Arteris (AIP) 4 May 232023 Q1 Earnings call transcript

Good afternoon, everyone. And welcome to the Arteris First Quarter 2023 Earnings Call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is sole property and copyright of Arteris Incorporated with all rights reserved.

For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. ahead. go Please

good Charlie and Chief me from today Officer. Thank Chief afternoon. Executive are Janac, Hawkins, Officer; Arteris you With and Financial Nick

Charlie followed Nick and XXXX. will the the financial second review first a quarter the full ended company’s review will first outlook for for the quarter, quarter XXXX. of results the the of XX, March results begin with by year business brief for

will We open for the questions. then call

management securities on I’d will that risks begin, Before you statements cause like or to not could this within you that actual undue involve that statements to statements. call and events make should place we differ are the forward-looking remind during meaning laws. material statements from forward-looking materially uncertainties anticipated reliance results of and federal These those

these Additional uncertainties Commission. time-to-time release the actual Arteris filed that results the could issued by differ factors documents today cause and press and appear Exchange and the in Securities in reports Arteris information to regarding and with risks, from

note, see measures, loss, prepared will net accordance measures non-GAAP per are GAAP. certain net U.S. which this during with loss flow, including and non-GAAP call, share in non-GAAP not free Please cash we

investors are we measures performance. evaluates management presented understanding These non-GAAP how company’s means believe with they as of provide the the and operating evaluating the company’s

quarter GAAP. XX, accordance the be from, release U.S. in to the ended These in measure substitutes can for reconciliation as non-GAAP non-GAAP with superior XXXX. the considered found or financial measures isolation not March press GAAP prepared should to measures of for nearest be in measures A these

the section starts, XXXX. presentation, visiting in for contract confirmed may of press obligations, value, as who Relations key March for see remaining do release copy the quarter a addition, definition In and customers annual obtain the for a certain press by of of quarter XX, ended the website. have the such XXXX, a active please release copy Investor March performance performance not used indicators the ended this of company’s Listeners the XX, design

the I Charlie. turn will Now call to over

and on afternoon. Erica, thanks you, Thank everyone call joining the this to us

are start year-over-year HiSilicon trailing adjusted to contract $XX.X solid in royalties plus million, annual when as value XX-month sequentially. report XX% up discussed and and of to excited We XXXX up previous DJI, to a with X% exclude calls

continued our and new of XX addition the XXXX design in into the starts with customers We growth confirmed first quarter. seven

by enterprise wins Deals quarter led market in our strong products. followed computing. driven consumer and core electronic driven the and first products by revenue in quarter segments automotive in Royalty design by automotive, Arteris by particular were across primarily the for demand in was

continuing of to is Arteris both yield companies. positive system semiconductor to An strategy This and element service is results.

supply ARM pleased ability Europe following secured four design year’s the companies With car OEMs across automotive automotive supply automotive U.S., chain. broader three the on to and new focus added relationships and to in chain new OEM that year-to-date, wins, APAC. across partnership, the last we report are engage the including broader demonstrate These the Arteris Arteris global has including

for important well. as relationships Arteris companies is additional create direct encourage This to auto establishing own leverage technology chains opportunities those as can to manufacturers supply with their car

SoCs safe network-on-chip low best-in-class and Advanced for require power technology connectivity.

continue products the SoC market. Arteris for the solutions that excited innovative automotive choice in remain we So to be leading

strong growth drivers AI and Arteris. also learning machine for continue be to

various deals SoC and by the IP machine global electronics numerous from automation. benefit strong New demand vertical closed Arteris and quarter, customer integration first across network-on-chip AI learning require for driven markets to advanced technology. tend AI and In Arteris

high Tenstorrent chiplets. performance for SoCs data Tenstorrent develops AI notable the those in of enterprise and our center AI wins applications. One and was computing Americas computing RISC-V

our with emerging it AI select Ncore and team to example evaluated the products, extensively IP. end ability FlexNoC ecosystem. high is non-coherent This cache for support interconnect coherent interconnect and Tenstorrent IP RISC-V the computing Arteris of along The an next-generation Arteris

the Arteris in Another edge AI enterprise in will was selection IP design be applications an ASICLAND, computing industrial house. system design automotive, win ASICLAND’s consumer a products chips by for quarter deployed and markets. computing ASIC APAC-based of and for Arteris

used engineers performance, in Axelera for in at its design power AI Computer edge Metis win was and Another ultralow chosen Edge. Axelera time-to-market with the Platform. a European of Arteris Vision its for to was computing, enable advanced the to space provider AI, meet Arteris solutions AI accelerate objectives AI products ability to

future The emerging application potential generative another opening Arteris for technology products. AI is

over quite is query AI algorithms. cost higher expensive than with generative times promising, While XX computationally heuristic search

opportunity that effort AI to there machine for design With already an large an of costs in and in in AI language anticipates will hardware lower over generative ASIC increase models. activity Arteris be company. potential different the learning the exciting future learning Arteris computation presents designed our accelerator processing another XXX activity chips, the machine and

product our to Turning portfolio.

