Arteris (AIP) 3 Aug 232023 Q2 Earnings call transcript

Good afternoon, everyone, and welcome to the Arteris Second 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 Inc. 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 third review second a quarter the full ended company's review will second outlook for for the quarter, quarter XXXX. of results the the of XX, June 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

management note, cite company’s measures, loss, means prepared will the investors company’s of net performance. accordance measures non-GAAP per are understanding GAAP. certain net US the measures are the which how we this evaluates Non-GAAP as believe during with they loss flow, including and non-GAAP call, share in non-GAAP not presented with free Please cash we provide evaluating operating and

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

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

will to the call turn Now I Charlie. over

Erica, you, call thanks XX% with exclude to in royalties plus up joining strong DJI trailing excited to afternoon. a report annual the us this of quarter We're $XX.X on discussed second contract and adjusted to for year-over-year Thank value everyone as previous calls. XX-month when million,

XX to ranging with the of our design Driving in companies top was established new largest startups the technology five confirmed adoption growth the of Arteris. of engaged with from system and innovative strong houses. market-leading second XX companies the by products starts XX quarter, quarter In addition customers Arteris second

and and we of logic does previously, commercial all today and ability needs complexity Arteris. vendors as connectivity outsource licensed as developed we the increase, underlying IP believe the As stated the IP overall the have connect SoC of of such increasingly cars to to continues looking system so the IP, Established are effectively to parts. to volume who bulk companies,

base. emerging customer are this trend confirmation an in We seeing of our

with used from deals to companies major top semiconductor deploy have XX IP as who companies, closed system internal increasingly three we quarter, of commercial of semiconductor historically vendors wins second These the In IP willingness the solutions. products Arteris. such the demonstrate system global commercial

market onto AI/ML by chip. driven machine in driven often were logic and consumer enterprise Deals segments learning across wins design automotive particularly strong of quarter artificial computing by core second the in the demand or with intelligence and all addition our and electronics,

products. and the chips a complexity increase enterprise particularly We technology markets SoC driving in of turn computing. automation their with vertical AI/ML deal integration semiconductor all into in significantly This Arteris continues size is also a across closed and Magillem XX company. top to increased infusion adoption

interconnect discussed, previously licensed enterprise interconnect the superior both FlexNoC of AI/ML Cache Ncore and second who non-coherent flexibility. power Tenstorrent, one on coherent major has and wins computing quarter design the based was in performance As consumption

Jim RISC-V and to an as Arteris as is support This Tenstorrent ecosystem. center and high-end well AI/ML SoCs by high-performance emerging of example data computing chiplets. Keller, Led computing ability develops RISC-V the

global was Arteris' and enterprise increasing Another AI/ML for electronics, together AI/ML the top use automotive adoption worth functional by of electronics. driven win computing system the also, a the autonomous XX of driving complexity company safety electrification the needs highlighting driving major hyperscale in in companies. with largest technology

in Our TXs automotive quarter. expansion our pay the and were off OEMs automotive continuing across relationship use, which OEMs to added signed OEM focus and five companies continue chain supply and of the semiconductor we manufacturers, XX deals quarter, OEMs. automotive We on in again two with strong with of Specific customers. technology second new three were directly Arteris' the to contracts many

leading Tier This of continued We system by customer. demonstrates also added level rapid players industry. automotive X the Arteris' in new a electronics IP automotive adoption of activity the

one BOS new example, semiconductor integration. companies our semiconductor the As autonomous safety Magillem to automate software to while with IP, we an up technology, the on be chips deploying this also driving and is network speed FlexNoC Arteris backbone, automotive of SoC selected along automotive chip communication

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

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

in AI. space Another emerging is AI/ML opportunity generative is quite expensive GPT-X in of computation. particular, terms in semiconductor the

of to hardware. accomplished can generative ASIC be the accelerated specific of One and which partially the reduce through is AI imperatives, queries, cost

production As major ASIC optimization an this is generative Arteris and a utilizes AI cost AI generative for system IP example approach, of year. one ready mass

