Good day, ladies and gentlemen, and welcome to your Ambarella’s Q2 fiscal year earnings conference call. [Operator instructions.] I would now like to introduce your host for today’s conference, Deborah Stapleton. Ma’am, you may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Ambarella’s second quarter fiscal year 2015 financial results conference call. Thank you for joining us today. Our speakers are 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 second 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 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. 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 filed with the SEC, including the Annual Report on Form 10-K that we filed on April 4, 2014 for the 2014 fiscal year and Form 10-Q filed on June 6, 2014, and the form 10-Q for the second quarter of fiscal 2015 that 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 would now like to turn the call over to Dr. Fermi Wang.

Thank you, Deborah, and good afternoon everyone. We are very pleased with our fiscal Q2 2015 financial results. Q2 revenue was $47 million, up 24.6% from the $37.7 million we reported in the second quarter a year ago. Second quarter non-GAAP net income was $11.9 million, or $0.37 per diluted ordinary share. This compares with non-GAAP net income of $7.7 million or $0.26 per diluted ordinary share for the same period in fiscal 2014. I would like to discuss some of our products and marketing highlights, then I will turn it over to George, who will lead the discussion of our second quarter financial performance and our guidance for Q3. We are continuing to see strong growth from IP security cameras, driven by increasing demand for higher resolution and higher featured cameras in the professional camera market as well as increased demand for cloud-based home monitoring and security cameras. Volume growth continues across all geographic regions, with the strongest growth in China, driven by market leaders including Hikvision, [unintelligible], and [unintelligible]. During the second quarter, many of our leading professional IP camera customers began volume commercial shipping of the 4K or ultra-HD cameras that were announced at ISC West 2014 Security Exposition in April. These cameras are based on our S2 camera SoC. In addition to its 4K capabilities, the S2’s ability to dewarp images, to enable 180 degree or 360 degree panoramic viewing, is proving very popular for the latest generation of cameras. For example, Bosch, the leading suppliers of IP surveillance cameras based in Germany, introduced its new DINION IP ultra 8000 MP family of cameras, featuring 4K ultra-HD, 12 megapixels, and high dynamic range capabilities. Additionally, we are seeing strong interest in our new S2L IP camera SoC family, which was introduced during the ISC West Exposition.…

Thanks, Fermi, and good afternoon everyone. Today, I will discuss the financial highlights for the second quarter of fiscal year 2015 ending July 31, 2014. I will then review the financial outlook for Q3 of fiscal year 2015, which ends on October 31, 2014. 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 have discussed in the past, the company has seasonality to both its revenue and gross margin, so I will include year over year comparisons for certain key operating metrics to assist in the understanding of changes in our business. Our Q2 2015 revenue of $47 million represents an increase of 24.6% over the $37.7 million of revenue in the same period in the prior year. Camera market revenue is estimated to be 93% of Q2 revenue, compared to 90% of the same period in the prior year. Our professional IP security market, along with the continued development of the consumer IP security market, combined to be the largest driver of year over year revenue growth, once again ending the quarter as the largest camera segment, based on both revenue and units. Overall, the IP security market revenues were sequentially flat, with professional IP security down moderately due to some inventory balancing in Asia, offset by increases in professional security in Korea, and consumer IP security revenues overall. Although we are seeing competition at the low end of the Asia IP security market, our A5S and S2 products continue to support growth in the expanding mid and high end of the market. The wearable sports camera market increased both sequentially and year over year, reflecting…

[Operator instructions.] Our first question comes from Jay Srivatsa of Chardan Capital.

In terms of the margins that you’ve guided for, could you address whether it’s all from the consumer business, or is there any impact on competitive price pressure in the IP security market?

The margins in Q3 are normally lower, and it’s really from two things. First of all, the mix of products heavily towards consumer business as well as the lower percentage of infrastructure business this year as compared to the previous year.

Fermi, in the past you’ve talked about competition in the low end of the market. What has changed in the last quarter? Can you give us an update in terms of where things are, in terms of Hisilicon and some of the other guys, and how are you positioning yourself looking forward in the IP security market in China?