our new X and Semifore acquisition about last we excited both very FlexNoC are We that innovation quarter. discussed the

physical including the last of to several multiple the effects have causing process manufacturing semiconductor Over impact iterations years, physical network-on-chip project layout how turn begun associated which have engineers nodes in schedules. connectivity, as progressed, impacts design SoCs,

patented announced and Physically with To IP FlexNoC this growing for unique in address Aware challenge X customers, technology. we February, Network-on-Chip

being growth with production FlexNOC we version X XXXX of are revenue early We multiple our have quarter ship ACV and of happy in to report in a second release the delivered anticipate positive impact that customers. a second on a access able forecasted XXXX. We to half to feature-complete full

in Semifore, complements announced SoC integration and Register addition Magillem of the Connectivity product a provide the comprehensive Semifore more of a quarter, Management Arteris The to Arteris technology, allowing Expanding portfolio our first in technology. the solution. leader hardware/software interface we acquisition

of is provide costly risk increase the chip customer’s with Together SoC reducing efficiency interconnect overall from schedules to design while now productivity, design redesigns. complete and improving our IPs, Arteris helping NOC solution, to performance, a to product economics lowering power able the

create uncertainties recessionary Macroeconomic global continue concerns to and headwinds.

China BIS to well respect tightening by We which conditions as as also may smaller start-up the customers. U.S. with our the regulations be in affect credit trade, U.S.A., U.S. continue to impacted

even well increased environment, as to electronics to applications, continue in innovate is make areas across economic progress positioned However, use in such driving and we consumer needs the computing, of commercial challenging that for AI believe enterprise our customers IP. all this automotive, as Arteris system

With that, I to financial to discuss will our more Nick results turn it detail. over in

good Thank afternoon, and you, Charlie, everyone.

referring As GAAP today’s I is quarter be non-GAAP of earnings review results note, will reconciliation in our which non-GAAP A please metrics. today, is our first financials included to website. release, I on available to

Charlie first end $XX.X year-over-year revenue and royalties year-over-year and first ACV the to was up XX% of XX% trailing XX-month mentioned. other quarter, $XX.X plus million, adjusted when for the million, up DJI, revenue quarter was and Total HiSilicon At sequentially. the exclude as XX%

the margin quarter representing million, in profit gross of representing was margin quarter XX%. gross Non-GAAP gross of profit in XX%. Gross $XX.X $XX.X million, was the

marketing period. together primarily was and product compared was continued This million the was $XX.X investment and million, strategic $XX.X the $XX.X to year year with the million, strong first products, for compared operating awareness by partners. and expense customers in in increase driven operating in engagement sales with in a investment quarter drive the prior prior $XX.X Total Non-GAAP to period. of increased in to million quarter combination expense next-generation

continued leverage have significant achieve we to operating expense. in G&A Additionally,

million for operating loss period. year an the in XX%, $X.X million loss loss the Non-GAAP of million, prior loss $X.X first period. compared $X.X prior million Operating the to was to quarter operating in year of $X.X or compared was a

on quarter $X.X Net outstanding. Non-GAAP loss for XX.X average approximately the was net net in share loss or based quarter shares share million of diluted the net million per diluted $X.XX. $X.X was loss weighted loss diluted $X.XX million per of or

contributed to flow cash, used $X.X equivalents sheet quarter with million in in the the fourth investments. the driven to our results quarter payments customers, stronger Cash from by and Turning ended the We timing operations cash was year. balance million and of in quarter, $XX.X in of predominantly cash last flow. approximately which

