AIP - Earnings call 3 2023

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Operator

Good afternoon, everyone, and welcome to the Arteris Third 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 our 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

Erica Mannion

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

We call will questions. for open then the

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

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

copy do for press of this annual not over of XX, customers to who key XX, Janac. Listeners I design the definition In obligations, have in visiting starts, September Investor addition, the a the the such ended Relations quarter indicators as a for performance remaining the September may turn release ended quarter company's will section used copy the release a Charlie obtain see performance XXXX. of of the for please the and XXXX, now certain press contract value, by website. active CEO, call confirmed presentation

Karel Janac

million everyone customers deals for numerous companies. annual Thank addition existing a which X you, and with expansion third pleased and Erica, XX-month trailing customer quarter with contract of were royalties of $XX.X of chip customers, report We're plus new license this call X thanks the the to and value solid added joining on designs. to XX us XX We new top from global technology afternoon.

automotive, with pipelines design and projects incorporating applications. learning or many consumer across customers' machine SoC robust industrial electronics, computing, continue Our be communications AI enterprise to

Arteris. or their improve those to to IP augment are of commercial SoC system leading that who in costs chiplet to believe importance either system continues connectivity design market, to by bulk we internally the previously, vendors stated grow, companies today complexity, system IP have the commercial we develop As established Several schedules looking capabilities of outsourcing including their IP. as and increasing emerging such

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

system the top securing of top One wave the now foundational major some AI/ML semiconductor system intelligence artificial with and by IT The characterized third electronics, semiconductor deals Deals and machine commercial of of quarter enterprise IP quarter Arteris. half such products yet engaged as the licensing customers industry wins a engagements, applications growing company, is majority activity initial third quarter our as these computing, market with were deploy we evidenced another segments, only led demonstrate in design have of vendors used by of semiconductor historically another communications, these added proven all in automotive. strong of and AI/ML design is commercial wins the leader. are world's our design. is or learning internal licensing companies consumer from leading long-term in our demand relationship solutions. the willingness third in over enabling the core who Though across companies by Arteris relationships the to are

FlexNoc recently momentum, announced example we Arteris of in continuing an NeuReality's SoC. of the used deployment our interconnect As AI/ML Servers Inference

of of very an to As to that total was Server system density movement Inference applications. Server, and AI data essential provided for building the required connectivity such deploying The proof Inference new SoC of large This addressing Arteris NeuReality connected Arteris challenges support NeuReality part further AI NRX and this of of facing latency generate SoC solutions. ownership. amounts performance is that our provide improved part cost and is IP by their

with performance, memory Arteris of to accelerate IESE, of system large models, to accelerate ERM of partnership piece the the performance of AI development performance for a the improve reduce methods institute data area of move and and is coupled now development mutual engineering such as is those requirement. language customers IP, is framework, amount used in generative high leading AI of enable In and exploration to now applications, to with Fraunhofer research example bandwidth needed AI System electronics. SoCs. Another AI our expected The with puzzle the cost, customer and very a software and the critical Fraunhofer

consumer high-performance partnership silicon technology leading across this with on by services. highly design handsets, NOC optimized can highlighted driving, and our particular industry the top-tier We customers computing, AI, mobile more to electronic and also and SoCs, Through with our products. configurability provider advantage production deliver taking a of Arteris, focus semiconductor as players autonomous AlChip with networking of multiple success partnership of its and vision systems, announcement scalability, continued AlChip, verticals, efficiency, the of seeing are full including with

ranging IPs those continuous with I'm the partnership with RISC-V applications. often Semidynamics a several ARM providers working and together Arteris The specializes in was number deployed, providers, RISC-V SoC. We who X to provide is customizable a aims cores. provide center-oriented and various announced awards mention different including closely with are connected architectures processor high-performance by granted data seeing same X joint from a internal ARM high-bandwidth, with quarter. on recognized to risk and recently the growing solution processor IP AI/ML provided partnership Ateris' of during to innovation proud better

was in of NoC. XXth for the Business Arteris International in XX Awards, Technical X,XXX given among while FlexNoC Innovation the chosen Annual nominations first, X, countries. organizations over was The over from Year, Physically Aware

the X the update innovations the like SoCs Autonomous and our different ADAS, second NoC of driver release, over functional product of second driving technology Year, and and by autonomous was Arteris commercially at the available system given quarter. role safety. combine aware Breakthrough award, we X,XXX FlexNoC Vehicle the automotive believe AI The building an the from advanced Arteris' was physically and among chosen systems, Autotech Autotech we transportation only Breakthrough technology Technology for I'd which recent XX first end IP, innovation, which on and in which launched fundamental industry's industry's analyzes is countries. to of momentum Moreover, provide

all closure for we interest. XX-nanometer, Given customer effective the seeing physical growing below strong need for SoCs are

top We to customers, now several X X have FlexNoC shipped including technology companies.

