Arteris(AIP) - 2024 Q3 - Quarterly Results

Executive Summary & Highlights Arteris reported strong Q3 2024 financial and business performance, highlighted by record ACV plus royalties and positive free cash flow, with increasing market traction Third Quarter 2024 Financial Highlights Arteris reported strong financial performance in Q3 2024, achieving record Annual Contract Value (ACV) plus royalties and its third consecutive quarter of positive free cash flow. Revenue increased year-over-year, and Remaining Performance Obligation (RPO) reached a new high Third Quarter 2024 Financial Highlights | Metric | Q3 2024 (in millions) | Q3 2023 (in millions) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Revenue | $14.7 | $13.3 | +10.5% | | ACV + Royalties | $60.5 | $57.1 (implied from 6% growth) | +6% | | RPO | $78.4 | $62.7 (implied from 25% growth) | +25% | | Non-GAAP Free Cash Flow | $1.1 | N/A | Positive | | Operating Loss | $(7.9) | $(8.5) | Improved | | Non-GAAP Operating Loss | $(3.3) | $(4.5) | Improved | | Net Loss | $(7.7) | $(8.2) | Improved | | Non-GAAP Net Loss | $(3.1) | $(4.2) | Improved | | Net Loss per Share | $(0.20) | $(0.23) | Improved | | Non-GAAP Net Loss per Share | $(0.08) | $(0.12) | Improved | Third Quarter 2024 Business Highlights In Q3 2024, Arteris expanded its market footprint by increasing adoption with existing top-tier customers, broadening its strategic focus to microcontrollers, and enhancing its product offerings with NoC tiling for AI SoCs. The company also secured new customer wins and strategic partnerships - Increased adoption of technology with existing customers, including a top 5 global technology company expanding deployment for high-performance AI SoCs and chiplets[4] - Majority of license dollars in the quarter came from top 30 global technology companies[4] - Broadened strategic focus to microcontrollers, expanding customer usage from complex SoCs to high volume MCU products[4] - Announced the addition of NoC tiling to interconnect products, accelerating design of AI SoCs enabling scalable performance, power reduction, and design reuse capabilities[4] - Selected by Tier IV for its intelligent vehicle SoCs, and VeriSilicon for its high-performance datacenter SoCs[4] - Expanded partnership with SiFive, delivering pre-verified RISC-V datacenter solutions[4] - Joachim Kunkel joined the Arteris Board of Directors and Ken Way joined Arteris as Executive Vice President of Global Sales[4] CEO Commentary CEO K. Charles Janac highlighted record Annual Contract Value (ACV) plus royalties and the third consecutive quarter of positive free cash flow, underscoring increasing traction with major technology customers. He noted growing demand for Arteris' high-performance, energy-efficient System IP solutions across Automotive, Enterprise Computing, AI, and micro-controllers - Reported a record $60.5 million in Annual Contract Value plus royalties[2] - Achieved its third consecutive quarter of positive free cash flow in the third quarter of 2024[2] - Majority of license deal value in the quarter was with top 30 technology customers, demonstrating increasing market traction[2] - The industry need for Arteris' high-performance commercial System IP solutions has continued to increase across verticals such as Automotive, Enterprise Computing, high growth horizontal vectors such as AI, and emerging opportunities like micro-controllers[2] Financial Guidance Arteris provides financial guidance for Q4 and the full year 2024, projecting revenue, ACV plus royalties, operating loss, and free cash flow Fourth Quarter and Full Year 2024 Guidance Arteris provided financial guidance for Q4 and the full year 2024, projecting continued growth in ACV plus royalties and revenue, while anticipating a Non-GAAP operating loss and positive free cash flow for the full year Fourth Quarter and Full Year 2024 Guidance | Metric | Q4 2024 Guidance (in millions) | FY 2024 Guidance (in millions) | | :-------------------- | :----------------------------- | :----------------------------- | | ACV + Royalties | $63.0 - $67.0 | $63.0 - $67.0 | | Revenue | $14.7 - $15.7 | $56.9 - $57.9 | | Non-GAAP Operating Loss | $(4.0) - $(5.0) | $(16.1) - $(17.1) | | Free Cash Flow | $(0.9) - $1.1 | $0.7 - $2.7 | Company Information This section details Arteris' core business as a system IP provider and provides investor relations information, including conference call details About Arteris Arteris is a leading provider of system IP, specializing in network-on-chip (NoC) interconnect IP and SoC integration automation technology. Their solutions aim to accelerate system-on-chip (SoC) development, enabling higher product