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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 rates reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Arteris
Thank you, and good afternoon. With me today from Arteris are Charlie Janik, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the fourth quarter and full year ended December 31, 2022. Nick will review the financial results for the fourth quarter and full year, followed by the company's outlook for the first quarter and full year of 2023. We will then open the call for questions. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of the 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 our terrorists issued today. and in the documents and reports filed by our tariffs 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 that they provide investors with a 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, 2022. 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 December 31, 2022. Listeners who do not have a copy of the press release for the quarter ended December 31, 2022 may obtain a copy by visiting the investor relations section of the company's website. Now I will turn the call over to Charlie.
Charlie Janik
Thank you, Erica. And thanks to everyone for joining us on the call this afternoon. We're excited to report a strong finish to 2022 with annual contract value plus trailing 12-month royalties of $52.4 million, up 22% year-over-year when adjusted to exclude high silicon and DJI as discussed in previous calls. We continue our growth in 2022, illustrated by adding 38 active customers and reaching 82 design stars during the year and over 3 billion systems shipped with SOCs connected by our TerraSystem IP since inception. We continued our progress in automotive semiconductor electronics by closing eight automotive customer licenses in 2022. Demonstrating the continued demand for our solutions, we had a total of 24 confirmed SOC project design starts in the fourth quarter. We also added 14 new customers in the quarter, contributing to the 20% year-to-year increase in customers deploying Arteris IP. 2022 deals were driven by strong demand for Arteris products across all of our core markets, and led in particular by automotive and consumer electronics, followed by enterprise computing, industrial, and communication applications. In Q4, we also continued to see Arteris technology sales to automotive OEMs, including in China, where Arteris IP was licensed for next generation electric vehicle designs. Besides OEMs, we also saw strong automotive momentum with Pier Ones and numerous semiconductor companies. For example, Telechip licensed Arteris IP in the fourth quarter for advanced automotive solutions. These solutions help to ensure security requirements are met when designing Telechip's new business area solutions such as advanced driver assistance systems, ADAS, and microcontroller units, MCUs. Advanced SoCs require best-in-class network-on-chip technology for low power and safe connectivity, and we're excited that the Arteris products continue to be the leading choice for high-performance, innovative solutions in the advanced SoC automotive markets. Besides automotive, other applications are also getting more sophisticated for growing AI and machine learning electronics, including smart edge devices. The advanced SoCs that power them typically use ARM or RISC-V processor IP and tend to increasingly require Arteris network-on-chip interconnect IP for SoC connectivity. To that end, Arteris and Sci-5 announced a partnership to accelerate RISC-V SoC designs for edge applications to speed up electronics product innovation for consumer electronics and industrial markets. Turning to our product portfolio, we are very excited about our new FlexNoc 5 innovations and the 74 acquisition. Over the last several years, as semiconductor manufacturing process technology went beyond 17 nanometer, with many new SOC designs starting at 5 nanometer and increased 3 nanometer ramp-up, the associated physical effects have started to impact how engineers design SOCs by causing physical layout driven network on chip connectivity iterations, which have a growing impact on project schedules. To address this growing challenge our customers face, we announced FlexNOC 5, physically aware network on chip IP with unique and patented technology. This fifth generation of our core interconnect technology provides customers with up to five times faster physical convergence over manually driven physical iterations for new and derivative designs across automotive, communications, consumer electronics, enterprise computing, and industrial applications. Continuing our efforts to expand the scope of IP and SoC solutions, in the fourth quarter we acquired Semifor, a leader in hardware software interface automation, providing register management technology. SEMIFOR is used by customers to effectively design, verify, document, and help in the validation of the hardware-software integration that is essential to every SOC and is used by leading semiconductor and system companies across automotive, consumer electronics, communication, enterprise computing, and other applications. The addition of SEMIFOR complements both our Magilum IP deployment automation and our network-on-chip IP, and expands our SOC solutions by providing a critical SOC integration layer, which in turn allows customers to accelerate hardware, software development and convergence. With the new FlexNOC 5 innovations and SEMIFOR acquisition, we expect our customers to be able to accelerate their SOC designs. We are physically aware IP connectivity and to better integrate SOC hardware and software layers, improving the overall SOC economics while reducing project schedules and risks of costly redesign. As previously discussed, we are seeing short-term macroeconomic uncertainties and global recessionary impacts, particularly in the first half of 2023. We're also seeing headwinds from the tightening U.S. BIS regulations with respect to U.S.-China trade. However, we believe that Arteris is well-positioned to continue to make progress even in this challenging economic environment as our customers innovate in areas such as automotive, consumer electronics, and machine learning across all applications driving the need for use of commercial system IP. With that, I'll turn it over to Nick to discuss our financial results in more detail.
