Ambiq Micro (AMBQ) Q3 2025 earnings call transcript

I would now like to turn the call over to Ms. Charlene Wen, Ambeek's Vice President of Corporate Marketing and Investor Relations. Charlene, please go ahead.

On today's call, MBek's CEO, Konihide Efaka, will provide an overview of the company's performance and strategy. CFO Jeff Wenfley will then discuss the quarter's financial results and four Q outlooks. Following their remarks, Scott Henson and Vek's founder and CPL and Aaron Grashian, EVP of Global Sales and Marketing, will join Humi and Jeff for Q&A. Our earnings release is available on the Investor Relations page of our website at www. index. com.

Before I turn the call over to Humi, I'd like to remind our listeners that during the course of this conference call, management will discuss non-gapped financial measures. These non-gapped financial measures are in addition to and not a substitute for or superior to measure of financial performance, prepared in accordance with gaps. Reconciliation between gaps and non-gapped financial measures and the discussion of the limitations of using non-gapped measures versus their closest gaps equivalent is available in our earnings release. In addition, today's call will contain forward-looking statements within the meaning of the Safe Hopper provisions of the Private Security Relification Reform Act of 1995, including but not limited to statements regarding our strategic priorities, financial outlook, future performance, and estimates of our market opportunity.

Forward-looking statements represent management's beliefs and assumptions only as of the dates made. All forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statement. Information on the factors that may cause such differences are described in index MCC filings from time to time, including the section title risk factors in index 410Q for the quarter, and its September 30th, 2025, filed with SAC today.

And now, it's my pleasure to turn the call over to the MCCO whom we have back up.

Good afternoon, everyone, and thank you for joining us today. On today's call, I will cover the key drivers for our third-quarter results and our fourth-quarter outlook. I will also highlight the three strategic priorities Ambiks continue to focus on before turning the call over to Jeff's for financial performance. The third quarter marked a decisive step forward for Ambiks, both financially and strategically. We exceeded net sales expectations, delivered one of our strongest growth margins to date, and closed the quarter with strengthened balance sheet following our IPL. These results underscore the success of our deliberate pivot towards high-value AI-driven markets where Ambiks' ultra-low power solution provides unique differentiation.

Our design funnel is robust and increasingly diverse. Let me give you a few examples. Industrial customers are using HAI to monitor equipment in real time to detect issues early and prevent costly downtime. A water management customer has reduced their cloud budget by 95% using an Apollo 3-based AI solution to analyze leaks right at the sensor. An AI-enabled headsets are being deployed in retail and medical settings with the ability to listen for commands in multiple language and accents. Our spot platform was recently recognized by Time Magazine as one of the best AI invention of 2025 and will continue to build on this strong foundation as we introduce new energy efficient hardware and software products. In late October, we launched Apollo 510 light associate series which will enable HAI in smaller form factors.

We also launched Helia AI runtime products and advanced analytics tools to help customers deploy their AI model more easily and quickly. Our growth is accelerating with increased orders from existing customers, multiple design wins from new customers, and growing a qualified production ramp. Underpinning this momentum are powerful trends in HAI that are driving growth, reshaping markets, and redefining customer expectations. For example, consumers can now use HSA and FSA accounts to buy wearables from an increasing number of companies, including work. This illustrates how the line between consumer electronics and medical great products are increasingly converging. And we believe this trend will be an additional driver of HAI demand as adoption continues to grow. Looking to the fourth quarter, we expect to deliver net sales between 18.5 and 19.5 million dollars.

This meaningfully exceeds consensus estimate of 14.2 million and will mark our strongest quarterly performance of the year. This outlook reflects the increasingly vital role AMBEC plays in enabling HAI and the growing demand for our ultra low-power solutions.

Looking ahead, we believe that 2025 represents the beginning of the much larger opportunity for AMBEC. HAI is one of the fastest growing segments in semiconductors, especially in our target markets of personal devices, healthcare, smart buildings, and industrial edge. To fully capture the HAI opportunity, we are advancing three strategic growth priorities.

First, expand aggressively into new HAI markets. Second, introduce new products to drive the power and performance of HAI solutions.

And third, establish an IP licensing variant for spots. Let's look at each one in more detail. First, we're accelerating our expansion into high impact high growth HAI markets, including healthcare, industrial, and intelligence spaces like smart homes and buildings. We have created multiple HAI solutions that are purpose-built for these markets. Notably, both Apollo 330 plus and Apollo 510 light are attracting additional interest. We are engaged with customers who are looking to enable more advanced AI and longer battery life across variety of applications from smart rings to smart agricultural devices. Going forward, we continue to prioritize innovations as we develop more derivative products designed to support further expansion into these high value HAI markets.