AI large movements require and value of particular, another continuing and SoCs inside that trying develop semiconductors the complexity generative in in innovative et amounts and is system cost per in collaboration which query. of IP. to lower we to pursue ASIC Arteris GPT-X opportunities companies, additional and of with leap represent data SoC are numerous very cetera, AI Generative close

quarter. problem X toward NoC aware physically or on This implement potentially new to IP our revision the X during can data can Turning delays. addresses architectures design to the schedule production SoCs chip the design, numerous to all FlexNoC product to handling product network logic, FlexNoC NoC XX-nanometer Arteris engineers delivered new of be cycles IP end perfectly physical that difficult portfolio. designing processes that of version the and good, leading

schedules physical raw in its orders. over with allows to the architectures, verified X, minimize customers awareness accelerate physical design turn or constraints development order physical physical physical FlexNoC essentially in a during analyze contractor change of layout to logic place and to design and companies, groups

of license the IP, X of FlexNoC production we several our first In deals. valuation month new and shipment signed

start licensing expect XXXX. in numerous half are pursuing and X second opportunities Additionally, of we FlexNoC the option broader to

released on Cache Ncore in IP, be and new Interconnect quarter, forward. customers will Last-Level customer Additionally, enhancements, which we new Compiler to a base existing software, going delivering and CodaCache potentially both during CSR of version applicable both automation requested multiple integration the Magillem customer SoC Coherent IP Cache our

and including headwinds recessionary in macroeconomic place, as previous uncertainties, geopolitical the Certain global remain on discussed concerns call.

AI, computing, enterprise autonomous innovations ecosystem, driving leveraging electronics system IP. communication the We customers and generative US exciting BIS also to as automotive, for of globally. as applications, including the which RISC-V AI/ML trade, such use credit including to with operating emerging US and be continue and Arteris, conditions electrification and tightening of well restrictions, need impacted in We are growth by and increased vehicles as industrial innovation and China is serving machines, areas commercial rapid that respect consumer believe

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

Thank everyone. Charlie afternoon, you, good and

today's second included our I non-GAAP in please of change contract treatment reconciliation formerly results As but is financials network on non-GAAP enables that deals. term to is as today, rapidly referring we aligning this SoC review second quarter, to will a with referred for our Arteris to be the the quarter our available automation our which software earnings In recognize GAAP now I note chip integration to implemented over A website. metrics. revenue deals, and IP release, IP to deployment,

change, expect defers remaining we revenue be significant fluctuations. model recognition a and majority reduced now of contracts recognized this periods, period-to-period obligations forward, performance better This to future resulting the RPO. our going higher in to significantly revenue, visibility or providing rapidly of With

As a earlier, automation multiyear in SoC quarter. the deal, second substantial mentioned Charlie integration late we signed software

substantial timing be in increase part in derived recognized revenue of our the million As $X.X a second RPO in of the result recognition, revenue in driving this this will of deal change quarters quarter. future from in majority the

ACV Charlie was our second revenue plus year-over-year XX% of mentioned value annual $XX.X royalties quarter, X% second $XX.X but XX% DJI quarter up for contract up sequentially. At as guidance. This flat year-over-year or of the to million, XX-month higher total revenue exclude and adjusted and was trailing at when end end Consequently, million, the top the earlier, sequentially. the other exceeded

the margin compared margin $XX.X in Total $XX.X quarter expense second year period. million $XX.X a was quarter for Non-GAAP the in representing profit was gross operating to for representing of prior of gross XX%. gross million $XX.X ago the profit million, quarter gross a GAAP XX%. the million GAAP was

operating in quarter $XX.X in in the first year-over-year quarter together continued $XX.X The driven increase ago investment compared and million. R&D IP software and prior partnerships. million, customer engagement, of $X.X primarily with to was and a expense marketing million support in sales million representing $XX.X the Non-GAAP was by in ongoing the developments period to increase investment customer next-generation strong strategic integration automation and year sequential SoC products, NoC

was period. G&A million expenses. operating GAAP of compared operating loss $X.X Finally, million, to year loss the Non-GAAP million year we continued compared a XX% in quarter loss $X.X $X.X to of significant to ago $X.X was million in operating period. ago achieve second or the the leverage in loss for a

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

form $X.X benefited was $X.X cash strong investments. flow and in million -- to in from ended cash early We capital the was the which expenditure and approximately payments now with balance Turning negative in in amount operations cash, capital the the equivalents used a Free includes from cash sheet $XX.X flow. million approximately of quarter, customers. of million which quarter Cash certain flow working guidance.