Free our includes guidance. $X.X negative expenditure cash prior approximately flow, in which with capital line million, was

quarters flow a our free of prior even we discussed is over in our as three taken XXXX normalize expectation to whole. that As the break call, cash remaining will

would turn our the now full year outlook quarter XXXX. to I for and like to second

million expect XX.X% non-GAAP to and loss to of to million second quarter, operating XX% XX-month of $XX.X the For trailing $XX.X of million and negative $XX negative a XX% million of we with margin ACV $XX margin royalties revenue flow plus non-GAAP to XX.X%. cash free

the is full our unchanged. For guidance year,

We XX.X% free to quarter. expect XX.X%, loss royalties revenue X.X% non-GAAP of XX-month the negative plus exit margin $XX of cash from improvement million million operating of million, to negative to $XX non-GAAP $XX.X the trailing million, ACV reflecting anticipated first margin XX.X%, at to XXXX flow $XX.X to

of price agreement the or with or sales with registration Finally, $XXX that November prospectus draw of for $XX a a attention the including pursuant offering filed I million aggregate would an shelf up maximum a offering to statement your SEC in to million, at-the-market ATM Jefferies. supplement to we

in mentioned last at agreement related as do to any the intend not this call we to Since our share the have we sales stage, ATM to the pursuant to activate sell terminate decided ATM. earnings

available $XXX We securities SX. present have our registration Following this pursuant this termination, remain million under any not intention statement. will offer do to to

turn and will the I up open for over to Operator the call questions. that, With it

you. Thank you. Thank [Operator Instructions]

proceed question Richard Please is Gus question. from first your Northland. Our with with

second what for taking for uptick little you sort you bit and about you in talk FlexNoC the the Charlie, a half? Thanks see can my Yes. of customers expect do question. X

X the So the interesting but integrated number has a physical main feature FlexNoC awareness. features, of is

these we actually And miss iterations leads very bunch and market a back window. is even to perfectly can to now that a and place so end good for the route sub-XX-nanometer that solve architecture to in trying that, cause is make you in difficult the customer to are a problem processes, could a of

is, can cycle, measure can over physically in or to early a do -- route right? and to estimated the design that place people trying turn the part their so physical to customer are effects of the verified design physically we what team, So essentially allow the they

revenue obviously raises The this second we increase give the a yet. in I anticipate so the way. and of will it so meaningful FlexNoC in half can’t you number, the And ASP that exact substantially

of that is XX-nanometer, a represent And design we useful doing significant uptick, basically much because think customer base. any a price most to happens our FlexNoC below the average which I for customer this increase. of will But selling see pretty

little license. life Charlie’s great bit Hey, add color ratable and impact for it and Gus. But typical a a on of it’s commentary. to just always. to and a is FlexNoC This years a interconnect excellent The X, Nick. for average two on a XH It’s product, is bigger because is as question half

impact more on be pronounced will plus The ACV TTMR.

up time. but annualized of is course, the the pick of over we revenue, value ACV, contract the immediately, the So spread

to two-year example, revenue. three-year term X month new or land November, FlexNoC have months’ only of in if contract one a sense? we So make for a the two that in we Does worth will

if I Absolutely. that’s right, two about cash It on then then super expected was given standards still wondering and could And That you just and end, to year Yes. start-up/China timing, make breakeven better? I want left going sure does. that And in banks everything to China, flow I helpful. be was credit or by just understand is quick free talk and selling questions, activity.

Charles…

answer… will Nick let I first the So take one I will and

Can you yeah. take --

… it. the piece of second

Sure.

But out restrictions. basically, we is this, war there’s But somewhat discussed different percentage the slumber, significant COVID earlier, French against sort have So the out So, of China technology, our of export U.S. kind coming which are of of China the products are than as restrictions COVID headwind sort slumber. issues. a is coming diversified its of the of right? because of trade we

think from improvement some China year, I we business. the end So the will the toward actually of hopefully, see

The credit contract I real. think is

is capital tight. getting I think

causes doesn’t capital if you going are to for that who you cash, have be that have impact months our careful very with some there customers. so XX of will some some this customers and problems so be people smaller very, think and headwinds I of -- to our short start-up don’t of will are who of

cost more we up tailwind these solutions. outsourcing their some tightening system outside some also more, some system and sort think large IP for actually as of IP budgets, development hand, other companies going see larger are effective the is might is that companies some of we potentially from so of On their

So mixed it’s bag. a

Thanks. it. free the then cash Got flow… And

Hi.

