Yahoo Finance Arteris, Inc. (NASDAQ:AIP) Q1 2024 Earnings Call Transcript
Arteris, Inc. (NASDAQ:AIP) Q1 2024 Earnings Call Transcript May 2, 2024
Arteris, Inc. beats earnings expectations. Reported EPS is $-0.15, expectations were $-0.17. AIP isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, everyone, and welcome to the Arteris First Quarter 2024 Earnings Call. Please note, this call is being recorded and simultaneously webcast. All material contained in the webcast is sole property and copyright of the 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. Please go ahead.
Erica Mannion: Thank you, and good afternoon. With me today from Arteris are Charlie Janac, Chief Executive Officer; and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the first quarter ended March 31, 2024. Nick will review the financial results for the first quarter followed by the company's outlook for the second quarter and full year of 2024. We will then open the call for questions. Before we begin, I'd like to remind you management, will make statements during this call that are forward-looking statements, within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results, or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements.
Additional information regarding these risks, uncertainties and factors that could cause results to differ, appear in the press release Arteris issued today and in the documents and reports filed by Arteris from time-to-time with the Securities and Exchange Commission. Please note during this call, we will cite certain non-GAAP measures, including non-GAAP net loss, non-GAAP net loss per share and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP.
A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended December 31, 2024. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, confirmed design starts, active customers and remaining performance obligations, please see the press release for the quarter ended March 31, 2024. Listeners who do not have a copy of the press release for the quarter ended March 31, 2024, may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the Q1 2024 earnings presentation, which can be found in the Investor Relations section of the company's website under the Events and Presentations tab.
Now I will turn the call over to Charlie.
Karel Janac: Thank you, Erica, and thanks to everyone for joining us on the call this afternoon. We're excited to report a solid first quarter of 2024 with annual contract value plus royalties of $58.2 million. I'd also like to highlight that we delivered a positive free cash flow quarter, where we're reaffirming our target of achieving positive free cash flow in 2024. This quarter's success was driven by continued robust licensing activity across all of our verticals, led in particular by enterprise computing and automotive deals. As with recent quarters, the rise in artificial intelligence is a driving factor for our customers, with approximately half of our first quarter license deals, enabling AI and machine learning design starts, increasingly supporting generative AI and large language model applications.
We continue to expand our foothold, with large customers as 5 of our significant wins were with top 30 global technology companies. Each of these wins, with a major system and semiconductor companies, increasingly demonstrates the growing demand for commercial system IP vendors such as Arteris. We saw continued healthy design activity from our customers primarily in enterprise computing and automotive, followed by deployments for communications and industrial applications and consumer electronics. One of the enterprise computing wins in the first quarter, is one of our largest system IP deals with a top 10 semiconductor company. Specifically, it significantly expands the deployment of Arteris' network-on-chip IPs across a growing number of SoC designs.
This business relationship continues our trend of securing relationships with major technology companies that can be expanded over time. As of today, approximately half of the top 30 semiconductor and technology companies are Arteris customers. As mentioned earlier, growth of AI is fueling the increasing adoption of our Arteris products, which we believe are well suited to tackle the growing design size, complexity, performance, power and cost requirements of AI chips. As an example of this trend, we announced that Rebellions, a pioneering AI semiconductor startup in Korea, has licensed FlexNoC network-on-chip IP and Magillem SoC automation integration Software, for its next generation neural processing unit aimed at generative AI. Rebellions chose Arteris per IP and our software enabling superior performance and design flexibility, for their inference chips while meeting energy efficiency requirements needed to deliver cost efficient AI hardware computing at scale.
On the product front, our FlexNoc 5 network-on-chip launched in the middle of last year, continues to find solid adoption. This adoption spans across all our verticals and all of our main geographical markets from small to large customers. Building upon this momentum, we announced the release and immediate availability of the latest version of our Ncore cache coherent interconnect on chip IP. Arteris Ncore supports any processor IP, connects to Ncore supporting protocols, offering multiple protocols, flexible configurations, ISO 26262 functional safety and is utilized by Mobileye, a long-time customer who is at the forefront of the autonomous vehicle evolution. The expanded Ncore IP, also delivers on the previously announced Arm and Arteris automotive partnership.
Targeting a broad range of automotive designs, from microcontrollers to autonomous driving chips. Collaboration results in pre-validation of Arteris Ncore, interconnect IP, integrating with and supporting various Armv9 based processor IPs for automotive semiconductors. The aim is to enable next generation of automotive electronics, including advanced driver assistance systems or ADAS, cockpit and infotainment systems, vision, radar, LiDAR, body and chassis control and more. By optimizing and pre-validating Arteris Ncore network-on-chip to work seamlessly with Arm's latest processor IPs, customers benefit from accelerated path to high performance, power efficient and safe automotive SoCs. Speaking of automotive collaboration, at the recent Automotive Computing Conference, Mercedes Benz presented a vision for standardization of automotive computing and multi-die chiplets supported by partners including Arm, Intel Foundry, Synopsys, Renesas, Arteris and others.