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

$XX third of For negative the XX-month and million million to royalties $XX we XX.X%. revenue ACV trailing of XX.X% negative to million quarter, $XX.X expect of plus

of at timing deals. million. revenue recognition than as lower revenue trailing exit integration the expect a $XX change $XX.X for unchanged in is prior automation we million to $XX.X For follows: XX-month year, software remains million our XXXX our our million $XX the plus to result to SoC of guidance ACV full of as guidance the royalties

cash improvement overall in reflecting anticipated Non-GAAP negative the XX.X% to XX.X% and the half operating XX.X% XX.X% XXXX. margin flow of free second of to loss non-GAAP margins of negative

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

and Thank we Ladies the TD Instructions] comes from go first ahead. Our session. now begin Ramsay you. [Operator question Please gentlemen, Matt will from question-and-answer Cowen.

very Thank Good afternoon, Yes. you much. guys.

mean, top you first I relationships for -- the it my new. largest engaged of in stats For with you development internal of some you've the And Charlie, global and might chip like some them companies. five script, read three the around some tech of off seems your those be XX Arteris and companies top of question, XX semi's past had of in sort

complex So lot of that space for you're that bit. like. There's where areas the do understand a the a primarily to scope larger I'm more working those looking engagements and being inference AI/ML work maybe Thanks. some of of on and folks expand AI ASIC could just you the are in companies on. this with application upon trying those Is little to the designs? done

Yes.

some right most extent. are and two companies some going of complex prior of we is In to commercial system is going on becoming starting much been a they have think certain vendors of I in we're see terms the right? largest So to at we're calls years And almost of outsourced of be with to their projects. and those the essentially more IP see companies complex least to internal some that to the discussed that prior semiconductor starting XXX% -- XX eventually for that, Arteris

So that trend. to a beginning of see we're starting

In fairly terms kind of broad. it's applications, of

automotive are automotive projects. advanced ADAS Some of those

types reorder. -- were the deals amount also One Magillem. that is machine has in very, be was moved a those seeing data are those where companies we're AI Some was projects for large. the those learning one particularly or two also a for to fairly chips of of very generative new good of large Magillem deals one And customer inside adoption of

little revenue you bit the what that in could most it. I on change to or a and come expand mentioned the question And my the sort deals maybe that's this Got then helpful of that mentioned of No affects. it the guess color. had sense whatever full that year change change. as follow-up a you accounting Nick or makes script change percentage the due revenue your few reasons you times for metric down guidance

you change with up before revenue a was If it be bit hadn't the the down as little bit. same made a outlook the little

If Thanks, give us would that you that be helpful? could color guys. really

that I that to the ask Hi, you were to Matt. first Nice Yes person be know [indiscernible] question. going

I So it properly. can answer hope I

So XX% in plan think in understand point and a very tends to like very times that in our I for the other having revenue to be we've the about a that QX. to ratable was terms third of on and focused past talked little the even where time bit of about know in XX% many us lumpy idea recognition why hard because you and a a really because mixed we business model the don't to time of it's point investors very, for it's hard very for was it

endpoint. So with we've been of this for to to the are a while. moving lot There a pieces get working

change the and get SIA, have to or acronym have all on to ratable forward. Semifore and a customers, going is a point where was our in that sufficient align combined legal So could financial to auditors people we which new ratable we Magillem structure the of to deal our treated for going and forward largely our so get

so goal we're revenue like our more in visibility the model. the cadence was a a of or much more synopsis So on now give that -- and predictability was terms to

now have So that's the sort under to model $X.X how to about -- so you the had give of it million question why. The the in would another is million RPO. old rough $X QX feel much XX which a number of in revenue

that actually had stayed into another a it overall you a is the give have basis to the way region. time this this guidance is have by on XXXX perspective. the every to the it's was sort would it X% an a for kind point-in-time important sense XX.X% Just to you to how earnings now. call, of QX X.X% been change if go we not so onetime of through on we we higher weeds need but in somewhere put give And going some on event. We're to

from XXXX million going of $X.X in time between somewhere million So and $X from point is the ratable. to downdraft

our guidance came that down came midpoint see can by down you So by about X%.

of to million $X.X accounting of million So $X that was treatment because the just change.