Second, we are advancing our product roadmap to drive the power and performance of our HAI solutions. Our Apollo 5 family is unlocking a new generation of devices that perform advanced HAI functions. Our customers are introducing features like speech recognition, health monitoring, and predictive sensing, all powered by the spot platform. We are also pleased to share that a platform in 2027, serving as another driver of our future revenue. Building on Apollo 5, we expect our upcoming atomic platform will deliver a major leap forward in HAI. With NPU, 12-millimeter manufacturing, and built-in DRAM and GPU, we see meaningful opportunity to enable even higher performance HAI applications. Atomic is in active development and already drawing strong interest from several major high-volume customers.

We are excited about how this product will enable a new wave of HAI innovation from wearables and health devices to air glasses and security cameras. We are also speeding customer adoption with tailored software solutions designed to lower technical barriers, shorten production time, and reduce power performance trade-offs. Our software team is moving quickly, delivering a steady cadence of new products alongside weekly updates that introduce new features and addresses customer feedback. We are driving new use cases powered by spot ultra-low energy efficiency. Increasingly, our customers are incorporating HAI to reduce noise, isolate voices, and enhance speech clarity in real time.

These capabilities extend across products including smart watches, wireless microphones, headphones, and hearing aids. Similarly, customers are incorporating HAI voice recognition to enable instant, reliable voice control for wearables, smart home devices, and industrial tools, helping protect data privacy and extending battery life. And for sensors, AI-based compression helps customers make sense of huge amount of data. This enables smarter failure detection in industrial machines and more intelligent monitoring of smart grid at every level from infrastructure to home. These examples have only deepened our conviction that the new atomic associate with an NPU will be a catalyst for the next generation of HAI devices. For example, next-gen smart glasses will run multiple HAI tasks from eye tracking, gesture recognition, to real-time object identification.

Cameras will operate without cloud connectivity or frequent battery replacement, yet still detect motion, plus by objects and identify potential threats. And future wearables will evolve into intelligent companions that understand context, responsive follow-up questions, and provide personalized insight in real-time. These emerging use cases also set the stage for our third strategic priority, transforming spot into light-sensible platforms. We're building the foundation now and expect commercialization within the next three to five years. In support for these three priorities, we are investing purposely in R&D and SGNA with a focus on product innovation and enhanced sales and marketing capabilities. The proceeds from our IPO are funding these efforts, laying the foundation for sustainable long-term growth as we unlock the full power of our differentiated technology.

With that, I will turn it over to Jeff to discuss the financial.

Thank you, Humi, and good afternoon, everyone. Before discussing third-quarter results, I want to take a moment to frame 2025 performance in the broader context of 2024 strategic repositioning. We made a deliberate decision to diversify away from the low-margin mainland China customers to prioritize high-value markets and customers where energy efficiency and edge AI performance serve as key differentiators. This change has translated to year-to-date 2025 results that reflect higher ASTs, stronger margins, and increased growth profit dollars on 7% lower net sales. Our remaining China business reflects a small, deliberate presence in the market to support select OEM customers.

Now, turning to our third-quarter result, we achieved non-GAAP gross profit of $8.1 million, an increase of 16.8% year-over-year. Non-GAAP gross margin expanded by more than 10 percentage points of 44.8%. All on net sales of 18.2 million, down 10.4% year-over-year, which is reflective of our strategy to prioritize non-mainland China opportunities. In the quarter, only 6.7% of net sales were driven by customers in mainland China, down 50% in the third quarter of 2024. So, quencially, net sales increased 1.6% driven by continued strong demand from key customers. Non-GAAP gross profit dollars increased 6.6% sequentially, with non-GAAP gross margin expansion of 207 basis points driven by stronger product mix.

Moving to operating expense, we continue to make strategic investments to support commercial expansion for our existing Apollo and next-generation atomic families. The breakdown of third-quarter non-GAAP operating expense is as follows. Non-GAAP R&D expense was 6.9 million, down 7.3% year-over-year, largely due to product development timing. Non-GAAP STNA expenses were 6.2 million, up 12.3% year-over-year, largely due to public company cost.

