Q4 2017 Real-Time Call Brief

Highlights

I am pleased to report that our Q4 fiscal year 2017 revenue was $87.5 million, representing an increase of 28.8% from $68 million of revenue in the same period of fiscal year 2016.

For the full year ending January 31, 2017, our revenue declined 1.9% to $310.3 million.

We also introduced the H22 family of 4K SoCs, bringing 4K Ultra HD video to small form factor drones, including portable stealthy models, wearables and the VR cameras.

The new H22 SoC is capable of recording 4K Ultra HD video at 60 frames per second, using the H.265 or H.264 video format and supports advanced electronic image stabilization up to 4K resolution.

Fabricated in 14-nanometer process technology, the H22 offers very low power consumption, enabling 4K cameras with small form factors and extended battery life.

Our Q4 2017 revenue of $87.5 million represents an increase of 28.8% from the $68 million of revenue in the same period for the prior year.

GoPro's Q4 revenues increased from approximately 18% of revenue in the prior year to 34% this year.

Excluding GoPro revenues, the other camera markets grew 7% year-over-year, offset by a 63%, or $2.1 million decline in the infrastructure revenues.

For the year ended January 31, 2017, revenues declined 1.9% to $310.3 million.

GoPro total revenues, including sales directly to GoPro and their ODMs is estimated to have declined from approximately 30% of revenue in the prior year to 24% in the fiscal year-end 2017.

Non-GoPro camera revenues increased by approximately 8.4% partially offset by a decline in the infrastructure revenues of 27%.

Non-GAAP gross margins for Q4 was 67.2% compared to 66.3% in the immediately preceding quarter and 64.1% in the fourth quarter of the prior year.

Gross margins reflected the benefit of approximately $850,000 from the recovery and sale of inventory previously written down due to prior period yield loss in the manufacturing process.

Non-GAAP operating expenses for the fourth quarter were $25.4 million compared to $24.2 million for Q3 of 2017 and $22.9 million for Q4 the prior year.

Non-GAAP net income for Q4 was $32 million, or $0.92 per diluted ordinary share compared with non-GAAP net income of $21.6 million, or $0.64 per diluted ordinary share for the same period in the previous year.

The non-GAAP effective tax rate in Q4 2017 was 4.9%.

In the fourth quarter the non-GAAP earnings per diluted ordinary share are based on 34.6 million diluted shares as compared to 33.7 million diluted shares for Q4 of fiscal year 2016.

Total head count at the end of Q4 was 669 compared to 658 at the end of the previous quarter, with about 82% of employees dedicated to engineering.

Approximately 72% of our total head count is located in Asia, primarily in Taiwan and China.

We ended Q4 with cash and marketable securities of $405.4 million, adding $32.3 million of cash from operations in the quarter.

Total accounts receivable at the end of Q4 was $38.6 million, or 41 days sales outstanding. This compares to accounts receivable of $41.4 million, or 37 days sales outstanding at the end of the prior quarter.

Net inventory at the end of Q4 was $20.1 million, or about 68 days of inventory compared to $23.3 million, or 59 days of inventory at the end of Q3.

WT Microelectronics, our Asia logistics supplier represented approximately 48% of revenue in the quarter, compared to 63% for the same period in the previous year.

As a result, sales directly to GoPro represented approximately 32% of our revenue in Q4 of fiscal 2017, compared to 1% for the same period in the prior year.

We expect revenues for our first quarter ending April 30, 2017 to be between $62.5 million and $64.5 million, representing an increase of between 9.3% and 12.8% respectively from Q1 of last year.

Non-GoPro revenues in Q1 of fiscal year 2018 are expected to grow between 13.1% and 16.8% excluding estimated revenues to GoPro and their ODMs in the quarter of $3.4 million in fiscal year 2017 and $1.7 million for fiscal year 2018 respectively.

We estimate Q1 non-GAAP gross margins to be between 63% and 64.5%, compared to 67.2% in Q4 of 2017 and 64.6% in Q1 of the prior year.

We expect non-GAAP OpEx in the first quarter to be between $26 million and $27.5 million with the increase from Q4 primarily coming from increased head count cost associated with new chip development.

We expect the non-GAAP effective tax rate to be approximately 11.5% in the quarter and estimate our diluted share count for Q1 to be approximately 34.7 million shares.

For fiscal year 2018, we are expecting revenues to be up 3% to down 3% as compared to fiscal year 2017.

For wearable sports cameras, the estimate assumes GoPro revenues, including shipments to their ODMs declined to between 3% and 6% of total fiscal year 2018 revenues from approximately 24% in fiscal year 2017.

Excluding sales to GoPro and their ODMs, fiscal year 2018 revenues are estimated to grow between 20% and 32% based on the annual guidance I've given.

For fiscal year 2018, gross margins should move into the high end of our target margin range of 59% to 62%, while OpEx should increase 12% to 14% over fiscal year 2017.

No shares were repurchased by the company in Q4 under the $75 million share repurchase program that we initially announced in June 2016.

Approximately $55 million remains available for repurchase of shares under the program through June 30, 2017.