that’s and me. … Yeah. for it

a interesting And of leader some outsourcing that’s to which we interesting see in obviously movements. pipe, we market, seriously some Nothing but and to are actually developments the on commercial sort movements starting in. are

free because But the -- as year. was negative by have would Part we cash of and cash couple time free flip we the cash the last of flow customers when we guided as of of QX brunt QX for announced early guided of QX far flow, big bear for the at XXXX, that from into XXXX. the whole that that QX this of a

QX sort benefited got to a things part, last as in we of that QX So few in detriment hangover a nonlinear of are because year the quarter is OpEx. always

similar from But I lighter often of is bookings detail, quarter. but won’t OpEx for so and go into most a QX companies it’s cash inflow it in heavy a a and sort

So came where QX we that’s we and exactly forecast $X.X million for negative-ish in.

the was it So money, of sort to on so speak.

us. full again, we we won’t be It $X.X taken a as forecasting expecting last X the year, It actually X, that linear. be we which for by, we The means guided still like never just for are time X neutral. million, whole, full to did year Qs are is and

when strongest bookings slice is always our the that’s -- We fall. largest because cash flow our quarter, of QX our

QX will strongly neutral to and QX $X-and-change free negative still guiding million are flow. be So be will negative consumption we slightly Three cash positive.

XXXX are that. bit reasons a that, behind behind was can perspective, replay full we It’s year guidance… yes, QX wasn’t a odd an But, a of of cadence but a our XXXX remember like who standing are there of you from year strong, as bit those

Okay.

between X of … XX. neutral April December and

it That’s will guys. much, jump so of Thanks out me. Okay. for I line.

Thank you.

from question question. Ramsay proceed with Cowen. is your Matt next Our Please with

reiterate great guys Hi, is Matt. It it. into you This on Yeah. Ethan I drill kind see full wanted -- the everybody. just I the to of Congrats Potasnick actually for year was down guide. on to results.

softness or prior was there On million $X about some then on discussion another $X $X maybe royalties. macro million, million a headwind in and call, maybe the so

out, year really markets, you could be So would about then do playing I was end and kind you the wondering, across A, see of dynamic how talk over if the of trends that helpful? that remainder

And… Sure.

answer let So trends Nick will and take let the the about just me then guide. I

So…

Yeah.

second be those of one is the ship half us we production X pretty makes that … that things should about to in optimistic quarter. FlexNoC the second able

will X FlexNoC So that of revenue. half we that means second have full

think So guide? do to that’s year you the going be to helpful whole

right, of And back a then, as Gus’ coming have you trade of just more, mixed have a bit question, where right? answered a to online but sort tailwinds/headwinds, I I said, you friction. there’s bag more little China

pressure You have credit crunch, big the which perhaps outsourcing affects from smaller customers, but customers. more

turn are positioned that, actual with we to the that Nick meet guidance. it to the then to over comfortable feel numbers. discuss we So well And I will

Exactly, Charlie. Yeah.

you there have that And to we all been we memory if him. unrestricted, through to that to X% XXXX about if time million most say have, so look, and into year of were one, China sort X% somewhat didn’t last talked which which so, question again, to Ethan, have essentially on hear been you and essentially China/macro we the so about great headwinds was so -- would $X of on headwind, were question and that’s stronger growth The BIS speak. hi equates your see great a headwinds, talking saying, -- -- Matt, we be hey, when negative the things your would got that you

know is, is unofficially other the in that we a are, recession, direct is directly we recession or a are. royalties, all anything course, recession -- we actually know all by a of attributable which officially we which to that and in are impacted whether are we And we

as channel whether space, as And less in so they shortage. automotive, manufacture are that with automotive end space, because trying consumer to deal are demand the the so desperately inventory OEMs, for the products, possible dampens in to general the much the

batch, but -- demand there, really temporary not there’s the shortage. generally, so there demand is So across much

royalties, which would at right. -- $X million, lot we year, We like a would other have $X million about more to like. the seems looking expected still that we from get that’s than is $X this more like So but are which less million

way going general around rather but would reduction. the We it’s this sort $X other of million, to $X million and have guided volume because of gone

picture not again. color up short, So in in to on you rightly but words, brought just that subject so has other reestablish the changed, the the

you. Thank Terrific. Understood.

this know streak to seems its question, as auto kind has and resiliency of season markets. earnings compared And you can’t talk Second like if continued it kind characterize of kind could automotive I about signs of end guys there specific maybe still but year-to-date activity slowdown? Are through of is full customer perhaps programs, other ahead in of you customers or are how kind doing. of a steam any

the get with that try supply So chain trying to on the things -- to the call the ridesharing the automotive, earnings we engage entire and one companies is of we including automotive the of that, across are OEMs.