performance, lower power consumption, and faster time to market for customers - Arteris is a leading provider of system IP for the acceleration of system-on-chip (SoC) development[10] - Their network-on-chip (NoC) interconnect IP and SoC integration automation technology enable higher product performance with lower power consumption and faster time to market[10] - The solutions deliver better SoC economics, allowing customers to focus on innovation[10] Investor Information Arteris announced a conference call on November 5, 2024, to discuss Q3 2024 financial results and outlook. Details for accessing the live webcast and replay are provided, along with investor contact information - Arteris hosted a conference call on November 5, 2024, at 4:30 PM ET to review its third quarter 2024 financial results and discuss its financial outlook[8] - A live webcast and replay are available in the Investor Relations section of Arteris' website[9] - Investor contacts include Nick Hawkins (Chief Financial Officer) and Sapphire Investor Relations, LLC[11] GAAP Financial Statements This section presents Arteris' GAAP financial statements, including condensed consolidated statements of operations, balance sheets, and cash flows for relevant periods Condensed Consolidated Statements of Operations Arteris reported a net loss of $7.7 million for Q3 2024, an improvement from $8.2 million in Q3 2023. Total revenue for Q3 2024 was $14.7 million, up from $13.3 million in the prior year period. For the nine months ended September 30, 2024, net loss was $25.4 million on total revenue of $42.2 million Condensed Consolidated Statements of Operations | Metric (in thousands) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Licensing, support and maintenance revenue | $13,507 | $12,084 | $38,799 | $36,926 | | Variable royalties and other revenue | $1,206 | $1,190 | $3,436 | $4,236 | | Total Revenue | $14,713 | $13,274 | $42,235 | $41,162 | | Gross Profit | $13,252 | $11,994 | $37,848 | $37,533 | | Total Operating Expenses | $21,171 | $20,447 | $62,342 | $63,426 | | Loss from Operations | $(7,919) | $(8,453) | $(24,494) | $(25,893) | | Net Loss | $(7,687) | $(8,153) | $(25,434) | $(26,328) | | Net Loss per Share (basic and diluted) | $(0.20) | $(0.23) | $(0.66) | $(0.75) | Condensed Consolidated Balance Sheets As of September 30, 2024, Arteris reported total assets of $97.7 million, a decrease from $102.8 million at December 31, 2023. Total liabilities were $95.5 million, while total stockholders' equity stood at $2.2 million. Cash and cash equivalents increased to $17.8 million Condensed Consolidated Balance Sheets | Metric (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $17,829 | $13,696 | | Total Current Assets | $62,780 | $58,430 | | Total Assets | $97,715 | $102,801 | | Total Current Liabilities | $54,218 | $46,402 | | Deferred Revenue, current | $38,991 | $31,537 | | Total Liabilities | $95,506 | $87,698 | | Total Stockholders' Equity | $2,209 | $15,103 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, Arteris generated $1.9 million in net cash from operating activities, a significant improvement from a $12.8 million usage in the prior year. Investing activities provided $2.9 million, while financing activities used $0.7 million Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | 9M 2024 | 9M 2023 | | :-------------------------------- | :------ | :------ | | Net Cash Provided by (Used in) Operating Activities | $1,911 | $(12,750) | | Net Cash Provided by (Used in) Investing Activities | $2,898 | $(3,323) | | Net Cash Used in Financing Activities | $(676) | $(2,335) | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $4,133 | $(18,408) | | Cash, Cash Equivalents and Restricted Cash, end of period | $18,217 | $19,015 | Non-GAAP Measures & Business Metrics This section defines and reconciles Non-GAAP financial measures and key business metrics used to assess Arteris' operational performance Non-GAAP Financial Measures Definitions Arteris uses several Non-GAAP financial measures, including Non-GAAP gross profit, operating loss, net loss, EPS, and free cash flow, to provide a clearer view of its core performance by excluding non-cash items like stock-based compensation and amortization of acquired intangible assets, and acquisition costs - Non-GAAP Gross Profit and Gross Margin: GAAP gross profit/margin adjusted for stock-based compensation expense and amortization of acquired intangible assets included in cost of revenue[18] - Non-GAAP Loss from Operations: GAAP income (loss) from operations adjusted to exclude stock-based compensation, acquisition costs, and amortization of acquired intangible assets[19] - Non-GAAP Net Loss: GAAP net income (loss) adjusted to exclude stock-based compensation, acquisition costs, and amortization of acquired intangible assets[21] - Non-GAAP EPS: Non-GAAP Net Income (Loss) divided by GAAP weighted-average number of shares outstanding for the period on a diluted basis[21] - Free Cash Flow: Net cash provided by (used in) operating activities less cash used for purchases of property and equipment[21] Other Business Metrics Definitions Arteris defines key business metrics to assess its operational performance and future revenue potential, including Active Customers, Annual Contract Value (ACV), Confirmed Design Starts, and Remaining Performance Obligations (RPO) - Active Customers: Customers with an active license agreement, indicating revenue potential through retention and expansion[22] - Annual Contract Value (ACV): Total fixed fees under an agreement divided by the agreement term, excluding variable royalties. ACV plus royalties includes trailing-twelve-months variable royalties and other revenue[23] - Confirmed Design Starts: Customer confirmation of new semiconductor designs using Arteris' interconnect IP, used to assess customer activity and future royalty revenue trends[24] - Remaining Performance Obligations (RPO): Contracted future revenue not yet recognized, including deferred revenue, billed and unbilled cancelable and non-cancelable contracted amounts[25] Reconciliation of GAAP to Non-GAAP Measures The reconciliation tables detail the adjustments made to GAAP figures to arrive at Non-GAAP measures for gross profit, operating expenses, loss from operations, net loss, and net loss per share for Q3 and 9M 2024 and 2023. These adjustments primarily involve stock-based compensation and amortization of acquired intangible assets Reconciliation of GAAP to Non-GAAP Measures | Metric (in thousands) | Q3 2024 GAAP | Q3 2024 Non-GAAP | 9M 2024 GAAP | 9M 2024 Non-GAAP | | :-------------------------------- | :----------- | :--------------- | :----------- | :--------------- | | Gross Profit | $13,252 | $13,523 | $37,848 | $38,594 | | Gross Margin | 90% | 92% | 90% | 91% | | Research and Development | $11,923 | $9,659 | $33,475 | $27,645 | | Sales and Marketing | $4,962 | $4,055 | $15,431 | $13,030 | | General and Administrative | $4,286 | $3,121 | $13,436 | $10,005 | | Loss from Operations | $(7,919) | $(3,312) | $(24,494) | $(12,086) | | Net Loss | $(7,687) | $(3,080) | $(25,434) | $(13,026) | | Net Loss per Share (basic and diluted) | $(0.20) | $(0.08) | $(0.66) | $(0.34) | Free Cash Flow Reconciliation For the nine months ended September 30, 2024, Arteris reported positive free cash flow of $1.6 million, a significant improvement from a negative $13.8 million in the same period last year, driven by positive net cash from operating activities Free Cash Flow Reconciliation | Metric (in thousands) | 9M 2024 | 9M 2023 | | :-------------------------------- | :------ | :------ | | Net cash provided by (used in) operating activities | $1,911 | $(12,750) | | Less: Purchase of property and equipment | $(274) | $(1,075) | | Free Cash Flow | $1,637 | $(13,825) | Legal & Disclaimers This section outlines the company's forward-looking statements, highlighting inherent risks and uncertainties that could impact future results Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, emphasizing that they are based on current expectations and subject to known and unknown risks and uncertainties. It lists various factors that could cause actual results to differ materially, including competition, net losses, market acceptance, ability to attract customers, R&D efforts, product defects, macroeconomic conditions, geopolitical conflicts, international operations, IP protection, regulatory risks, and security breaches. The company disclaims any obligation to update these statements - This press release contains forward-looking statements regarding future financial and operating performance, market opportunity, customer adoption, and market position[12] - These statements are based on historical performance and current plans, estimates, and expectations, and are not a representation that such plans, estimates, or expectations will be achieved[12] - Forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially, including significant competition, history of net losses, market acceptance of solutions, ability to attract new customers, R&D costs, product errors, macroeconomic conditions, geopolitical conflicts, international operational risks, IP protection, regulatory liabilities, and security breaches[12] - The company disclaims any obligation to update forward-looking statements in the future, except as required by law[12]