X.X% would to the so was you guidance. And business X% higher apples-to-apples underlying if

the visibility impact a then to somewhere would your XXXX? in of do does but have sure racing a to And see up of so the $XX that to -- RPO $X continue is $X.X just the and just do of that next up million question of up million million which It's to the XXXX in will time this. what $X be region of to of over complete end RPO we'll been in beneficiaries the by other picture not as $X result which I'm is million, It's on and is between lower movement million which big we QX one point in can like. you moving next to the the went

queue. format? the the this the and one-third shortest the now back in in just the length through longest the and I just to like Nick. new deal helpful really is business about typical of could one follow-up walk these in said of deals that ratable Thanks. The and you I'll what jump then of of ratability on the duration you have brief That's time part

yeah. Sure,

But bit as a a -- year. of around those curve can a bell are somewhere it's be would you shortest imagine. So

years. sweet would some there the many little there of would terms an structures. just two be deals. going not duration. So extra customers there X.X again midpoint many What to going will think think The bit not at grandfathered about old spot or we that's in a that be instant on longest aren't but are Matt that The also is our it's around not four years, conversion. a but around of three majority minority I with to is be -- is five that's of say median not rapid a color, it's -- conversion customers old contract to the who be We are to some But duration.

much, jump you very the Nick in thanks Thank for and detail, all the queue. I’ll guys. back

ahead. of Please next Our Richard Thank Gus comes go you. question Northland. [Operator Instructions] from

Yeah. Thanks question. for the taking

pound to companies you're the is over the impact been of it falloff sharper that bunch years? smaller next expecting, a there's revenue in happened with Just that when ratable renewals a a rec, Is this revenue. followed X.X or there other

Yeah. other the change when it's the you when And a comps they've you're right at who shorter. I fall-off mean is good look this Gus. much done made have question

is I because think at they wholesale impact a the making you business change to still to from point we're less XXXX and XX%, on and that, been as us count only already but dramatic It's have It's more which support XX% already the difference of direct much have a people material. would much we our Had ratable is each still maybe to when two-thirds XXXX. as rational impact in done of basis. the million time. for of $X-ish ratable, it's a in those maintenance, was been XX% looking

then you're where bit you those on Charlie tech it. That's and mentioned companies. working super little it legs are a Got largest companies put do? Is of -- XX five can with And they you helpful. what the arms of

some mean, that XXX% are them companies very internal. large of were semiconductor I Yeah. previously

reorder a fairly integration was large Magillem There customers. SoC large automation -- software. those So be very will for new a

for But the all been IP the over glad see little a makes system me our demand more internal open So have most is starting products. solutions. outside previously yeah to that thing bit shows to to but companies just place of the we're starting that it strong several that it's kind be are licensing

Okay, a you're in thinking to business? Huawei of trend we line variable up couple how you got with it. past, see the of last can And royalty just nicely losing And you revenue going or do was that the do forward, cell are part then that quarters. the after guys Is revenue see expect and phone about expect? that your you Qualcomm grow the

they in guarantee imagine. time-to-time. when been if I've compliance as we And from about happen at have if the -- length audit audit nothing nice Yeah. you one you can they in upticks, that look actually relatively take -- benefit and we so you have we royalties QX. a they're chatting can't and Really the team in QX at with but you based, decent out a come have there's large which

back If in you you you still I reasonable exclude the the to great. of QX those, which died a perspective from of total, -- -- HiSilicon if XXXX. go the trend has is really you mean scrub out been royalty amount HiSilicon

if And those take been royalties steadily has growing so, you throughout. out

expect general, And roughly it's at rate be would growth. some trending the what be five royalties license moment. higher growth to the than so, of that's we in And that points percentage to

say royalty X% Sorry, higher about then growth? than

Yes.

Yes. points. percentage five So,

sort look overall, as at example metric. We our So to year-over-year. XX% for And for if that's is more around you royalties probably like XX% look CAGR of good XXXX long-term full a XX%. licenses on at guide year,

Perfect. at the I’ll Thanks. it. Got queue. get back

question at Chen from Jefferies. go ahead. next The Please Brian comes Thank you.

Thanks taking Hi. question. for the

been Just the revisit calls. what earnings to over of we've past wanted some discussing

to around as year. headwinds, macro was mentioned this royalties I've So, million headwinds $X China related it the

on be are provide an would that where that great. If you we could update with

of we're see to China. out Yes. I mean, continuing orders

We're difficulty capital. that continued So you the seeing -- increased essentially raising startups is but BIS. in headwinds out Chinese there with have

you would of a venture in slowdown a So new expect bit formation.

