Earnings call transcript Q4 2022

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Operator

Good afternoon everybody, and welcome to Arteris Fourth Quarter and Full Year 2022 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. Please go ahead.

Erica Mannion

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

the then open call will for We questions.

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

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

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

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

see as performance starts, press the release please the XXXX. certain of performance ended presentation in definition and quarter for confirmed design active a for value, contract XX, this of obligations, indicators remaining December key the annual used customers addition, In such

by visiting have company's the XX, of section may the for copy the not quarter of Investor the website. a XXXX do obtain who December ended a Relations Listeners copy press release

Now, call I will the turn Charlie. over to

Charlie Janac

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

We by XX during continue customers stars inception. over reaching design the Terra X IP since growth our billion year our in and XXXX, with shipped adding illustrated active systems connected XX by system SoCs and

demand in we total design progress confirmed semiconductor by the Demonstrating We continued our in quarter. XXXX. customer continued automotive for had electronics solutions, fourth in the licenses SoC our X a starts project closing automotive XX of

tourist in added our customers by strong automotive contributing and driven deals demand new applications. consumer to deploying electronics, for also all Arteris and year-to-year in of our XXXX XX% across customers by XX core markets industrial, communication the and the by enterprise We computing, quarter, in were increase led IP. products followed particular

designs. automotive Tier momentum Besides In also QX, where numerous strong technology China, to vehicle next-generation continued IP semiconductor OEMs, Xs our was to including for OEMs, see automotive sales we also Arteris terrace and companies. with electric licensed in we saw

and met example, advanced driver for These as ensure systems, such For microcontroller Telechips quarter solutions. solutions Arteris solutions MCUs. fourth when IP area help requirements automotive the units, business licensed advanced security Telechips to new are assistance in ADAS, designing

with SoC edge the solutions require to including growing typically learning X product markets. power advanced Arteris and edge machine for accelerate To for markets. connectivity. tend also the best-in-class for applications end, increasingly designs IP that the to up processor and SoC safe be innovation low excited getting a devices. Besides power SiFive partnership IP to advanced risk automotive, connectivity, or to AI industrial for applications we're announced innovative electronics more products Arteris risk in require them and leading SoCs and speed high-performance and smart for other electronics, electronics automotive Arteris SoC interconnect technology network-on-chip are ARM and Advanced choice that The use that continue sophisticated network SoCs on-chip consumer

Turning product portfolio. to our

and We about new FlexNoC X our are very excited XX innovations acquisition. the

engineers we network-on-chip Over physical the SoC at the design XX-nanometer layout a on and schedules. aware technology technology. iterations, connectivity effects semiconductor which impact driven went this many unique years, growing have our ramp-up, patented a last and To beyond network-on-chip several started new X-nanometer associated with project announced X-nanometer face, have starting physical causing process IP increased impact to manufacturing physically designs with how by FlexNoCX challenge, customers address growing SoCs

our electronics, in and validation of IP to other up verify fourth enterprise enterprise quarter, and is in driven that the hardware, hardware computing, is computing, effectively technology SoC and solutions leading and to derivative generation every interface we industrial is SoC providing semiconductor communication, of the automotive, physical across automation, customers document, helping registered design, the of manually convergence Xx companies leader for management with electronics, Semifore new a to customers essential applications. the automotive, and and faster system by technology. used software interconnect core integration by and used Continuing across fifth software The expand consumer iterations physical provides communications, acquired designs to scope our Semifore, efforts over consumer applications.

our integration convergence. IP providing and on The SoC allows IP addition by development, customers our deployment and to solutions network which chip in SoC hardware, Magillem of critical expands Semifore turn our accelerate a layer, and automation complements both software

Semifore and accelerate designs. SoC to our With their the new able expect innovation customers be acquisition, we to FlexNoCX

improving to hardware and SoC schedules integrate We the overall reducing physically while redesign. better project SoC and economics and connectivity of IP software risks costly aware are layers,

in from We're are U.S. uncertainties global headwinds of the we seeing discussed, previously regulations particularly to As tightening first seeing respect macroeconomic China half U.S. trade. and XXXX. with recessionary also the impacts, BIS short-term

innovate to as IP. such turn electronics, make With that, Nick applications more driving automotive, results for our use positioned detail. all to as discuss economic continue is over progress to in in even well our areas challenging this consumer learning that Arteris I'll across financial and of system to However, we need commercial in believe machine it the customers environment

