AIP - Earnings call transcript Q1 2022

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Operator

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

Erica Mannion

afternoon. good and you Thank With me Executive Charlie Chief IP from and Nick Arteris Officer; Officer. are Hawkins, Janac, today Chief Financial begin review brief the March with business XXXX. will XX, for ended first of results quarter Charlie the a for Nick followed first the quarter by financial of year for quarter, and outlook the full will company’s XXXX. the then second review results the

We will then open the call for questions.

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

found press for prepared March of these non-GAAP nearest for are isolation ended and Securities can considered uncertainties factors in measures, GAAP call, means IP the and company’s per in in by XX, free Exchange and with Commission. are risks as operating be These substitutes reconciliation from in cite cash release GAAP. provide to of net non-GAAP in that differ cause the performance. the with These flow, filed non-GAAP not with A measures results not issued or accordance they share these measures US the regarding management as press documents the presented loss, including superior certain in the loss quarter and evaluates accordance the we measures information the which XXXX. this today financial be actual appear non-GAAP Arteris time-to-time will Arteris evaluating to release U.S. we with prepared how net investors that measures IP the believe Please measures and company’s reports and could understanding and from, to non-GAAP note, GAAP. measures during should non-GAAP Additional

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

Charlie. Now I’d to like over turn to call the

Charlie Janac

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

our We our Demonstrating are new $XX.X XX-month start excited plus quarter. active to annual momentum, customers trailing XXXX of report contract in our increased to royalties continued customers by quarter year-over-year. the XX% up strong value a IP seven first with million, system projects. record Total on the quarter new technology starts based SoC XX IP to including in Silicon SoC learning Rapid Arteris for interconnect customer IP Major solution and automotive machine Socionext. deals were licenses selected Cambricon design customer track applications. Cambricon, strong

signed and deal new for also the with ridesharing BMW neural project. a key major in a IP Arteris announced We that a accelerator license network company quarter

also automated and XG automotive the is enterprise progress AI/ML occurring market generation electronics, Arteris ECU to semiconductor all strong ridesharing revolutionize of industry. an chain consumer from as continue OEMs AI/ML, Besides automotive, these to driving vendors, in that creation companies consolidation in at and We believe the momentum we communication underline electrification, segments. a for deployed Sondrel Additionally, relationships supply next automotive X stages SoC automotive IP the their Tier SoCs. companies

range edge learning of AI/ML at quarter during the applications. market deals continue a to continues for machine numerous promising first We across customers close with continued verticals. and of be to new The addition technology new addressing the broad

Democratization one track our engineering record are confident new continue and for in least SoC chain, of shortage quarter, IP IP that strong of we supply is believe will interconnect we major skilled solutions disintermediation the system the new strong system system driving architects need design, and engineers. first a a as multiyear compensate in continued SoC at XXXX. we automation front, products investment of for IP well On of IP our in in the semiconductor as of product order delivering to product

we also demand employee for seeing our and in service While provider terms compensation are worldwide products, strong pressures pricing. inflationary are we seeing of

conference seeing discussed are semiconductor calls, of we As in our industry. the regionalization we the prior

for order We to or into block our however, troubling that mention that, Arteris global be Ukraine previously events believe are is predicted. than its and continue I either multi-regional IP important, provider. to a expand States system a in together the to Arteris has cohesive However, driving IP the United Russia. current to exposure it Ukraine Europe in should presence more no IP

Lastly, for as following will culminating product in Development. Marketing strategy, customer management President, Business to and continued team Michal to to discuss Nick in public complete Siwinski in solutions stage have over with more turn adding Vice leadership we at Officer. the top With XX-year it company addition, we joins next engagement us a significant of Michal’s our Chief results experience team With growth. first a now management strengthen a our and Michal including by our Cadence Design detail. that, financial I as Systems, roles quarter, Marketing Corporate our career

Nick Hawkins

Charlie, good afternoon, and you, Thank everyone.