Well, from that point of view, I don’t think not much changed from our last report. We continue to see Hisilicon be aggressive on the pricing side, and in fact, they have a lot of smaller competitors coming out. But you know, I think at this point, I still view Hisilicon as the main competitor to us. And from our strategy point of view, that didn’t change either. We continue to believe that we want to continue to ship better features and better performance products than our competitors, so that we can grab the shares on the high end and on the mainstream side, and continue to use that to leverage it to provide a competitive price to our larger customers on the low end products. And I think from that point of view, nothing has changed much.

Your next question comes from Suji De Silva from Topeka.

First of all, on the 4K products, what percent of the revenue or unit mix do you think those can become exiting this fiscal year? And do you think there’s channel fill going on in these two quarters which would kind of make the ramp of those front-end loaded?

First of all, I think that 4K video has become more and more popular, and we believe that over time, all of our markets will move to 4K. In fact, we’ll start shipping 4K, like we said, to professional IP security, and we’re going to start shipping to UAV, and we believe that in the short term you’re going to see other markets pick up. In fact, the funniest part is that the infrastructure will be the last one to pick that up, unlike before. But I think overall, over time, 4K will be the mainstream product for all of us. And we haven’t broken out the 4K product alone in terms of percentage of revenue, but I think it will become a higher percentage of our products in the future.

And do you think there’s an initial channel fill here that makes the build front-end loaded?

I don’t know if it’s necessarily associated with 4K, but we have seen a lot more optimism than we saw four months ago in the consumer spaces. And so there is a lot of product going into the channel for seasonal build. So depending on how the sell through us during the holidays, I think there is the potential for inventory adjustments in Q4 and Q1, as the manufacturers adjust based on holiday sell through. So I think that is a potential issue to watch.

And the auto and police safety areas, it sounds like you’re strong in Asia and growing into the U.S. or Europe today? Correct me if that’s wrong. And if so, will it be less or more competitive in the U.S. and Europe markets versus Asia?

And this is automotive that you are saying?

Automotive and police safety, they sound like they both try to expand -- US.

I think the majority of the automotive markets happening in the U.S. and Europe today, basically it’s ODM from China and from Russia areas. So I think you’re going to continue to see there’s a product in the high end to the low end. So we believe that we are very competitive in terms of performance and feature in the high end and mainstream. But on the low end side, we also believe that the price pressure is there. It doesn’t matter if it’s in the U.S. or Europe.

Our next question comes from Kevin Cassidy from Stifel.

I wonder if you could give us a little more update on your 14 nanometer process development. When do you expect that to come out, and is it on schedule with your expectations? And what kind of demand are you looking for?

First of all, 14 nanometer is still one of our main focuses on the R&D side this year, and it’s essential to us, because we believe when we deliver our 14 nanometer products for our next generation camera products, it will help us continue to improve our performance and also increase the gap between us and competitors in terms of power consumption and video performance. And the current schedule, we are still on track, and we believe that we will have product coming out next year.

And in the last conference call, you had talked about some of the quarter would be dependent on ramping of the A9 and S2 products. Is the ramp as expected, or better than expected? It seems like it was better than expected?

Yeah, we were at the high end of our hopes there. We did sell the A9 and S2 in the quarter. The S2 is into the security business, and the A9 volumes into the quadcopter marketplace, as well as the A5S. So we did meet our expectations.

And do you expect to continue to be stronger gross margins in your older products?

Yes. As we introduce, normally our new products have higher gross margins on the front end, yes.

Our next question comes from Quinn Bolton of Needham & Company. Quinn Bolton - Needham & Company: Just wanted to ask a clarification on the consumer build. Was that across both sports camera and quadcopters? Are you seeing better enthusiasm than three or four months ago? Or is it specific to one or the other areas?

It’s across all the consumer products, including automobile in certain regions. So I think you can look at home security, you can look at quadcopters. I think sports cameras, normal build for the holiday season. So I think it’s across multiple markets. Quinn Bolton - Needham & Company : And was the A9 shipping only in the quadcopter? Or have you started to ship that also into sports cameras?

We’re shipping it across multiple markets now. Quinn Bolton - Needham & Company : And just lastly, I think you referenced some better ASPs as being one of the reasons behind the better gross margins. As you look forward, you have the consumer ramp for the holiday. I imagine the 4K products, especially A9, become a richer part of the mix. Do you think that leads to just general better pricing across the sports camera and quadcopter markets? Or do you think pricing across all the products are likely to be more flattish, despite the ramp of 4K solutions at the high end?