XXXX out fourth addition, into in of adoption we are seeing the in customer quarter XXXX interest In years. growing and and FlexNoC X subsequent

quality Finally, system reached to silicon our has an billion solid management remain that XXXX macroeconomic important already foundation certification achieved ISO in including continue setting Currently, the I'm X.X certain for devices. growth pleased we further to with expand deployment, concerns, recessionary headwinds, and announce geopolitical the global as uncertainties portfolio and which we product milestone place.

U.S. lengthening BIS U.S. as as by the as Notably, cycles third raise softness the impacting with well impacted globally, restrictions sales smaller conditions China quarter, trade increasing our China market we further be capital. of to in to in continue the well of is as respect credit which ability globally. saw tightening customers to We

scope historically quarter. fourth these create headwinds, may by the that quarter. encouraged We're in and remains we While our robust. dynamics has strongest seeing the of scale fourth current our the opportunity we're The quarter been what near-term believe long-term

We the largest over pipeline of with robust of areas in companies electronics to such product and and Nick financial solid to results a turn new some who detail. the it have relationships system continue as AI that, discuss world autonomous IP in I'll in technologies exciting more driving. With our generative innovate to

Nicholas Hawkins

good and Charlie, you, Thank afternoon, everyone.

quarter, midpoint on the is to of and our $XX.X XX-month up our be ACV, today, non-GAAP contract is review At today's note I earnings end please $XX.X X% financials included Total million, results first GAAP the plus was metrics. I'll to revenue, year-over-year for the our As range. release, trailing which and guidance third other revenue third million. value, annual that the or available referring royalties A was quarter reconciliation exceeding of in website. of quarter non-GAAP

our Charlie to below quarter, midpoint softness As mentioned, coming plus guidance the see that the market China in increasing royalties of began ACV resulted third in the XX-month we trailing in range. in

and or diluted a of next compared NoC the was for expenses, in the loss weighted for the products. quarter XX% $X.X was million loss quarter for $X.X net investments areas. ago margin net gross next-generation improvement operating proactively million, $X.X operating ago share Non-GAAP year, loss to So profit per loss to Non-GAAP gross control into loss $XX.X $X.X of automation to going prior on Total quarter XX%. increase the or operating of continue year some of to million $XX.X the period. to primarily share not million and period. Non-GAAP or manage million Net software profit representing representing loss for a of a third shares cost was In gross quarter period the quarter year margin quarter, GAAP representing expenses quarter, X%, by million Chinese year-over-year the to $XX.X driven the a coupled far in or this million $XX.X the million $XX.X million was in in quarter a tight expense decrease operating OpEx seen compared continued million sequential prior million the the quarter million Non-GAAP with net period. $X.XX of per any compared based diluted loss the million was onetime will in million strategic year XX gross The $X.X was limited from GAAP $XX.X XX%. outstanding. investments we diluted benefiting million, compared $X.XX. was $X.X we fourth in SoC approximately was have $X.X GAAP the the IP and R&D in was to limiting credits. second in loss in market. in operating and quarter third of year integration $XX.X

with flow guidance. balance expenditure and our $X.X turn the equivalents like cash Turning cash cash, quarter in flow, ended investments. quarter. flow, operations million in the million, to used in the approximately I was the capital outlook the with which XXXX. would quarter approximately $XX.X line for in cash sheet fourth $X.X now Free includes and full and negative million Cash was year to to we

are the plus million flow into XX.X% royalties with expect of million and negative XX.X%, margin margin million, free non-GAAP recent trailing guidance loss $XX For quarter, negative Incorporated million fourth $XX $XX.X XX.X% XX.X%. we of to ACV this to non-GAAP cash to trends. operating revenue and to $XX.X X of of XX-month

in dynamics fourth First, the due in we demand anticipate the to China, continued softness quarter. within

quarter. closer alluded we Charlie project quarter. deal the pipelines the at same by activity which duration volume and given look are macroeconomic seeing fourth the signed the we time, encouraged as in our is environment strongest traditionally customers Second, But of at deals a take are what impacts timing, to, the in

are Given extend we seeing from of deals to customers cycles duration lengthen. the fluidity of some the interest macro own the design of their situation,

use our they align Arteris. demonstrates impact longer importance near-term how of is can we a it's technology. question view broadly design no their stickiness their and it as advised development At dynamic tactical on of cycle this whether While with the more stage, timelines. our a It favorable ACV, costs to this as

