Ambarella Delivers Another Strong Beat

Image source: Ambarella, Inc.

Ambarella (NASDAQ: AMBA) released stronger-than-expected fiscal second-quarter 2017 results Thursday after the market close. However, with shares of the video processing chip company up more than 70% since last quarter's solid beat, perhaps it should come as no surprise to see Ambarella stock down modestly in after-hours trading as of this writing.Even so, Ambarella is rightly pleased with its results.

Ambarella's headline numbers

Quarterly revenue declined 22.6% year over year, to $65.1 million, and translated to a 37.7% year-over-year decline inadjusted net income, to $18.5 million, or $0.54 per share. Ambarella's per-share earnings were aided in part by the repurchase of 405,089 shares of common stock during the quarter for $20.2 million, or roughly $49.80 per share. Meanwhile, Ambarella's adjusted gross margin increased 180 basis points year over year, to 67.1%, which was also well above guidance for adjusted gross margin between 60.5% and 63.5%.

Those declines admittedly don't sound encouraging. But keep in mind Ambarella's top line came in at the high end of guidance, which called for revenue between $60 million and $66 million, and gross margin was only expected to be between 60.5% and 63.5%.What's more -- and while we don't typically pay close attention to Wall Street's quarterly demands -- analysts' consensus estimates predicted significantly lower adjusted earnings of $0.38 per share on revenue of $64.3 million.

Zooming in

As Ambarella CEO Fermi Wang elaborated:

Recall during last quarter's call -- and as I noted in my earnings preview earlier this week -- Ambarella management warned investors revenue would decline due to a combination of headwinds in the wearable camera space, and supply shortages of Sony image sensors related to the April earthquake in Kumamoto, Japan.

Sure enough, during the subsequent conference call, Ambarella CFO George Laplante confirmed revenue in the wearables market was flat from last quarter and declined significantly on a year-over-year basis, due primarily to declines in revenue from GoPro. In addition, Laplante stated the impact of the Sony sensor shortage resulted in an estimated loss or delay in revenue of between $2 million and $4 million for the quarter.

That said, it's encouraging to know in the meantime that Ambarella continues to make progress with new design wins across all markets. Of course, more than anything this is a continuation of past quarters' design win momentum. But it should bode well for Ambarella's prospects to sustain its impending return to profitable year-over-year growth, especially if the wearable camera market rebounds in the second half as management has previously suggested.

Looking forward

For the (current) fiscal third-quarter 2017, Ambarella expects revenue between $95 million and $99 million, marking a return to year-over-year growth from $93.2 million in last year's fiscal Q3, with adjusted gross margin between 63.5% and 65%. Here again, that revenue outlook was comfortably ahead of the $95.7 million investors were expecting.

Finally, Ambarella reiterated its previous guidance for full fiscal-year 2017 revenue to be flat to down 5% from last fiscal year -- fair enough considering its fiscal Q2 performance technically fell within its guidance range, even if it was near the high end.

All things considered, this was a solid performance with which Ambarella delivered everything it said it would, and effectively confirms the company's long-term growth story remains on track. So while the market's initial reaction may not indicate as much given Ambarella stock's stunning ascent over the past few months, I think long-term investors should be happy with these results.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.