Nick Hawkins

Thank Charlie, afternoon, good everyone. and you,

As XX% that our financials fourth referring the HiSilicon start and in included please earnings will which I will revenue XX-month the other quarter results DJI exclude and our on quarter. the release, A when I and to adjusted summarizing available review is non-GAAP the full non-GAAP fourth note of royalties $XX.X be quarter year to plus today, website. million. metrics. to our by up Charlie key $XX.X was as of for fourth I reconciliation GAAP results trailing for quarter, today's revenue ACV end At was Total mentioned. fourth year-over-year million, is

Non-GAAP and with awareness $XX.X operating increase the prior profit customers was Total million to in margin million $XX.X Non-GAAP partners. and for the gross sales year operating for combination a of expense a in drive compared of representing the compared and by quarter investment $XX.X quarter Gross prior representing was to XX%. profit the gross million was million, $XX.X $XX.X year in primarily XX%. strong margin product a of period. marketing was engagement quarter to expense driven was strategic gross million, fourth for $XX.X the million period. The

Non-GAAP to Additionally, operating in fourth the driving Non-GAAP for Operating average on loss million compared expense. continue leverage a loss quarter million diluted Net the period. of million or million quarter loss loss in the loss products for $X.X G&A outstanding. loss compared net net invest or per was diluted of year $X XX.X% $X.XX XX.X based operating ago we quarter of of year to diluted shares significantly million share $X.X in $X.XX. weighted in ago share was or period. loss $X.X the $X.X the next-generation million a while certain net to million was approximately loss for was $X.X per

or flow. to for the flow quarter balance ended Turning quarter, $XXX,XXX negative cash, X.X%. in free flow the expenditure while sheet was capital Cash cash million approximately used and was operations with $XX.X approximately $XXX,XXX which cash and equivalents, in investments. cash the includes We

results. XXXX our Total $XX.X up representing compared million year in year-over-year, to royalty $XX gross to million for expenses $XX.X and operating Total XX%. $XX.X of revenue margin on was strong reflecting XXXX the was IP annual licensing were million, revenue. for Moving profit growth across ago XX% million, Gross period.

Non-GAAP operating operating ago year in $XX.X the the was or million Non-GAAP million a year year to the to million in $XX.X of period. $XX.X from loss million a expenses million a ago The due was [XX.X%] were expected costs of public company. period. in of loss loss period. ago increase from primarily increasing was $XX.X compared incremental $XX.X million, loss $XX.X the Operating increasing

revenue. We XX, as of RPO revenue. $XX.X derived revenue performance part are RPO recognition, defers ratable many which as a future XXXX. of our operating the Our subscription-based portion December of losses million obligations or amount contracted was from define

full or XXXX operations on in diluted in of XX.X%, basic received Cash as the approximately was flow outstanding. a turn I'd capital $X.X like million loss includes basic and diluted $X.XX million for or our share to of loss XXXX, per and year $X.XX. expenditure based net XX.X earlier million average $X.X in of net million result timing customers. million was outlook of negative loss Net flow, loss guided, cash $XX.X quarter from which XXXX. better while free the Non-GAAP and cash weighted million shares than used or $XX.X was was favorable per which share partly previously first a now net was $X.X to

of customers XX.X% early to quarter loss $XX partly $XX.X flow mentioned XX% in expect For million the plus fourth we of free non-GAAP XX-month to that quarter, $X.X and cash first million payment from non-GAAP million revenue XX.X%, I XX% XXXX trailing million earlier. negative resulting $XX royalties $XX.X negative margin from the to to the of with and ACV of operating of million margin

million plus revenue of year, exit million and flow free concentration to full trailing to of to million. the loss negative the margin to XX-month negative For XX.X% reflecting XXXX $XX the flow operating margin into first we $XX.X free royalties non-GAAP quarter. cash million; ACV cash negative XX.X%, XX.X% of of at non-GAAP to expect $XX.X X.X% $XX

to Finally, statement $XX attention in of or $XXX aggregate to million, a up maximum for supplement that ATM operating from draw I SEC of offering price with self-registration aftermarket filed your million. a November would we prospectus an including the

We do the stage, ATM have to this price stock at so and have no current I at not the activated levels. intention

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

Operator

[Operator Instructions]

Erica Mannion

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

Operator

Our is Hans first Securities. Mosesmann Rosenblatt question from with

Unidentified Analyst

This automotive, is Could the And [Mack cetera? Clain] in between mix learning and as the engagements please communications, machine on you licensing et for well. have provide follow-up I a Hans. of quarter

Charlie Janac

want you take take you to want me do one? it? Nick, Or to this do

Nick Hawkins

Yes.