Other income was 1 million, up $400,000 year-over-year due to interest income earned on IPO proceeds. Third-quarter non-GAAP net loss attributable to common stockholders was 4 million, a 1.9 million improvement sequentially, and a 1.8 million improvement year-over-year. Net loss per share attributable to common stockholders was 22 cents on a pro-forma basis. We ended the quarter with no debt and 146.5 million in cash and cash equivalents, reflecting the proceeds from the IPO.

Our strength in cash position provides the flexibility of fund growth, initiatives, and support our strategic priorities. Now, turning to our outlook. For the fourth quarter of 2025, we expect revenue in the range of 18.5 million to 19.5 million, with non-GAAP lost per share attributable to common stockholders to be in the range of 44 cents to 34 cents.

This guidance includes increased variable expenses associated with higher revenues, and a non-cash accounting adjustment to reclassify certain Q4 intellectual property costs from capital expenditures to operating expenses. While we'll provide formal 2026 guidance on our fourth quarter call, I want to offer some perspective to help frame the expectations for the trajectory of our performance over the next several years.

First, with the strategic repositioning largely complete, we've reshaped the business to drive higher margins while unlocking a broader set of growth opportunities and view 2025 as the baseline from which to measure our progress going forward.

Second, we continue to see a path of continued revenue growth and growth margin expansion in 2026 and 2027, driven by multiple generations of Apollo products already in production and derivative offerings of these products designed to reach additional customers and markets. This disciplined expansion of our existing product portfolio enables us to serve a broader range of customer needs with limited incremental investment, enhancing both operating leverage and capital efficiency. In parallel, we're concentrating significant architecture, hardware, and software engineering resources on developing the atomic family of products.

With multiple generations of Apollo contributing today and atomic revenues expected to contribute meaningfully in 2028, we believe we are well positioned to accelerate revenue growth and margin expansion. We are executing on our business plan with focus to drive both top line growth and margin expansion to deliver significant long term value creation. I'll now turn the call back over to me before we open the call to Q&A.

That opportunity ahead for AMBIC is tremendous. We are not just participating in the AI revolution but enabling it. With Fox Power Efficiency, we are making AI truly mobile, secure, personal as we define what intelligence at the edge really means.

With that, I will open the call to questions.

It seems kind of like gross margin has to be down. And can you speak to why? Is that just mixed related things? Yeah, so in terms of the top line growth, we see really strong demand from our existing customers. We're also seeing a good revenue contribution from new customers as well. And that's really what's driving the top line of the business in Q4 and represents a big increase over Q3. In terms of profitability, the gross margins in our business for the first three quarters of this year have been basically mid to low 40%. And that really is the model of our business for 2025. It increases a point or two from quarter to quarter depending on product mix.

But that's really the trajectory of gross margin today. In terms of op-x, you know, we've raised IPO proceeds really to do one thing and that's to put a lot more infrastructure in place in terms of people. Hardware software engineers go to market people to be able to capture the opportunity out in front of us. And so this is where we expect to see increases in spending in our op-x just to put those resources in place. If you add all those things together, we believe that the guidance that we gave in terms of loss per share, we will land somewhere in that range.

Again, it's really increases in both R&D and SG&A. We talked a little bit about an accounting classification change that will drive approximately a million to a million and a half additional spending in our model. This is not a cash impact and it doesn't change our cash equation at all. It's simply as we contract for IP, the way the contracts are written drives the accounting treatment, whether it's capitalized or whether it's recognized as expense. We believe that the IPs that we're purchasing specifically Q4 will be expense that are now striving a slightly higher op-x number in R&D.

Is it all unit-driven? Kind of just what you said in response to Tim or is it, you know, some ASP benefit with more customers tending towards the, you know, Apollo 5 and getting out of the lower ASP products?

So, we have, like Jeff said, existing customers are seeing very strong demand, and also new customers are also seeing higher demand than they expected. And one important factor here is that Apollo 5 adoption is really driving our success in Q4 as well. So, all combinations of new customer mix and also new product mix is really contributing to our great outlook for the Q4. Maybe Eren can add a little bit of color to that. So, Ian?

Yeah, so let me talk about two things. One is specifically to your question, is a mix of both quantity drive because we have the additional trends which are driving customer growth, but it also is an ASP increase because many of the new ramps that we're seeing are based on the Apollo 5, which naturally has a higher ASP. One of the big trends that has been driving this, especially in the new customers that we have, is they're using AMBIC for Edge AI. This is exactly what we've been talking about in the wearable space. They're starting to, with Edge AI, be able to have more clinically relevant data becoming more of a health device. They are able to use FSA and HSA funds, and this is really a new demand stream for them.