please today, metrics, which website. release, referring our As non-GAAP $XX.X year-over-year. for results is available will of million, to reconciliation was up the today’s quarter non-GAAP review a our note, be earnings Total revenue included is on financials quarter first XX% GAAP first in I I to

Arteris intellectual are licensing providing professional As maintenance new services, software revenue the a software, property, story, and services, derived royalties. training services is IP our licensing from reminder of of those who you to

by the agreement agreement referred number divided fixed value under to product variation offerings, of fees as We the annual ACV total define for of as agreement between years on ACV indicator total the a financial recognition individual our value leading customer methodologies in team, or in focus an TCV a as revenue we management Given or as contract the contract performance. the the term. also

amount solutions. enterprise At As quarter-over-quarter. the market which March complete year-over-year XX-month million, metric, XX% consumer first year success in future revenue. in $XX.X quarter of to first RPO and $XX.X progress plus year $XX.X ACV in total segments, year-over-year, this growth up to and compared headcount provides driven royalties XX% as expense were period. quarter additional prior year of ACV we particular by the compared quarter, in was and payments, in centers XX% trailing marketing and the for million XG million, million XXXX. prior the The this trailing in payroll we of XX% million, monitor customer’s royalties ago end include more our up contribution of developing other increase $X.X our expense AI/ML, in the R&D the plus to We from $X.X to that believe communication the million obligations Sales Remaining to the our calculation was electronics, as revenues. in define primarily in was driven continue the shows revenue, XX, Gross and adoption $X.X and product our revenue, automotive, $X.X was increase to performance representing offerings. or improved new four or revenue metric our a expanding the historical quarter period. in invest also of by gross measure million a X% RPO does a compared expense, million our up and the of and not as contracted royalty profit XX-month period. XX% XX% or We referred picture or margin as first of $X.X of R&D was

first based Non-GAAP $X.X million year $X.X in was net quarter million $X.X We on compared and expense and awareness a was and continue of XX% per million us. quarter loss a quarter $X.X with basic being in marketing and outstanding. or engineering to the $X.X $X.XX. first million XX% the the or expand million potential Non-GAAP for net an for compared company. period. increase to to associated or a period. diluted the year our and of expenses $X.X year was in in share people period. loss basic revenue, to the compared sales of for $X.XX, million sales as was transition the loss infrastructure revenue, the loss $XX.X weighted application million diluted shares in front G&A invest force related the to public benefits continue and market marketing approximately for reflects of loss our of or loss or our loss to $X.X of XX% per of revenue, to million quarter to of we ago Operating diluted the Net operating of G&A $X.X loss solution ago in in efforts and was harness share the work net average of million significant drive ago

expired reminder, our IPO April XXXX. a As up lock XX, on

lockup employees no MNPI. the to subject information employees, X.X restrictions expired, lock-up as which stockholders subject While held having material former are approximately freely longer sold other shares, can and non-public and normal million be current for such or

also various restrictions. conditions or rather former employees employee to current options million grant they programs. part stock be restricted reserved X.X our outstanding incentive shares for subject best issuance normal when sold Additionally, shares lock-up expired, the These unit the future to and to directors pursuant as assuming subject but satisfy and in can held of approximately

expenditure Turning full sheet and operations cash the to in quarter like quarter flow, flow was and I balance $XX.X million would $X.X free while second million cash used includes cash with XXXX. now capital the to cash, $X.X in outlook quarter, the ended in million. we to flow, year the the which turn for negative was the

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

$XX.X year, guidance XX.X%. of loss from an open XX.X%, loss wage million of prior XX.X% to the to negative margin to to margin XX.X%, full negative to reflecting XX.X%, of $XX for prior With million Operator. questions. plus ACV negative free $XX of operating cash representing and to million call similar XX.X% of we we million, $XX non-GAAP similar Non-GAAP royalties margin trailing guidance non-GAAP to flow to revenue operating up $XX.X expenses to impact and the XX.X% million. $XX expect guidance of on of Over prior will increase inflation million that, the to the of For XX-month the negative of XX.X% our operating