Consumer Enterprise So something the XX%. roughly. is rest it And automotive and roughly XX%. then around then are is probably X%. of about somewhere XX% like royalties

Unidentified Analyst

expand helpful. Okay. And trend then if just be deal general on the the That's for lastly, very just that helpful. would you overall, could

Nick Hawkins

Yes.

up, learning GPT machine coming unforeseen in models. are the progress excited So the about But number of automotive also new automotive and for learning. to are And applications are machine excited also be we ASICs continue our for to that language royalties ASICs the for nicely. a we We've We've a chat the -- year. space be are There the automotive added strength. by some continues very applications. large quarter including customers growing exciting for

a of terrestrial So there be work both space orbital lot on seems and to in applications. going

Operator

from Instructions] Auguste next Our with question [Operator is Richard Northland.

Auguste Richard

that was a be integration product it the could stand-alone little your a just some how about separate if bit I Semifore, product? wondering Or portfolio? existing you Is with Charlie, into and there talk will suite? fits product

Charlie Janac

Yes.

extremely and you very does, high product what that high capacity. register extremely basically is know, Semifore it a performance, there capability as so is high is -- So fast management

bridges management line. the So to product we capability also have management in

be to we side. products. over separately increasingly them are the next-generation long going sell the by So for our into to term, the integrated Magillem plan initially, But management Semifore is, side register

So stand-alone, the medium term, in term. it's short a integrated

Auguste Richard

ASP are is customers? filling then along far for that this And product? the an FlexNoCX, And that there on selling how you or to in new uplift

Charlie Janac

Right.

awareness physical significant in capability physical a So the ASP FlexNoCX essentially has integrated compared and is that it uplift awareness. the to FlexNoCX has -- without

customers So far we revenue as are projects. product the who a have early on from is -- they and so in we their delivered do several product anticipate uplift test access that to feedback providing a that it us

access customer stage in installations. the FlexNoCX, have but we we're with the early So

Nick Hawkins

just And terms I that mean, customers, adoption. that to add are if in expect about it's impact, access see the ASP where The at in early can from revenue you I accretion excellent color of some answer. some to and the customer we uplift. through talked There of second half sort

Auguste Richard

one prepared you impact and you expand wondering bit how macro creating that's a from the it. was headwind just And comments, I last the just talked term? me. on Got headwinds issues bit about then kind if In the of the of trade of us and a a could sense a give you much for of short some little that little in of and and China your for the

Charlie Janac

Yes.

to There's also see continued macro in for driving, the learning developing machine-to-machine in strength customers car applications investment new communications tailwinds, continue our by yes, electrification, there business, center headwinds. data we are some So mean, XG. based but and macro definite and we on edge see machine some automated I and

seeing number are in investing recession. starts. of of we're steady our designing relatively customers So their And general, in way a design

there products. design on fine engineering based tailwind unit our just volumes be new to could somewhat seems turn be that customers might royalties to on be reduced. The as So while some starts

Nick Hawkins

the add about. We're we call, remember I away true point QX well, color as the from answer. talked a Can and out as estimated QX for you are sorry, on that. back BIS-related numerical thought. we been we 'XX. headwinds to in have earnings that very expected referenced And and then talking that impact what revenue about in -- a not to that if The to real, China that X% you is FY overall result But headwinds, backing 'XX some very of

the impact don't some. definitely know yet there also haven't seen We because is full we

'XX. And which is $X top million inability so like to negative impact ship is And by $X of our that volume. have something million million, that, customers we on sort itself impact royalties $X of a a on just to of of

shouldn't point, to those like $X -- together so a it's of sort are short it be which million term. is that news X impact, $X And but huge million at

as So recover well. as will the -- whole and royalties will volumes the China recover will situation China recover

Operator

with And question from BMO. is Srivastava final our Ambrish

Jamison Phillips-Crone

on This is Ambrish. for Jamison

brief just So I just ones. have a of couple

are taking macro more place I'm So just headwinds. It least at first expecting talking these half. kind like you of about so or the seems curious, half than the back

should we flat at of then should expect the XXXX in looking terms versus So half acceleration we in relatively revenue? half back a of growth XXXX, the expect and first an

Charlie Janac

that's saying. what Yes, we're exactly

going when nail been other but have So are it's what line don't with in out things these headlining of people And recently. head. not semi-space broadly know exactly the the hit to we you improve, on

Jamison Phillips-Crone

clarify to other the just Okay. then It's I Perfect. margin. want gross And one thing.

step is by in gross not I increase down is in we where something that are at still case I be a some least year you step through anymore seasonality your something XQ. we that largely you Is should margins, modeling followed there before -- the that first the Or as down quarter might mentioned a gradual that especially continue that be guess revenues? grow past, to is have the in think in expecting? the

Charlie Janac

and We don't related field question. of of answer engineers. the linearly our revenue actually It's obviously mathematical great [file] revenue those bulk hire is a cost Yes. course -- application with And It's -- a of to one. the we our vast numbers. is

vice over same versa FAEs high had spread amount are we smaller you revenue quarters when revenue. than lower have of of as a the dollars revenue and So

see and low high typically, margin higher gross you'll So revenue lower quarters. gross quarters margin in in revenue

