Ambiq Micro, Inc. (AMBQ) Earnings Call Transcript

Thank you. Good morning and welcome to the AMBIC Micro second quarter 2026 earnings conference call. As a reminder, this conference call is being recorded. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I'd now like to turn the call over to Ms. Charlene Hwan,.

Vice President of Corporate Marketing and Investor Relations. Charlene, please go ahead. On today's call, Ambix CEO Fumihide Asaka will provide an overview of the company's performance and strategy. CFO Jeffrey Winsler will then discuss the quarter's financial results and outlook. Following their remarks, Scott Hansen, Ambik's founder and CTO, will join Hume and Jeff for Q&A. Our earnings release is available on the Investor Relations page of our website at www.ambik.com. We have also posted our earnings presentation on the Investor Relations of our website. Before I turn the call over to Hume, I'd like to remind our listeners that during the course of this conference call, management will discuss non-GAAP financial measures. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release available on the website. Investor Relations website. In addition, today's call will contain forward-looking statements representing management's beliefs and assumptions only as of the date made. Our most recent quarterly report on Form 10-Q and other filings with the SEC provide more information on specific risks. that may cause the actual results to differ materially from current expectations. And now it's my pleasure to turn the call over to Ambix CEO, Hume Asaka. Good morning, everyone, and thank you for joining us. Thank you.

Since the start of the year, we've seen a step change in demand for edge AI, which supports our strong performance and further increases our conviction in the magnitude and durability of the long-term opportunity. Across end markets, companies are embedding more sophisticated AI into a broader range of devices. and end user demand is far exceeding our expectations and those of our customers. With our full-stack ultra-low power solutions, Ambix defining technologies are not only enabling, but further accelerating this next chapter in AI. This positions us to continue outpacing the broader market as we take share and expand our addressable opportunity. This momentum is reflected in our second quarter results. Net sales were ahead of guidance, growing approximately 90% over last year and marking our fifth consecutive quarter of sequential growth. We also raised approximately $168 million in net proceeds through a successful follow-on offering. The strong investor interest serves as a proof point of confidence in our ability to capitalize on the meaningful opportunity ahead. Turning to the details of the quarter, demand accelerated across customers and markets and products. Customer programs grew on healthy end-user demand, positive response to customers' recent launches, and continued ramping of our newest large customer. This supported strong performance across key products, including double digit growth in Apollo 3 and Apollo 4, while Apollo 5 sales more than doubled year over year. With lean inventory across channels and continued expedite requests, we are confident that this demand reflects underlying end market consumption rather than inventory replenishment. Our orders continue to exceed initial forecasts, and based on our ongoing customer conversations, we expect underlying demand for edge AI to strengthen even further in the second half of 2026. At the same time, we and the broader semiconductor industry are increasingly supply constrained. We are working closely with our supply chain partners to support production ramps, while maintaining the high level of quality and execution our customers expect. With tight capacity across wafers, packaging, substrates and testing, we are actively working to secure additional foundry allocations and OSAT capacity to improve supply flexibility and better support customer demand over time. Even with these actions, our second half outlook is constrained by available supply, given the significant levels of demand we are seeing. As additional capacity becomes available, we believe we are well positioned to convert this deferred demand into future revenue. Based on our current visibility, we expect third quarter net sales to grow approximately 100% year over year. And we now expect to deliver approximately $135 million in net sales for the full year, even with the supply constraints I just mentioned. Looking ahead, we believe the opportunity for Ambiq is substantial. With more than 20 billion connected devices already deployed, there is significant potential to embed edge AI across this large and growing installed base. While adoption remains at an early stage, increasing AI functionality at the is driving demand for greater compute and memory content across a growing range of devices and use cases. As these workloads become more sophisticated, customers must deliver higher levels of intelligence and performance without compromising battery life, responsiveness, or privacy. That challenge is making power efficiency a critical design requirement for the next generation of edge devices. These requirements are redefining what matters most in semiconductor design. Power efficiency is no longer just an advantage. It is becoming a fundamental requirement for the next generation of edge AI devices. That is exactly where Ambiq is uniquely positioned to lead and create value. Captures this opportunity, we are broadening our reach across form factors, customers and end markets while investing in the next generation of products that will push the boundaries of ultra low power performance. Our latest hardware and software innovations are further enhancing our ability to support increasingly advanced AI workloads at the edge. On the hardware side, we recently introduced the Apollo 330 Plus and Apollo 510 Lite SoC families. Both products are generating strong customer demand with backlog tied to next generation product roadmaps. We expect these products to begin contributing revenue in the third quarter. with the first customer devices expected to reach the market early next year. We are also expanding the value of our solutions through a growing suite of AI software capabilities. Our recently launched Heliocore and Compression Kit are already helping customers accelerate production deployments, improve power efficiency, reduce memory requirements, and lower overall systems. More recently, we introduced Helia Profiler, an open-source profiling tool that broadens the Helia AI ecosystem and gives developers greater visibility into model performance and system optimization. The breadth and depth of our full-stack portfolio is enabling us to support more applications, win new customers, and expand into diverse end markets. This includes greater penetration in medical, industrial, and smart home and building applications. We continue to expect revenue from these markets to more than double in 2026, making them a more meaningful contributor to AMBIC's growth and diversification. and we expect this momentum to continue, supported by a growing and increasingly diverse design funnel. For example, in wearable neurotechnology, on-device AI is being used to analyze complex biosignals like EEG in real time, improving responsiveness and privacy. In smart buildings, leak detection systems can distinguish meaningful events directly at the sensor, reducing data transmission while enabling faster intervention. And in industrial applications, always-on sensors monitor equipment health in real time, detecting failures before they disrupt. operations. These are exactly the types of workloads our ultra-low power SOCs and innovative AI software are designed to support, positioning us well to capture the next wave of edge AI adoption across multiple high-growth markets. Turning to our product roadmap, we continue to advance our next generation products, Apollo 340, Atomic 110, and Atomic 120. Customer interest remains incredibly strong, including engagement with alpha customers, as these products are critical enablers for our customers to advance their own ambitious AI roadmaps. Development for these products continues to advance, with both Atomic 110 and Apollo 340 targeted for customer sampling in early 2027. In closing, the customer demand we are seeing today reinforces our belief that edge AI is becoming one of the most important long-term growth drivers in the semiconductor industry. While near-term supply constraints remain an industry-wide headwind, we are taking decisive actions to support our customers. As we look ahead, we are exceptionally well positioned to capture the meaningful long-term opportunity in Edge AI through differentiated technology, an expanding product portfolio, and growing customer engagement. With that, I will turn it over to Jeff to cover the financials.

