Highlights From Ambarella's Q3 Earnings Conference Call

• Shares of Ambarella Inc AMBA were lower by more than 3 percent early Friday afternoon despite trading in positive territory most of the morning.
• Ambarella reported a top and bottom line beat in its third quarter print, but guided towards a weak fourth quarter.
• Following the company's earnings release, management hosted a conference call to discuss its results and outlook.

Shares of Ambarella dipped into negative territory for the second time on Friday afternoon after investors and traders had ample time to study the company's third quarter print, analyst reactions, and management's commentary.

Here is a summary of what Ambarella's management team, led by its CEO Dr. Fermi Wang, had to say during their post earnings conference call.

Q3 In Review

• Ambarella saw "strong sales" in existing markets including professional IP security cameras, automotive dash cameras.
• New markets, including flying cameras and home monitoring cameras, were also noted as being "strong."
• The company introduced its new A12S and A9SE flying camera that targets the sub $199 entry level models.
• DJI, a leader in the drone market, introduced its Zenmuse X5 series of aerial cameras, featuring Ambarella's compact micro fortress camera.
• However, the growth in new existing markets were "partially offset" due to the "expected" headwinds in the wearable sports camera market due to "high inventory levels."
• Total headcount rose to 627 at the end of the quarter from 614 – approximately 83 percent of the total workforce is working on engineering projects.

Guidance And Outlook

• Ambarella's Chief Financial Officer, George Laplante, noted that "high" inventory levels within the wearable sports camera market will have a "substantial impact" on shipments in the fourth quarter, extending into the next fiscal year.
• Laplante added that he expects fourth quarter non-GAAP gross margins to fall in a range of 63 percent to 64.5 percent – marking a drop from the 65.9 percent seen in the third quarter.
• The company also expects fiscal 2017 revenue to only grow 15 to 20 percent – "somewhat lower" than its target model of 20 to 25 percent growth.
• The company is expecting "strong" annual revenue growth in "all key markets" except for the wearable sports camera market.

Notable Quotes

• Laplante on what the company plans to do with its cash: "We have continuing discussions at the board level about use of cash including share buybacks, dividends, et cetera. We are focusing on expanding the Company and we're still looking for M&A opportunities. So for the time being I think M&A is really the only significant use of cash that we've had publicly talked about and it's probably going to continue that way at least in the near term."
• Laplante on the magnitude of the sports camera downtick: "They'll be substantially down in Q4 and Q1 both from a revenue and a percent of revenue standpoint."