$XX.X of in full million, For Revenue the reflecting Chinese to economy. slowdown our year follows. $XX.X XXXX, guidance as is the million

our of revenue a exit plus in and have reduced XX-month margin expenses. operating operating at ACV XXXX result impact trailing of new to strong a expect than we revenue to fourth these additions While of prior guidance will with a $XX on quarter XX%, terms quarter seasonally million, recognition. million ratable royalties loss a RPO, of licenses result as XX% fourth relatively $X better to muted do as non-GAAP fully

achieving when expenses change control negative by referenced meaningful compared extent, primarily We goal XX.X%, previous savings to are I lesser Non-GAAP plans. the XX.X% XXXX to of cash operating a in driven to and working dynamics with flow of earlier. free in actively negative capital margin the the XXXX, to expected in industry continuing

Going collections alignment. to our keeping and XXXX, we costs are committed to in

As of the next we expect With over not open a questions. call to turn any year. to result, degradation do will our I position cash the meaningful that, up for operator

Operator

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

Matthew Ramsay

you wonder slower what's Thanks. detail much. the if on to your more Thank sense makes everybody. going about afternoon, different effect? in very a back Good royalties Or as little expand do of Would I China, China? turmoil, question the in economic at on it guidance given existing of talked you combination like that Huawei of flow part I they they can pay that in guess license be get a just bit was maybe some smartphones material those it that a old it on -- think big customers are the more again. the could Is you if, a it still silicon you I just inclined you the give see to situation. supply would given were is Is bit? new parts all and customer? slowness little on HiSilicon is both? deals some second If customers? than if, the Guys, then in bring might Charlie, political seems this us different maybe there. And programs all when it components, ship high deal in Or then in a China,

Karel Janac

major actions, particularly in One has a happened one sort BIS had Yes. the the is and We're X in things seeing China. companies that fairly happening in QX, China. on second of smaller the of that the half impact

get of But a fairly seeing. as that of the you've so France we That components, are export is has controls subject in export to some caused companies the number we're French the before, mentioned exactly terms that products other problem from implied. we're Now well diversified of our and as Chinese can't the because slowdown rules.

capital thing China. is there shortage that a other The in is

looking BIS access now and difficult the of in shortage Some difficult a fairly companies very smaller at have a the capital to capital. situation. you're China, Between

how are Tencent, the big Now would companies Huawei they I think Baidu, smaller figure difficult. to Alibaba, But okay. be like out more okay, much it's need. what get the companies, access will to they people for

As be it's it would in not it a far current if as it a place contract, If place is not HiSilicon old would be still current in processor. processor, the

Matthew Ramsay

Got it.

Karel Janac

question? the answer that Does

Matthew Ramsay

just little it's on it the follow-up give Yes, a Thank to does. unrelated could FlexNoC my more traction, bit a standpoint the eventual of uplift generation? versus for X. and what you're like more royalty Thanks monetization Maybe traction sort that And at you, an long monetization color. and the I license looking we here Charlie. of the the the kind Thanks. term with guess seeing. from is early of you question standpoint, prior are then detail breadth

Karel Janac

design the X early their estimate has FlexNoC has RTL verified about of XX% would for essentially to a of we so team of allows at essentially reduce during kind physically allows them place architectures very our iterations physical market. awareness, more ASP, bit be and in over essentially and effects of process. we're in major which in to and what turn this, that's Right. physical charge the which the to in innovation to customers on has which and and architecture a time a places that this seeing uptick terms design. physical number of effort number is Obviously, placed the the That

X customers. some in shipped and shipped in in was started immediately of the licenses licenses XX we June, this significant QX, X QX. very licenses But FlexNoC also have we a Now, toward to we shipped of unique number we -- QX. It end shipping basically few

a we ongoing buying and be to keep that uptake. XXXX the seems this And that's X the product of people for interest, satisfactory and so are that this think going in to evaluation basis FlexNoc continues robust, so quarter, something on is be quarter, pipeline pretty great in XXXX. and And fourth to also the an and

Nicholas Hawkins

Matt, Hey, this is Nick.

robust mean we more is seen your the bit royalties expect question moment And quarter, it's I and Just to as X of at in FlexNoC use a X We've pipeline also licenses little as FlexNoc on X for now. early which end far we've at have is very lot It's being from seeing land. already. And still rich that a days, which very some new also third automotive, a we also to X only stream X. used GenAI. of on royalty licenses a the those color a rich predominantly had are we're as of very goes upgrades seen. know. The interestingly, communications, deals in cases that royalty you extra

for Now is very course, expect that that, We earn a as far royalties to wouldn't royalty of is stream product nascent while. as concerned. a

chips a are of royalties, think early very will long, to but days. it's we We some AI start little very, in out. of seeing yield But but long a decent bit traction, ways the term, actually that's AI piece

Matthew Ramsay

both Thank it. Appreciate for you that.