Operator

is ahead. [Operator first Ramsay Matt you. Cowen. Our question with from Instructions] Please Thank go

Josh Buchalter

questions for This on Matt. and guys. congrats Buchalter on taking my you of behalf is Hey, Thank the results. Josh

maintain I you guidance, about guidance. wanted trailing that plus for the I royalty ask that the sequential XX-month was But year was Thank in a seasonality there it normal any was full signed obviously, to short-term and customers to like would China royalty thing impact shipments? the you. revenue, a or shutdowns ACV wondering of calls whether look decline First saw with what related contract

Nick Hawkins

Yeah. Hi, Josh.

we QX. of which royalties That’s is, is really. for you is But other the ACV one But great in but is as of know headwind. point everybody a or seasonality of guidance. creates deal we with quarter. because well not already May bookings around who familiar Let we the a bit not guidance sort generally, here the headwind me two month sneak I we deal HiSilicon have times sort a decline of the do make of you end knows sort million sometimes QX with want a plus that in this, into this $X can slightly our is frequent just end end built with things XXXX know, take. something and there quarter which many business, Nevertheless, our prior very falling have you substantial dates already in a with in new, of another beginning because so little a question. have that I else is and headwind you our was to in to of and mean, it up QX, IPD and of as it’s big into spoken one

hit, Chinese is a you out picks falling ACV are next in for instant moving. few deals, then not quarter, June July seeing full again are which the seeing that into the the the which up year beginning We of end why example, back of of and creates

the royalties ACV plus of is TTMR issue second part The TTMR. the

dent in royalties, doesn’t ship to and that but hitting and it’s We near-term. customers’ this puts are customers then our ability gases constraints of which our looking capacity, obviously, supply chain royalties term are seeing that’s impact novel mid-term loss, constrained reducing hitting by longer [ph], is fab from sort and volumes our things a like in customers Russia by it fab generally a everything capacity on to

that fulsome a So the question. sort answer give of to

Josh Buchalter

color all associated perfect. was clearly ACVs, I frankly, impacting with past And auto -- if are term I could complexity us exposure Thank and semiconductor importantly, out given mix and there. That throughout higher was help several overall premium That you mix constraints impacts come for Thank parse this but increase vehicles? net both the semis overall going Yeah. how the content. into results, units. your how this is heard all content earnings the to have the you. SoCs a we then lower wondering shift long this you. in results which versus from appreciate that season, near-term of improving my units of an about follow-up said, in there supply more increased

Charlie Janac

I that is will -- Yeah. this one. mean take I Charlie.

business slowdowns members continues robust. the or and we If any there designing cycles, there complex. participating are are automotive these in to seeing automotive more of -- are associates the the ecosystem, of increasingly are design be not So more companies

semiconductor it and could as as in The favors be fabs tariffs arise over constraints could are of see. year, that exactly starts. going looks in see manufacturing an year. of a activity don’t be that only the next to are all design you robust is people this spending think the point, that very the to the lot at and impact sort things translate design taking it there SoC So semiconductor rate we manufacturing constraints early automotive far of second is the it building place that but particularly we could we also when, at pretty that But increase I that additional add into promising. be interesting also headwinds should may But going half know military some and just one could our are royalties. that is of is a can capacity chain

Nick Hawkins

Yeah.

the of additional comment Nick, on one the automotive Just side -- is this longer term. more

that from are You about [ph] XXXX referencing is massive SoCs published is longer-term three the plus of third-party sort and the, four issue and a vehicle some there, is force across XXXX in exactly vehicle the of make talk data, XXs, doesn’t that those may which up referencing growing data, to more of remember the if that the per we number of XX around some around you LX trend. something that’s to It of per are but low a sort that really quarter. by there, exactly you a difference from is

Josh Buchalter

you. the Thank hop will I in queue. Understood. back

Operator

Thank you.