So, that's the trend that's driving us.

Well, let me tell you, I think, to give this kind of portion and majority of our customers already taking advantage of our AI capability. And we can tell you that pipeline is growing both for our legacy wearable customers as well as new customers. So, what we consciously optimistic that we will see a very healthy pipeline to get to the 2026.

Scott, do you have anything more, Dad?

Yeah, what I would add is if we use Apollo 5 as a proxy for Edge AI interest, you know, that's the thing that is really going to be driving revenue growth next year. We're also going to see the front edge of the newly announced 330 plus and 510 light and 510 blue products that we announced earlier this year. So, those are all similarly proxies for Edge AI. What I will say is that the thing that really gets me personally excited is two things. I talk one to our customers and I talk two to our sales team and they've so many little anecdotes about new use cases that are coming up for AI. I'm really overwhelmed by all of these.

Some of them are small and subtle. Some of them are big and ambitious. In any case, it leaves me to really say about where AI is going here. I think Apollo 5 is going to be the center of the 330 plus 510 light. So, I'm excited to do that for the next year.

Very great question. And yes, we are seeing very, very strong outlook for the Apollo 5. Again, Q 2025 is just the beginning of the journey with Apollo 5. I cannot talk really specifically about the percentage. But yes, we are at the very beginning of a journey with Apollo 5 enabling all the AI customers. Aaron, do you have anything to add to that?

Yes, that's exactly right.

And it's not just in the core customers that we've been talking about that we have lots of new designs there. It's in various new applications. So let's take industrial, for example, we have a customer that's launching. It's going to be a nice part of revenue next year. And they're doing predictive maintenance with Apollo 5. In fact, they're the first user of our industrial skill. And again, when we talk about personal devices, it's not just wearables. We've got some really cool ramps happening with Apollo 510B, one that we just announced. And that's in AR glasses.

We are making a great progress, but I'm going to let that Scott give you a little bit more color to it. Yeah, so what updates we are decent at development on Atomic, the majority of our engineering team is focused on that now.

I would say that this specification is preliminary frozen. And I say preliminary because we have a number of customers that help guide us and we're basically cross-checking with them. And what else is the really cool thing from my perspective is that we're working with them in a number of cases to either pull or develop proxy AI models or pull models from places like Hugging Face to quickly prototype out their use cases. I'm personally really excited about the energy estimates that we're pulling from that work. So I guess summaries that we're deep in development, we're not ready to comment on specific sampling timeline or production timeline, but I'll say that I'm pleased at how things are going.

And then maybe one final quick note is that of course the primary use of objective of going public was to raise money to support teen growth and we've been working on that. So our engineering headcount is up by a double digit percent since it's going public and we're happy with the quality of the team that we're recruiting to this effort.

And so with those tailwinds, should we assume that the gross margin may be flat to up from the third quarter? And if it's down, what would that what would that takes be? We can have a Jeff give you a little bit five has been, as I said, low to mid 40 percent range and that does get that does vary based on product mix. In thinking about the Q about Q for growth, it is true that we're seeing upside on atomic and on Apollo 5 and that typically would be a higher margin product for us, but it doesn't account for all the growth. And so, you know, if I was going to give you a guide post for margin for our business, I still think that kind of low to mid 43 percent plus or minus the point is is the right right number to use.

From my perspective, Quinn, you know, in terms of the core business of personal wearables, you know, there is some seasonality that business we we know that from history. I think the phenomena that you're seeing in 2025 especially proves out the fact that while there is seasonality within that core business, the fact is we're winning new business with those existing customers and we're also ramping new customers have a great that more than offsets that seasonality. You know, as a result in 2025, every quarter for a revenue perspective given the guidance we gave for Q4 is stronger than the previous. So, but that's a good trend, obviously. And I think it's kind of a testament to the fact that we're we're winning both with existing customers as well as attracting new customers.

Yeah, sure. So it does vary from IP to IP and it really depends on how those contracts are written. So, you know, we're looking at this on an IP to IP basis. I can't give you a real guide post for 2026 as we're right in the middle of doing our annual operating plan looking at all of the engineering expenses that are going to be necessary to continue our product development and the timing of those expenses. What I will say is that when that exercise is done and we come back and talk about 2026, we'll be sure to give you a much clearer guide post in terms of that specific item.