Thank you, Humi, and good morning, everyone. We delivered a strong second quarter with non-GAAP gross profit more than doubling year over year. This marks our fifth consecutive quarter of growth and reflects the strength of our differentiated technology, accelerating edge AI demand environment and strategic shift to higher value market opportunities for our products. Now turning to the details of our second quarter financial results. Net sales were 33.9 million, increasing 89.7% year over year, with revenue outside of our three largest customers growing 143% year over year. Sales to end customers in China were approximately 14% of total net sales, compared to approximately 12% in the prior year period. Our continued strategy with regard to China is to engage in customer programs where our technology is enabling higher value edge AI functionality. Non-GAAP gross profit increased 109.3% year over year to 16 million. Non-GAAP gross margin was 47.2%, up 450 basis points year-over-year on favorable mix related to greater edge AI enablement, as well as improved manufacturing efficiencies. Turning to operating expense, non-GAAP R&D was $11.2 million, up 55.5% year-over-year, as we increase investments in product development and technology. The primary drivers for R&D increases were intellectual property licensing for multiple product developments, compensation costs as we scale the team, and contractor costs to augment our own labor. Non-GAAP SG&A expenses were $8.2 million, up 23.7% year-over-year, driven largely by sales compensation for higher revenues and public company costs. Second quarter non-GAAP net loss was 1.8 million, a 4.1 million improvement year over year. Non-GAAP net loss per share was $0.07, based on 21.74 million average shares outstanding. We ended the quarter with no debt and $366.8 million in cash and cash equivalents, which included approximately $168 million in net proceeds from our upsized follow-on offering in June of this year. In total, our two offerings this year raised approximately $243 million in net proceeds, providing us the financial flexibility to fund working capital, sales and marketing, and product development as we continue to capitalize on the growing edge AI demand and scale to meet customer needs. needs. Now turning to our outlook. For the third quarter, we expect net sales in the range of $36 million to $37 million, driven by the trends covered by Hume earlier. We expect non-GAAP gross margin between 46.5% and 47.5%, which is consistent with the second quarter performance. Non-GAAP operating expense of $24 million to $25 million, reflecting investments to support product development and strategic growth priorities, including $2 million related to intellectual property purchases in the quarter. Finally, we expect a non-GAAP loss per share of 20 cents to 12 cents based on the on a weighted average share count of 24.17 million shares outstanding. This new share count is reflective of our follow-on offering in June. Looking ahead, customer demand is accelerating meaningfully as we enter the second half of the year. At the same time, we are navigating increased supply constraints and rising cost pressures alongside the broader industry. Despite this, we are on track to double year-over-year net sales growth in the second half, positioning us to deliver approximately $135 million for the full year. For gross margin, we now expect modest year-over-year improvement in 2026 compared to our prior 2026 expectations for flat margins year-over-year. And we expect to achieve this even with the broader industry headwinds we are navigating. We continue to expect operating expense of approximately $85 million for the full year, including $7 million to $10 million of IP purchases necessary for product development. With that, I'll turn the call back over to Hume before we open the line for Q&A.