change nothing was be say. a And no a or years to so, inflection -- not it's it but attractive would ago. it I market, continues very gangbusters couple year as But of as a

still the the starts, Exactly. We're very in And license the wins at for good second of seeing generally still the first in quarter. all. We're healthy, and morning, I looking Charlie a this good and reduction a APAC specifically was and at data no robust. number number China data design of remains very

generally the that even it's to really the are China target of lack in think a from APAC and capital. I for indicative fact suffering that in So, type availability not or and particular of us from the markets BIS

and AML. you've idea. automotive then And think an So got

And just other it. two Got things.

the heard RPO different So is rec the some on I on Could drove then confirm quarters help Again, change remaining around you three rev $X and the from drivers million perhaps, walk again that? could what quarter-over-quarter. us puts $X any that? of million and million last guess through you free takes up to $X cash through commentary like year was and this the just that? And of the breakeven flow, of I

Yes. order. I'll those take Yes. in Sure.

as you it a the or So, a stood call out across RPO, point recognize get it, the reduces grows in from just and had it solid quarter. just the million say terms you terms just The the of $X.X quarter. very pretty patch, a from was area say, no of was million the the it quarter change strong away was of particular vertical RPO of in that of We much region, either you strong time one as as rest very ratability. there came say revenue. to that $X let's bookings,

So of the was $X other million the change of increase the to ratable $X so impact. RPO million non-sort out of

cash flow? free then And Okay.

thank cash reminding. free flow, on And for you

the December when So, this kind you to yes, you us as pay of it free in decided million of a I'm saw. before essence, who due. of end -- so sure had instead we customers $X did flow was pickup and of there's the is a healthy the major we In two quarter remember -- couple had were we December back We customers, if cash to the like quarter quarter. they bit a a One -- very aspects quarter. to

on that $X we and a in cash So, quarter sort reverse. the tailwind free will million so a had of flow

negative QX actually some flow million for $X in change. $X being cash million have and free up We ended and change forecast

as capital a It change always the know between flux. It cadence direction. it is Working changes doesn't just two the quarters. you always --

that which million would of paid advanced the $X is XQ for $X why you're that seeing that reverse. absent been And will million XQ negative neutral. have a therefore was $X So that's guide million that

Full year when bookings in Free strongest It's in always because by flat should OpEx bookings cash is OpEx terms that's be flat of have for positive. cadence cash driven free our XQ. flow of and is the the more relatively majority we quarter are cash us relatively flow bookings therefore and year. strongest over the is

made smaller So, we've And in know had a a by sticking we and of good. year the sort an we'll how QX million QX QX still somewhere we you the a had That's that much that so of end around zero $X.X to we're QX, the offset negative to of the the to up we QX have time then but year of to end get sort have a the that negative as expect overall for will one. guidance.

Nick Charlie. perfect. you Okay, for the all details. Thank and

Welcome.

at comes Instructions.] Please Thank question Capital. ahead. [Operator Our you. go Kevin next from Garrigan WestPark

you Hey and Nick, with guys again. nice Charlie speaking

quick question. a Just

top production some starts FlexNoC getting companies? with say So, helped full with design and in with the of X QX that FlexNoC semiconductor at you would five all the technology winning

very physical a now for deep to of product you solves very cycle. We valuable with is as some which away a that yourself effects problem because Yes. licenses is right robust it the relatively soon SoCs there pipeline and of concern in with a submicron have you sold design early the became it complex these couple as available

that lot ASP product and so significant going nothing be true. help uptick see of generate a FlexNoC make it raises going predict is and we half. that the and would We to the are also we expecting not second it to that And interest prediction that and that there's the come was main version has this this in

sense. Okay, follow-up. then got just a it. That makes quick And

companies with don't cameras think are strong now. radar ADAS really vision as still know are customers kind couple have automotive etc. of So you you I right semiconductor guys But I in a of there that

and won just tech large you So, companies. other semiconductor

them guys do kind the it what companies get these ADAS semi hump you to customers? So take over of and as would capture think

Yes.

don't all that count hand. not we're of going get a on So, finger we're the because we them have you sure to people can there's one

do yes name I get automotive want the that have. ADAS quarter both previously users essentially But we're two were don't we ones not So were of even did companies in in we the to those the for not area. Arteris and

So automotive everyone. get unabated. say would say saying not our I penetration continues we're to we're But going I that would

makes sense. okay. Yes, Got it. That

Okay, thanks guys.

There I turn Janac are Thank you. comments. no closing questions. Charlie back further over for to will now the call

Yes.

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

and for Ladies we conference today. thank disconnect the participating you and please your lines. We concludes call this gentlemen, you for ask