We’re also seeing a transition from the A5S to the A7L, so we’re seeing multiple product families transition. So I would expect ASPs in Q3 to be higher than Q2.

Our next question comes from David Williams of Ascendiant Capital.

I wanted to get your take, as we start thinking about, in the sports camera market, and maybe a potential upgrade cycle or refresh cycle that many expect to happen next year, and kind of how we would expect the revenue to begin the flow through? Would we be seeing any of that maybe this quarter or next quarter? Or is this really more about the seasonal inventory build than it is maybe a refresh cycle?

We don’t discuss our customer launch cycles across any of the product lines, but you can assume we are having our normal seasonal build cycle for Q3.

Can you walk us how that revenue might flow in, if we were talking about a refresh cycle to happen in, let’s say, Q3? When would you start seeing that benefit? Would that be a Q2 event? Or maybe a Q1 event?

Again, we really don’t talk too much about how the products go out to our customers in preparation for their launch. It ends up to be pre-announcing our customer products, so we tend not to discuss that.

And secondly, I wanted to think maybe on a longer term basis here, as we think about the infrastructure part of your business really starting to pick up maybe in the second half of next year. What do the margin trends look like, thinking about the consumer and the drag that those may be placing on margins. And then of course the high margin infrastructure business. If we think about this maybe four to six quarters out, how do you think margins, or what kind of benefit could we see as we get into maybe middle to end part of next year?

I think it’s the timing of the 4K upgrade and HEVC upgrade in infrastructure. When that starts, we would see similar margins to what we have seen in the past. When that starts, though, and how that matches against the ramp in the consumer businesses, is difficult to say. So for instance, we’ve said that in a very high ramp in consumer business, that obviously would pull down margins. But that could be offset by infrastructure ramp. :

Our next question comes from Joe Moore of Morgan Stanley.

Historically, you’ve talked about quadcopter as part of another segment, and it seems like it’s become pretty prominent. Can you talk about that market a little bit and the size, and maybe if you can, potential customers we should look to as being important?

I think probably last quarter we talked about we started shipping A5S solution to PGI. I believe they are one of the leading suppliers on the quadcopter side. And from there, we’ve had multiple design wins that we haven’t talked about, based on the A7 and A9 solutions. And overall, we think this market has interesting application, because we started seeing quadcopters being mentioned in many different type of applications, from commercial to consumer. And also, the importance of that is video is really the killer app on the quadcopters. We love video, but quadcopter is just a toy. With quadcopter, it becomes a very useful tool for many different reasons. And on top of that, the video requirement on the quadcopter requires high resolution and a very high frame rate, because you’re thinking about the speed of the quadcopter and how high the altitude that they have to fly at really requires high performance video. So with that, it really positions us very well in that market, and we believe, based on the current ramp of our current customers, we are very optimistic about how this market continue to development. And although the volume is still not as big as other markets, we think that’s a market we’re going to continue to watch and continue to invest.

And then in the auto and security markets, when you talk about lower end competition coming in, how do you balance out where you’re willing to let those margins go? Because you’re obviously seeing a lot of margin upside from the higher end product. Is there any thought of using that to be more aggressive on the low end? How do you make those decisions about what’s something that you want to pursue, and what you don’t, in the lower end of the market?

I think it’s a very good question. We continue to compete on price on the low end, but not to all the customers. We only offer very, very competitive price for our key customers, that really give us, from the high to low end of products. So for the customer who is willing to work with on the high end to mainstream to lower end products, we are willing to give them a very competitive price, so that they can compete with products with our competitors product line. So based on that, we’re really very selective on the customers we want to offer those. But at the same time, it really helps us build a stronger partnership with our customers.

Our next question comes from Charlie Anderson of Dougherty & Company. Charlie Anderson - Dougherty & Company: My suspicion with the gross margin is that ASPs are up in the camera business on a year on year basis. Is that true? And if so, could you maybe help us qualitatively with how much?

We don’t give exact numbers on ASPs, and actually, in Q2 ASPs were reasonably flat year on year. We expect to see stronger ASPs from a mix of new products in Q3. Charlie Anderson - Dougherty & Company : So if that’s the case, maybe help us on where you’re getting the benefit on the cost line, in terms of generating these higher margins.