We are excited to be partnering in pioneering a reference with Mercedes Benz for its network-on-chip, and last level cache implementations as part of the ADU platform, addressing a full range of autonomous driving applications. Another collaboration in the first quarter, included expanding our RISC-V ecosystem support, to help offer on-chip connectivity for companies deploying the Damo-XuanTie processor IP in their SoCs. This collaboration underscores Arteris capability to support processor choices made by our customers, including the support of both Arm and RISC-V processors on the same SoC. Currently, certain macroeconomic dynamics, including geopolitical uncertainties and the U.S. BIS restrictions concerning China, U.S. trade, continue to impact our business, though we are not seeing further deterioration at this time.
While these dynamics do create near-term headwinds, we believe that the scale and scope of our long-term opportunity remains robust, supported by a strong product pipeline of new system IP technologies, and solid relationships with some of the largest electronics companies in the world, who continue to innovate in exciting areas such as generative AI and autonomous driving, using our Arteris system IP technologies. With that, I'll turn it over to Nick, to discuss our financial results in more detail.
Nicholas Hawkins: Thank you, Charlie and good afternoon everyone. As our review of our first quarter results today, please note I will be referring to GAAP as well as non-GAAP metrics. A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. As a reminder, I will be referring to the first quarter 2024 earnings presentation, which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Turning to Slide 4 of the presentation. Total revenue for the first quarter was $12.9 million, down 2% year-over-year, but up 4% sequentially, and above the midpoint of our guidance range. If we take into account the change to ratable revenue treatment in the second quarter of 2023, the year-over-year revenue growth would have been 16%.
At the end of the first quarter, annual contract value or ACV plus royalties was $58.2 million, also above the midpoint of our guidance range. Remaining performance obligations or RPO at the end of the first quarter were $74.7 million, representing a 30% year-over-year growth growing to the highest level we have ever reported, and reflecting a solid quarter in terms of new license deals. GAAP gross profit for the first quarter was $11.5 million, representing a gross margin of 89%. Non-GAP gross profit in the quarter was $11.7 million, representing a gross margin of 91%. Now moving to Slide 5. Total GAAP operating expense for the first quarter is $20.6 million, compared to $20.3 million in the fourth quarter. Non-GAAP operating expense in the quarter, was $17 million up 1% sequentially, but 4% lower than the first quarter of 2023, reflecting the team's continued focus on prudent management of our operating expenses.
We'll continue to limit spending to strategically critical areas, while investing in profitable revenue growth. GAAP operating loss for the first quarter was $9.1 million compared to a loss of $8.8 million in the prior year period. Non-GAAP operating loss was $5.3 million or 41% compared to a loss of $5.6 million in the prior year period. Net loss in the quarter was $9.4 million, or diluted net loss per share of $0.25. Non-GAAP net loss in the first quarter, was $5.6 million or diluted net loss per share of $0.15, based on approximately $37.7 million weighted average diluted shares outstanding. Moving to Slide 6 and turning to the balance sheet and cash flow. We ended the quarter, with $53.4 million in cash, cash equivalents and investments.
Free cash flow, which includes capital expenditure, was positive $300,000. This was above the midpoint of our guidance range and in line with the company's goal, to be free cash flow positive in the current year. I would now like to turn to our outlook for the second quarter and full year 2024 and refer now to Slide 7. I would draw your attention to the fact that our guidance methodology has changed, to guiding operating loss and free cash flow in terms of dollars instead of percent of revenue. For the second quarter, we expect ACV plus royalties of $58 million to $62 million, revenue of $13.2 million to $14.2 million with non-GAAP operating loss of $6.5 million to $4.5 million. Non-GAAP free cash flow of negative $1.4 million to positive $1.6 million, reflecting strong sales in the first quarter.
For the full year 2024, our guidance is as follows: ACV plus royalties to exit 2024 at $62 million to $68 million, up 16% year-over-year at the midpoint; revenue of $54.5 million to $57.5 million; non-GAAP operating loss of between $23.4 million to $19.4 million; non-GAAP free cash flow of negative $2.4 million to positive $2.6 million. In conclusion, we are encouraged by the strong start to 2024, in our top line and our effective cost management, which has resulted in above guidance performance in all financial metrics for the first quarter. I'm particularly encouraged by the positive free cash flow generated in the quarter. We aim to maintain this momentum for the remainder of the year. With that, I will turn the call over to the operator to open it up for questions.
Operator: [Operator Instructions] Your first question comes from the line of Matt Ramsay from TD Cowen.
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