is question go with Lipacis Mark Please next ahead. Our Jefferies. from

Mark Lipacis

can in same in expenses. it’s also manifesting offset be taking it’s development to that had having? about customer’s know that Thank referenced guys challenge for if to Thanks I talk you -- just potentially that to help Nick, your I Hey. may reach for Charlie don’t -- compensation you. higher or my willingness or how eagerness they you Is that new question. product can guess you and you

Nick Hawkins

Well, let me this… take

Charlie Janac

So we are…

Nick Hawkins

going am going question, the first to part that take was will half over I for and to let -- I the more industrial Charlie -- then second your Oh! of commercial, to I sort of the Mark. part pass me

seeing that particularly the Europe rates inflation roughly in in primary pretty portion that OpEx which significant and mean, And out general, wage I basically highs. and XX% people. hear across, of is our running you is is and people services happening to and China are that surprised services with won’t what Asia-Pacific another we be that’s U.S., inflation and So, secondary is

but much question as without upward possible, of trying to is there seeing. we contain are we which pressure sort them are as So

As not marketing far and way, that paid more, more, by as the, have is paid it’s you R&D, more, difficult. more accountants the lawyers just it’s paid that people have

You to people. have compete harder good to get

really business customers the cost they of with So, to by of down of share some to as would paint as the sort reduction, whether a sort want our I do the that’s us -- guess willingness far as customers, wheelhouse. split willing great a question, to us and the

So Charlie?

Charlie Janac

Yeah. Yeah.

We are we wouldn’t seeing product. margin seeing not in particular pressures I say that, are our any,

lot this products pressure they not and products seeing a saved generate customers margin Our our so a value, or of time. are pressure on of price lot we money at

Mark Lipacis

easier buy I I it to they customers the labor are that. may standpoint and your for pressures thanks prices it than So, for seeing me that your And or seeing guess are wage customers actually make from that make your that tackling was pressures to shortages. the this a it they the a in decision given licenses seems make wage of like, of, if are similar decision

Nick Hawkins

Yeah.

Mark Lipacis

And manifesting do if often more they in was was your reach wondering may not? that and or pipeline I

Nick Hawkins

Yeah.

finding that labor absolutely is that’s going something good means as expensive correct. think, are customers also that and going reception our well. some having is labor that it’s to very both and be The automation fact is basically I It -- difficulty to medium-term get for near-term, them that long-term.

that for versus adoption opportunity internal does the So, Arteris this product IP solutions. expand

Mark Lipacis

you. Thank it. Got

Operator

Thank you.

next is Securities. Hans Mosesmann question with go from Our Rosenblatt ahead. Please

Hans Mosesmann

Congratulations Thank Yeah. Good you. execution. guys.

wireless driving question royalty, on a is if there headwind? end that headwinds, what market a is is the Just the that,

Charlie Janac

to additional it the volume, and of place make that royalties probably into know, So, it. lead to revenue. been So, the declining royalties as want get take and rising, adoption or sort have But Nick, shipped of been automotive more if a yeah, rise will I mean, royalty cars in this you the the I takes you automotive and don’t existing right? have designs take smartphone of basically

royalty stream be smartphone some our mixed-use royalties are So from actually and numerous ultimately, as recently will the we the pretty think reach which start we designs, of royalties, production quite on feel is will basis learning volume. generating the a takeover in there confident automotive long-term

Nick Hawkins

for Yeah. XX-plus different and more is zero, mean, to other all it, we remains There of The rising decline are time. there over interestingly you actually is big semiconductor on is in the decline e-mobility not we and OEMs. the right. One so stars and it exactly, -- spreads Xs put those to the our sort be said sort growing nicely. I getting stream. still are actually is quarter-over-quarter can very whether different HiSilicon, good it close, side name of are we consumer, mainstay a designs royalty it industrial would the automotive in Tier a But or XX-plus or a but it have players customers, and but across sure layers has

We have the all a verticals good and spread across of sub all them well. as across

nice other a do in, as side based from have streams position well. is we to coming it’s So but in or broad be broad-brush royalty such