It’s primarily from a mix products. So the mix of higher end versus lower end products. Mix can have a pretty dramatic impact. Charlie Anderson - Dougherty & Company : And then on the auto OEM market, I wonder if you guys could talk about whether some of the opportunities there and the timeframe when the realization of some of those opportunities are for you on the OEM side of the house?

Like we said before, OEM is still a long term project for us. I think there are multiple things happening right now. First of all, we started seeing that OEMs started demanding video recording associated with [NS] solutions. So I think as long as they require recording, it really helps us to position ourselves in the OEM business. We start seeing people building dash cams into the OEM business in Europe, and in Asia. Although it’s a small body, I think that’s very encouraging news to us. At the same time, we still believe that we want to target automotive OEMs in a very long term project for us. For that market, video has to be surround video, like you have multiple cameras, you put multiple cameras together. In addition to just capturing video and recording video, we believe we need to provide video [unintelligible] on top of that. And with that, I think it’s going to be a multiple year product, and to not only put design in, but also get it to [MP]. Charlie Anderson - Dougherty & Company : I think you made a reference in the script to wearable security and how that’s an interest market for you. Obviously, there’s a lot of enthusiasm in the market for these so-called cop cameras. I wonder if you could talk about what the capacity of that market is to date, and if you have specific products to address that type of a market going forward.

Interestingly, we started seeing this market popping up not in the U.S., but in Asia, a couple of quarters ago. In fact, we have multiple [unintelligible] in Asia building these kind of cameras and selling them quite well. But we started seeing traction in the U.S. and Europe just recently, and we have started seeing a lot of OEMs in the U.S. asking for [unintelligible] solutions for Asia, to speed up their first generation products. So I think the momentum is there. We’ve started seeing a lot of interest. I think hopefully working with the [ODMs], we can provide some solutions quickly for those U.S. and European OEMs.

Our next question comes from Ross Seymore of Deutsche Bank.

If you could help a little bit on the magnitude in the guidance for the third quarter. You talked about the sports camera, the auto, pretty much everything but infrastructure being up. Any sort of hierarchy on what you think is going to grow faster or slower, and what the drivers are behind that would be helpful.

I think in the quarter we’re seeing a couple of things. We’re seeing all the consumer based products, so you’re looking at the normal growth for sports cameras. We’re also seeing consumer IP security growth. In addition, we’re seeing a significant increase in the professional IP security from Q2 to Q3 globally. I think those are the main drivers for the revenue increase.

And as I look at gross margin side of things, I know you talked in the answer to a previous question, about the ASP rising in the third quarter. Are higher ASPs in most cases in your business model equivalent to higher gross margins? Or is that a connection that we shouldn’t necessarily make?

We’ve said in the past that connection can be made on new product launches. So normally, we would launch with higher ASPs at the initial stage of a product, because we give price discounts based on volume over its life cycle. So on most new products, we would have higher ASPs would match with higher margins. And in this quarter, we have several product families going out, transitioning to new products. So we’re getting a positive impact from that.

And the opex side of the equation, it seems like you’re implying somewhere around $19 million or so. Am I doing the math right? And how should we think about how that number grows for the rest of the year?

I think it’s pretty much the way we left it last time. We’re expecting to exit the year around the $19 million run rate. If you take out the $300,000 upside we got, we were at about $17.8 million in Q2. So we’ll see a ramp between now and the end of the year to around that number.

Our next question comes from Jay Srivatsa of Chardan Capital.

Fermi, earlier this year, at the Consumer Electronics Show, you had a demo of your partnership with Google and Helpouts. Can you give us an update on where things are there? And then also, can you comment on the recent acquisition of Google of Dropcam, and what that does to your participation in the security business?

First of all, on the wearable cameras, that was Google, I think the [unintelligible] continues, and until Google can announce a product, I don’t think we can really talk about their plans and how fast we can see revenue. But I don’t think by the end of the year we’ll see anything on that front. But on the [Nest] acquiring Dropcam, I think the older current products is going to continue as planned. I don’t see any reason that will change. And we are talking to the Nest management as well as the Dropcam management on the new product line and the new map, and hopefully we can develop a new product in the future with them. And we are definitely looking forward to the possibility of working with them. And from a financial point of view, I don’t think there’s anything to change.

And at this time, I’m showing no further questions. I’d like to turn the call back to management for any closing comments.