be, used because they you ago, could years meeting a why say, or it car five years with never to And talking us. get are to maybe a would four you company,

Well, You company. that IP has are semiconductor completely a changed.

so companies with themselves fairly are control architectures to designing software. their trying of for that The their -- chips tire are partners either extensive design work silicon get and to architectures architectures or are they working they

so are have that four closed happy year-to-date companies. in automotive to we sort with And of we announce deals --

say they can’t are they are. across we spread But the Europe, broadly APAC who U.S. Now and

customer going just supply so system essentially that And IP. the our automotive it ability be chain advanced demonstrates is for to automotive-oriented a entire

as going intelligence defensive with of stars it’s sort current business. business of machine artificial we investments The segment through maintained sort see in one disruption. as along are car And of the being business, and the a of as major shining automotive of the in as that then both one the far and disruption learning, the offensive the

you. Thank Terrific.

Our Garrigan question Capital. with with proceed from Kevin Instructions] Please question. [Operator Westpark is next your

everyone. Hey, Yeah.

results. congrats Let me echo strong my the on

question. quick a Just

any strong continue companies market can and for kind who outsource. us remind had share in large potential your is? to seeing you anyone that you in to you competition to position a gain competition Are you from and noted increase know I So of are

Yes.

really So recession effects be and system so internal build more outsourcing going the main be difficulty and IP. is that that investments of internal favorable. IP are are companies maintaining companies. this some the to competition teams by have will those of Those The situation competitor have perhaps hyperscaler to there semiconductor of system that continues of one we the -- the large

trends. that’s kind one the of So of

what So -- much have pretty that’s so to say. yeah, I

killer learning major we a and of cost a be And to going app in think the business where of queries. the you query has with there’s so cost generative machine course, of substantial new the hardware cost lower there’s that is then, AI per a AI, type and also have specialized investment problem accelerators generative to ChatGPT amount

on So are so to we address lot there’s a and well we innovation think going of that positioned that.

makes Yeah. follow-up. And just Okay. sense. then Got it. That total one quick

So that look as out you the keeps one the in rest and to of quarter else macro, kind the the have besides books you night? up at you there of anything of is year XXXX

as Yeah. Nick But, the us said, comfortable at the balance and tailwinds discussed. of headwinds sort think, think, out I we with things. Lots the guidance and least, of I that feel, for the I so kind of

Okay. Thanks.

that colored think the can I with I two-fold. and One income forward statement particularly the of the answer some the from amount at revenue me the is, is visibility comments sort from numbers, we have. of is by my -- deliver on

visibility revenue XXXX We currently have typically a talk good amount XX% visibility. XX%, to We for of around XX% numbers. have around hitting XX%. forward We

puts reasonably comfortable me that So position. in a

a because get much kind is lose and me small too doesn’t of gap great sales to the we we It of have for amount that that returns relatively make team. business have to effective sleep actually

out mentioned, products Charlie second which and well delivering be out we is to great which and the half. in have going X, we one So is is of in already as -- coming HX, FlexNoC as

management. course, thing, is other of The cash

We on focused as on we know, we chatted and very we cash with are penny last management you, OpEx. very, on -- you every since are laser careful spend

We have simple don’t CapEx. We have very a model.

from we to in pay have and OpEx. bookings out We cash have cash

our numbers obviously, growth And on very so, that’s because very, now but always we OpEx. we we are get maximize from, bookings careful where

our cash year, the perspective projection or flow of to burn since some bookings can from even exceed that very achieve a growth get have from keep comfort our rate we run why third the leverage I this we into we our -- end we flow can can it comfort, dialed down quarter the and some carefully guidance. we achieve OpEx, And is good rate, our comfortably essentially which operating guess, in -- that cash get negative so

all That Okay. Got guys. makes Thanks, it. That’s sense. for that. Thanks for me.

Thank comments. back at further There for closing you. questions no Janac Charlie to to this I any like over would floor time. turn the are

are and you Thank updating thank Arteris. the upcoming you the in you. your couple we and for that we business investor Well, during at quarters our forward the and We look with next Okay. to -- we progress all are meeting interest to of time forward in on of conferences look you come. in months participating to

today’s concludes This conference.

disconnect may You time. your Thank you for lines at participation. your this