely. In fact, we believe that, in the long run, video capture device just capturing video is not good enough, but we need to start doing video analytics to offload those functions on the server side so that you can do a much faster and a better way to do the analytics for the realtime applications, and I think for the -- it's particularly important for the security camera, as well as for the automotive market.

And we do have a follow-up question from Quinn Bolton with Needham & Company.

Just a couple of quick follow-ups. George, could can you give us some sense where you think the share count falls out for the July quarter?

Yes, I can. I think 29.8 million for Q2.

Okay, great. And then just for Fermi, the AmbaCast 8000 platform, is that sort of a fiscal '15 introduction or product based on that really starts to ship next year rather than this year?

Well, for example, our customer, Harmonic, only assembled at that platform at NAB, and we believe the mature -- or the significant revenue will come in early next year.

Okay, great. And then, can you give us any update on how the design activity is going on the consumer side for the new A9 silicon that was introduced at CES?

Yes. That is targeting more on the sports camera side, and we do have design wins that we are working on. Again, I think that those products will not come out until early next year.

[Operator Instructions] And presenters, at this time, I'm showing no additional questions in the phone queue. I'd like to turn the program back over to Fermi Wang for any additional or closing remarks.

Thank you. I would like, again, to thank our employees worldwide for their dedication to making this a world-class company, and thanks to all of you for joining us today. Thanks.

. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. Attendees, you may now disconnect.