Hans Mosesmann

competition helpful. very in on this are are that comment to to Are those efforts are out with that? guys accelerator who coming IP? is there that in-house just as follow-up can players BMW challenging similar or are that That’s other projects there going win And question, neural on project the the the a you that network you project, or on

Charlie Janac

for of shortage and internal kinds of difficult think increasingly can main the interconnect we interconnect one pretty competitor some I in so challenge of Arteris I or the what it’s But there think is two these -- of right? on hurdle out have of expensive But designs. the we customers that our of have our acquisition don’t think the of main a and So mean, situation kinds competitive prove I to internal, classes to that other becoming I the and I don’t suitable places application do really sales develop trying Yeah. these arm the the for one that favorable. was competitors, engineers, on situation, cycles right? other is really if get that’s for particular it’s obviously, is know this to whether to deal and is is because BMW over

Hans Mosesmann

Thanks. Great. Okay.

Operator

you. Thank

ahead. Srivastava Our from with Please next BMO. question go is Ambrish

Ambrish Srivastava

end related of had largely basis? could question going something mentioned you on much. be about very thinking like should a question, second to from China of else on you deals other. you the that after And And that then explain, there? of follow-up Is kind we ACV quarter it yes, royalties, or just had China moving a very is I sorry. the you talked Thank I the there that, go-forward very shutdowns on and in well-publicized quick a TTM Nick, seasonality because Hi. about how shutdowns for

Nick Hawkins

China take to you will Well, see, in speak with Great in situation But, the well. are hi, order. again. you Baltic, Ambrish. hope yeah, I terms them or of I

however, and is they day because that -- X signed, on question those our doesn’t to first be TTMR goes can the is customer on quarter of So X, the Generally actually, of ask Y, recently of of know outside I sort around you something, plus is the being steady. does the the our of Y. provide from the week such our it software we the it as quarter or you probably large ACV outside last delivered then licenses then from relatively day driven, and usually -- deals, point seasonality kind it’s that’s they end think day second in as day control, revenue It on shifting unless if first. as one week the by it time like of should totally move on of as If suffer we ask control, speaking, of adopted designed metrics. which does,

is get bit plus epicenter is have collaborate seasonality the unique, and of The strong set So shutdown out when is a has and slightly COVID QX, a stamp COVID fairly been this to to people by over still of is what and yes, always steady. have it’s we of There a reaction the contract. guess, know, the boost bookings, is our also you. it But of the I it a spread customers probably a because the China depending authorities always because work totally and -- epicenter severe. TTMR it’s gets quite really and to difficult on ACV subsequent but years the question in quite issue, that the course, it’s quarter they of Chinese is want you the particularly

deals have that, offices put everything gone because be chop cannot chop in it’s to our the have that just the if is we you away, we not people may no doubt, arm taking, the probably literally situations, get license, it on China, but as to situation. So, just where if follow know, basic those

anyway So that’s but what…

Ambrish Srivastava

Yes. Yes.

Nick Hawkins

really get China in What moving around.

Ambrish Srivastava

thing… Go it. the And other

Nick Hawkins

The other thing…

Ambrish Srivastava

Sorry, go ahead.

Nick Hawkins

to of more more color to that in if color. spreads number course revenue when we much so the The the evenly smooth of smooth, years, sort the spread. of the is because …just XXX add it’s some interconnect days done GAAP much have sale, revenue three is an days if over [inaudible] it’s license,

So you automatically get that.

have another of doesn’t of is question. more so an in same time a which unless point build, IPD it’s it So lumps sort revenue, have you software the

Ambrish Srivastava

to Yeah. the lumpy. tend made just -- I be did and the reason bookings course do to go explanation the sense makes it surprise XQ as which thinking you on glad and more Correct year. through But am then bookings that Actually correct… seasonality I your focus to am because because of and TTMR, a whole the is should seasonality answer not me, be of we that, ACV sense, because comment

Nick Hawkins

right. Exactly, Correct.