So QX -- revenue a and is low out, as relatively you rightly point quarter.

be a So than plus minus bit minus the quarter-to-quarter would normal. typically X%, is Plus margins little or lower X%. or

Operator

question next is Cowen. with Potasnick Our from Ethan

Ethan Potasnick

a heard. Matt cash about, should for guess, have the Ethan This of question I We've throughout had Ramsay. seen year and use OpEx Potasnick on how we But you on companies are I lot is think underway? prudent initiatives kind tighten are guess, versus the growth of, of kind kind currently balancing that belt. a of some the of how I of staying we

Nick Hawkins

Yes.

give us flow. free cash color me OpEx a bit let and So little of around

XXXX, continuing all now not our G&A to flat has throughout the expecting been has grow added we particularly at OpEx, we're for in have were So Marketing a forward. increase but The to fourth Sales year. flat. relatively quarter, going that in engineering. about been we to

the So any above in and -- is rate really in real in exit OpEx the products into growth next-gen R&D. over XXXX

which we've NoCX you throughout that talked until impact example, the marketing, out have we've of increasing substantial as the which year. engagement, increases that half have quite and with higher the we it the digital earlier second we of doesn't and the into marketing have some reflects invested it after pointed -- OEM about OEM our that of future to we that some then the and the then course, sequentially sort revenue you in speak even marketing, in. for heavily not announced then [SPs] in all customer But -- certain And in into -- about, in marketing, as positioning So partnership positioning kick a OpEx quarter-over-quarter And space. part we the more is on saw expect upside we automotive that was the product have customers. results

-- flow. mentioned you cash And you mentioned then

account XXXX, is would part we which around people the weren't how this of negative same take of I will mean, advanced expecting payment to you from have that, the go you you the So ask death $X.X also how million. right negative lot that can X% a -- question, science into flow? X% so -- have -- which I customers, a at guided we of a cash on free from to have --

underlying $X.X exactly So XX.X%, negative guidance for which we in is million the that line actually negative reported the for XXXX, year. a our QX full actually was with

XXXX end to If add in you negative up that had of X.X%, then we should negative we XXXX, have what back instead X%. with

underlying is negative of in quarter, really, And from is flow that see of flow, approximately majority can negative you rest in first first be flow puts very cash So -- think, of in as X%. XXXX, then of you've relatively and free -- improvement is to positive guidance the terms place, XXXX taking which negative which negative place which cash an us to cash and a flat flow the the XX.X% be $X quarter million to guided for XX% cash the from XXXX thereafter. therefore, neutral got good during we

Ethan Potasnick

aware has are Okay. Got discuss interest But guess, you the the this the that I if I the visibility. of I kind seeing, bit or if out But a downward team year of was shipments wondering areas have missed a you're in terms full and significant maybe maybe in where more there's Obviously, accelerated in pressure it. I'm may Q&A. admittedly detail. I could beginning of outlook royalties. areas parse there little

I bit fleshed So to that little a curious more. would hear be out

Charlie Janac

sort mean, on a pointed Nick modest impact bit headwind there. China, right? So of I a seeing of as Yes. from rate growth our we're a out,

in is customer continued strength some to applications hand, that and creating be other machine requires coming the There base that new up new that automotive. our both are exciting in On excitement designed. are learning silicon

headwinds. and tailwinds offsetting there's think I So

impact have consumer, so strength on in strength in machine automotive, And you learning.

Nick Hawkins

on directly by for shipments point board. across your the XXXX Yes, are Their from to on directly And and [all semis. Volumes early recessionary fact, are pretty because royalties in unit in that are down much impacts impacts recessionary impact. XXXX impacted the] royalties. -- saying certain question

royalties our And as in we're recessionary in model of that royalties. because But impacts -- we're is designed the impacts do proceed course, our so so directly strength of because designed those then accelerate.

on into some that out would So and expecting royalties still point thereafter the half a and second XXXX beyond. in automotive of I royalties acceleration we're are in tear. significantly

now, probably particularly, seem You area that well. is does one be still automotive suffering doing the very right noticed to that not

more so doubled than And the X last years. royalties our now in automotive has

to and that So the new deals design-ins. new you idea adding an give of scope the just of increase, we're all time,

Operator

at There conference. today's your Instructions] time. are can participation. conclude this you, We no questions [Operator for everybody, more Thank

time, You have may your wonderful and disconnect this at a day. lines

Arteris (AIP) 28 Feb 232022 Q4 Earnings call transcript