Operator

of next Hans Rosenblatt. Your question Mosesmann comes from

Hans Mosesmann

guys. Hey,

it You platform next several number XX. automotive Specific pushed getting be in could licensing that much maybe based as engagements by the to the Is of changed guys XX, as Has years on that at indicated that over the automotive? have past all? dynamic out? SoCs

Karel Janac

Mobileye There are projects. the be going solutions, think such and interesting term keep We that tech over short automotive is own going years. their know The is. high opportunity and long in of pursuing continues good don't We major we there one continues players ADAS whether be NXP. down And number a success robust. next to whether to Automotive continued of pretty biggest as a having keep is the but we it's OEMs or to the No. opportunities to that, do dynamic to -- to the coagulate going term, single every Yes. answers automotive be to few very there. both XX a

Nicholas Hawkins

Nick. Hans, this is

to concentration, which the question, of other your which term which XX the whether we of sort look to unchanged. do do vehicle, of their I that terms part that is is think their plus, other really impacted up auto per the as is is designs think of for to somebody OEMs And about is or sort whether them. In chips isn't designs for own else longer concentration they

Hans Mosesmann

Or That's one are we there how And terms of outside in is then question. delays as well? doing look there Okay. last licensing helpful. non-China some If engagements? the of at business, China, that,

Karel Janac

at the for want say we significant having projects to before do would of amount our we're to looking internally. we're are some That's in people IP everything selected now I some seeing time, they at at, I companies build sort looking is what same success the where roadmaps. a their of would do outsource of will projects or Obviously, people say okay, do. -- that? would we next-generation want that larger are the for what system At are of looking they do these being products And

the U.S. in is of the was companies sort same but smaller had that note starts of we are a XXXX, sort I difficulty quarter. that in capital as basically companies, would number design there's other larger the unaffected. issue second The in which of QX, is the also

are the I shifts overall the there say I some think market, in While non-China would neutral. effects is

Nicholas Hawkins

start-up pivot the larger community a guys. it's to Essentially, away from Yes. the

of a not There's product from engage a number actually of designs. was question, sort has end the saw having that is remember. most to many, addition, of if new at some and number that a lot going actually your customers direct there's longer their is starts our different less. China. on they're as among impact QX. And in look to And as dynamics do take kind among engagements ACV of ACV that's Charlie the of that new And the at on. 'XX to there a of tendency is in of some you of vectors majors, But guide kind said, We their -- is on Charlie driving from tendency the, design that but out a a a the get the the that or revenue cycles. period. our is they're TCV annual, As other really the roadmaps But number with of customers It same. the longer. from and demonstrates used It's obviously for And to word, are stickiness cases, on of -- the is expenditure of A it we customer same okay following reduction some for intensity. the But importance generally quarter, just a for said, one design longer into customers means thing because in to pushing the their aligning QX longer. divided ACV, if lasts the and in prepared terms we're over the technology fourth to

Operator

comes Garrigan, question from next Capital. WestPark Your Kevin

Kevin Garrigan

taking my question. Thanks for

had in? Any that what was markets technologies. you give kind were weaker some starts were AI on Your that you? noted surprised color were of design XX robust. know XX starts. had Can And us design these markets I Hans' still that question, you noted you for automotive to

Karel Janac

in is generative of investment AI. Outside China, huge amount of -- not there The a really.

discussed for lower earlier, extensively GPU investing power and tailwind. with people query ASICs we in costs the query and are costs essentially quite generative That's are so that high technologies, a As AI. the big existing are lower

the the data in tailwind AI said eventually NeuReality were say learning. of think done a in a call for work And expanded data design. even designs to the strong, inference generative generative the AI I see the But that and of design Israel, this. of devices a AI is portable think like to would endpoints, is that talked center. lot we Generative this the at about earnings strong There's half center we've new those I which one on related being the of smartphones is were we like and designs I things least edge being XX quarter like about into designs. things machine to