Ambrish Srivastava

it. Got

Nick Hawkins

Exactly, right.

Ambrish Srivastava

should it should that feel be, a the was up, comfortable being number, pretty mean, then feel supply it’s my revenues I you guide be that And situation Okay. pretty impacted are would be you alleviated but chain the do gummed by but quick comfortable being with the by then? follow-up small royalty annual

Nick Hawkins

are not Yeah. putting ourselves on I chain. silicon the as mean, out experts we supply

Ambrish Srivastava

Yeah.

Nick Hawkins

sense, me speak are sense follow much customers our the probably out what’s the rates a And There smarter all completely have of to the the that generally to that that it’s generally contracts sort and government. still we to to are do going get are give of still royalty in general on on signing solution foundries. increasing. strong the analysis. XXXX royalties, much, people interconnect we But sort But contracts, our we

if model quarters. on pretty at variable that’s it the from cautious The little out quarter we in in am nothing only strong. Q But how helps… out is a from -- is customers, the changing couple right play which perspective. our the look is first was next actually that now there So of our I to going are That units you

Ambrish Srivastava

prudently yeah thank so. -- Prudent Nick, you.

Nick Hawkins

Yeah.

You know me.

Operator

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

Gus Richard

am progress in Thanks know own made network taking Yes. chip And the good I am just wondering of design they question. you that on? that displacing or is and the any getting on activity OEM expect you designs market on automotive I the any would of have for I in Qualcomm any impact working are the other seeing having their a IP. Qualcomm

Charlie Janac

Yeah. Qualcomm I their nimble very on organization is network with internal a technology. mean, chip

automated every Nick competitor are our driving definitely the the unfold. as the automotive consolidation industry So in and and car SoCs they But that going electrification projections in market. a worthy mentioned, as is there is to XXXX be

And market going Qualcomm of their unlikely SoCs they as the so players their foreseeable in out share. so on our at such right? going are but and players they So, but share, there is future, how think other per are will to be will not many able will is tariffs get the impact their Mobileye, of those, -- others vehicle. given the curve the to some drive existing be NXP, capture least probably I major Qualcomm not to and to are take they But defend Bosch

Gus Richard

sanctions, early EDA are players too and potential in curious That’s a rising and the am impacting their away in it. if I And of there sort choice there going turning situation, to any and/or challenge also along so of, China, to it’s dynamics? you that’s well, very could customers interconnect pulls there is that thoughts self-sufficiency, arm China those any terms which to Got the but of helpful. from China U.S. then know be as about

Charlie Janac

Yeah.

be would So, quite not classify I have coming indigenously semiconductor that are complex we mean, mean any not technology would in and -- we the is not Arteris company. alternatives EDA I I market, as seeing market. we are the China the The are there company. from we IP

Nick Shanghai some temporary to with we that to to chops the contracts, that’s robust are in caveat which particularly continuing So, their but a access is in China activity mentioned, get customers, effect. see can validate

So not will be are space. the Arteris China IP we seeing threatening now position anything the will right from system be that that in IP coming

Gus Richard

and miss sorry for your it. business. Got characterizing Helpful

Charlie Janac

out Oh! people being them get the value communication -- the make of helping chip. chip work, but our is are and part of and have we chip actually IP software we allow from the Yeah. their lots communication being of the I in IP that our the get mean, actually to a part -- us be

Gus Richard

That’s Thanks. understood. from Totally Right. it me.

Operator

gentlemen, and back for I remarks. turn to session like we question-and-answer to the reached and closing Ladies you. Janac end Charlie would call have of Thank the the

Charlie Janac

Yes.

this an call and quarters the very years you at ahead interest time to IP forward and continue in momentum much. all be you Arteris and in is today to look come. Arteris we exciting our Thank our So for Thank your IP. you to the joining updating of in for

Operator

you. today’s Thank conference. This concludes

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

Arteris (AIP) 15 May 222022 Q1 Earnings call transcript