We are pleased with our performance in the first half of 2026 and encouraged by the momentum we continue to see across the business. We remain focused on delivering for our customers, expanding capacity, advancing our product roadmap, and investing for long-term sustainable growth. We believe the foundation have built. Positions ambic well for the opportunities ahead and we remain confident in our ability to execute. With that, I will open the call to questions. Operator, please go ahead.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Torres-Vonberg with Stiefel. Your line is open. Please go ahead.

Yes, thank you, Humi, Scott, Jeff. Congratulations on the strong results. Humi, I was hoping you could elaborate a little bit more on the supply constraints. I guess the question is, had you had the capacity, how much more could calendar 26 be? And when do you expect some of these supply issues to ease? Thank you.

Hey, Tori, thanks. That was a great question. You know, our customers' demand is skyrocketing, like we said in our statement. And as we speak, our demand to keep on going up. So I cannot put the specific number, but I'm not sure. I must say that a lot of additional demand is coming in week after week. And we believe that this trend will continue. not only second half of this year, but even into the 2027. That said, because of the fact that our demand continue to grow faster than market, I believe that the constraint will be something, supply constraint is something that we need to diligently work with our supply chain partners. But as you can see, we do have a very strong partnership with supply chain partners. So despite the fact that we are doubling our revenue, your over year to year comparison. We have to be able to meet those demand and we believe that we will be able to meet forecasted quantity as close as possible. Again, one challenge is that the customer success has been phenomenal. Let me tell you one example. Couple customer introduced the brand new product back in May. their pre-order quantity was three to five times X of what even they expected. So to meet that demand, they wanted a product in June. That's physically impossible. So we couldn't do that. But we will work with our supply chain partner and the customer to sustain our continuous growth, very strong continuous growth.

Yes, no, that's great, Collar. Thank you for that, Homi. And maybe as my follow-up question for you, Scott, and specifically on product development and Atomic, sounds like, the first atomic product's going to be sampling first half of next year. Just curious, are we still looking at a 2028 revenue ramp from the atomic products? Thank you.

Yes, thank you. Yes, that's all still the plan. 2028, meaningful ramp for Atomic 110. Great progress in the last several months since our last call. Probably the most notable thing is that early development platform is in customer hands in the form of an FPGA and we're getting a lot of useful feedback. And the sales team is building a nice list of customers that want access to that product. And so I'm excited about that. And it's interest that spans a couple of different markets. So that's very positive. So yes, I'm pleased with how that's going. busy time for the development team because you know we're developing multiple products in parallel we've got atomic 110 we've got apollo 340 so a lot going on and i'm pleased with with how things proceed.

Sounds good. Congratulations again. Thank you. Thank you. Your next question comes from the line of Quinn Bolton with Needham & Company. Your line is open. Please go ahead.

Hey guys, this is Shadi Nawalian for Quinn. Thanks for the question and congrats on all the progress. I guess on gross margin for Q2 and Q3, it's coming in much better than expected. So just wanted to hear the puts and takes on what's driving the strength here, with the rising component costs and supply constraints. Yes, so there's two basic.

things that we've really made significant progress on that have allowed us to achieve gross margins a little bit above our business model. On the top side, from an ASP perspective, we continue to win business and price our products to extract the maximum value that we're providing and customers. So pricing continues to be something that we look at and make sure that we're balancing to get the most that we can from the products that we sell. We've also made a lot of progress on the actual manufacturing costs associated with our products. And this is primarily through yield improvements and test time improvements as we ramp products into full-scale manufacturing. That is being muted a little bit by some of these cost pressures that we're seeing, but making progress on both the top side as well as the cost basis for our products is what's allowed us to deliver these margin results.

Got it, that's helpful. And then in terms of just the strong demand in the wearables market, it sounds like it's pretty broad base. But is there any form factor that you guys are seeing more demand for, whether that's the watches, the bands, rings?.

or glasses? Yes, we are indeed seeing demand across all types of wearables, right? So whether it's wrist-based, it's watches and bands, displayless bands, or smart rings, or even glasses. What I will say is that one of the hot new areas is display list tracker. So that would encompass both your smart rings as well as track or Fitbit Air. There's a great demand for that. And I would say that what's driving that is that there's this movement towards AI agents in the cloud gathering up all this data. So you don't necessarily need the display right there to tell you what's going on. And so you rely on the AI agent to analyze all your data and give you feedback about how to adjust your sleep and how we've talked about in the past, these devices become almost like medical devices. So we're really excited about the future there. We see our customers being very excited about the future there. So expect good things out of that segment moving forward.

Got it. Thank you. Your next question comes from the line of Liam Farr with Bank of America. Your line is open. Please go ahead.

Hi, thanks for taking my question. I was wondering if you could start with just discussing kind of your revenue mix, you know, and especially in your funnel, is it still the market outside of wearables comprising around 25% or has that picked up over the last couple of quarters?.