Nicholas Hawkins

saw than here's is most over terms which the mixed at, intensity vertical the I quarter bit record enterprise looked half. in or obviously complexity, actually lot mean second these in get verticals where actually, we the the I of mean, kind up -- of good of sometimes. the That's A the a that AI/ML in to design half. terms But A starts design vertical you you compute horizontal at up where end look if was indication. starts. in bit popping your sense, obviously more horizontal. designs a We up of highest bit the on if QX, a of is is that

was second anyway. but of machine that's actually and automotive, The applications fairly within automotive there's learning typical a lot

Kevin Garrigan

you, kind of just increase about can basically in kind a quick then a future? That's increase And having kind of sense then And royalty to and opportunities at a us to follow-up, as rates? helpful. see rates you conversations can how that do the you Okay. the high your give of Got very it. level, the you those these go rates of

Karel Janac

take always growth royalty We in only lower Directionally, Yes, royalties I'll upwards. don't royalty increase is, increased really take that any The Kevin. functionality. rates, follow deals. are one, can

just rate likes royalty you. the increased of customer sort a get because don't You

functionality. have terms them to something in of give We actually

represents royalties higher for automotive of lot biggest total the newer consumer the and royalty and XX% old time, industrial. probably products. actually where communications you cellphones, having say like industrial. And of remember, certainly by And consumer. use followed smartphones, than the -- about in more see we're communications so the you'll richer the Or is stream of interestingly automotive and a rate XX%, richest, lot it or success if now is is over automotive A

Operator

next Your comes question Instructions] Jefferies. from [Operator you. Mark Thank Lipacis,

Mark Lipacis

it it of the want I right understood. enabling were caller. question year I just previous was -- -- that make as AI? the Was XX% the the to over I was sure licenses that Is the same -- last had

Karel Janac

quarter. This

Nicholas Hawkins

This yes, QX. quarter,

Mark Lipacis

have, but the end are you I'm the would you. that And are like design Or what these to is applications? the understand the closer what mostly come AI at what maybe this, day, I trying of into don't the they is wins center workload last think, AI if endpoints. of But all of kind that I centers? know Are to appreciate -- wins Charlie, for this the you have, are it. answer or the extent endpoint application design saw qualified you've smaller that endpoint? recently, to the you chips you going I to big in devices to cars to in data data the chips something just you the or versus seen the manifesting quarter, AI Thank go IoT started or

Karel Janac

or need are moved. that these would to designs. lot designs, so some that the going are expand wide an of AI endpoints, talk There's a and one to And chips. of for in of going center, IP into of X,XXX-bit that amounts but high-performance customers designs to the going we're data edge to data with The the it's things Those generative center. about we gaining to early was seen package we've is of going XX-bit, that created into are the experience did of buses center to because that activity those NeuReality because to data be for a incredible provide valuable and is the expand -- working able hyperscaler XL are to we The move these community those in that think people of to data generative one we be things NoCs allow we Yes. But our system designs. amount be kind allowed AI high-priced, others. low-volume that has Generative the there's data

some ability us just on transport And the to we're the types other people now again the of actually increase very evolving we're quickly into and that is for to so transformer for projects. these right applications. ASP are kinds provides demanding following providing from and slightly the so that architectures implementations, and very very, starting generative data those move of AI But

Mark Lipacis

Got you.

Okay. this, asking my I I'm That's very dropped. helpful. apologize And then line you and to if repeat

the Is again, environment started acceleration been longer you you're higher how there back -- there this the that current trend? back? internal. you. think I'd play to you larger talk And you starting could was or to seeing I something think you conviction play of solution appreciate Arteris about your gives term anyway. But part If the can that about that that story from to customers Thank has an are I it. macro of shift

Karel Janac

the Yes. the to investment out. takes want the to millions look we starting like asking, for is right? the and okay, of want for we if dollars, we that's it companies to you I number projects with what we But Arteris? of next-generation to the tens someone of And that to of kind that do basically an mean make those do it play investment do or new existing projects? we CFOs stick tens do to so, And go have system IP, are that at for of do want technologies,

had, large. a quarter, beachhead very was we nice company a internal. We one about XXX% of were did before. last that of almost got added was in them ones I fairly X penetration That's XXX% talked of We companies the there QX that have the have for one. think internal of of We We that kind and was deals. some

we're outsource environment of people tailwinds, system as macro this right, commercial such is that that. in are the of IP more one that's proven to seeing vendors to willing evidence And Arteris. the so And

Operator

for That the now turn the I you. our comments. over to Thank closing CEO session. call question-and-answer concludes will

Karel Janac

you for our forward and the Arteris quarter you look thank very we quarters. us on joining you to earnings third Well, for updating call, much. future Thank

Operator

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

Arteris (AIP) 7 Nov 232023 Q3 Earnings call transcript