Erica
Thank you, Charlie, and good afternoon, everyone. As I review our fourth quarter and full year results today, please note that I will be referring to non-GAAP metrics, A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. I want to start by summarizing our key results for the fourth quarter. Total revenue for the fourth quarter was $11.2 million. At the end of the fourth quarter, ACV plus trailing 12-month royalties and other revenue was $52.4 million, up 22% year over year, when adjusted to exclude High Silicon and DJI as Charlie mentioned. Gross profit was $10.1 million representing a gross margin of 90%. Non-GAAP gross profit for the quarter was $10.2 million representing a gross margin of 91%. Total operating expense for the fourth quarter was $19.2 million compared to $17.6 million in the prior year period. Non-GAAP operating expense for the quarter was $16.0 million compared to $13.3 million in the prior year period. The increase was primarily driven by a combination of investment in sales and marketing to drive product awareness and strong engagement with customers and strategic partners. Additionally, we continue to invest in certain next-generation products while significantly driving operating leverage in G&A expense. Operating loss for the fourth quarter was $9.1 million compared to a loss of $7.3 million in the year-ago period. Non-GAAP operating loss was $5.8 million, or 51.8%, compared to a loss of $2.8 million in the year-ago period. Net loss for the quarter was $7.2 million, or diluted net loss per share of 21 cents. net loss for the quarter was $4 million, or diluted net loss per share of 12 cents, based on approximately 33.6 million weighted average diluted shares outstanding. Turning to the balance sheet and cash flow, we ended the quarter with $72.6 million in cash, cash equivalents and investments. Cash flow used in operations was approximately $400,000 for the quarter, while free cash flow, which includes capital expenditure was approximately negative $800,000, or 7.1%. Moving on to our annual results. Total revenue for 2022 was $50.4 million, up 33% year-over-year, reflecting strong growth across IP licensing and royalty revenue. Gross profit for 2022 was $46.1 million, representing gross margin of 92%, Total operating expenses were $75 million compared to $55.9 million in the year-ago period. Non-GAAP operating expenses were $62.8 million compared to $49.9 million in the year-ago period. The increase was primarily due to the incremental costs expected of a public company. Operating loss was $28.9 million. increasing from a loss of $21.8 million in the year-ago period. Non-GAAP operating loss was $16.2 million, or 52.1%, increasing from a loss of $15.5 million in the year-ago period. Our operating losses are in part derived from our subscription-based ratable revenue recognition, which defers a portion of revenue. We define RPO, or remaining performance obligations, as the amount of contracted future revenue, RPO was $57.7 million as of December 31, 2022. Net loss in 2022 was $27.4 million, or net loss per share basic and diluted of 84 cents. Non-GAAP net loss was $14.7 million, or net loss per share basic and diluted of 45 cents, based on approximately 32.6 million weighted average shares outstanding. Cash flow used in operations was $6.8 million in 2022, while free cash flow, which includes capital expenditure, was negative $7.8 million, or 15.5%, which was better than previously guided, partly as a result of a $2.5 million favorable timing of cash received earlier from customers. I'd now like to turn to our outlook for the first quarter and the full year 2023. For the first quarter, we expect ACV plus 12-month royalties of $51.5 million to $55.5 million and revenue of $11 million to $13 million with non-GAAP operating loss margin of 55% to 75% and non-GAAP pre-cash flow margin of negative 56.7% to negative 81.7%, partly resulting from the $2.5 million early payment from customers in the fourth quarter of 2022 that I mentioned earlier. For the full year, we expect revenue of $56 million to $60 million. ACV plus trailing 12-month royalties to exit 2023 at $60.4 million to $65.4 million. Longer operating loss margin of 28.5% to 43.5%. and non-GAAP free cash flow margin of negative 9.7% to negative 19.7%, reflecting the concentration of negative free cash flow into the first quarter. Finally, I would draw your attention to the shelf registration statement that we filed with SEC in November for a maximum aggregate operating price of $150 million, including a prospectus supplement for an ATM or at-the-market offering of up to $50 million, We have not activated the ATM at this stage and have no intention to do so at the current stock price levels. With that, I will turn the call over to the operator and open up for questions.
Operator
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants, Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause for one moment to poll for questions.
Charlie Janik
So thank you for your interest and time in Arteris. We look forward to meeting with some of you at the upcoming investor conferences, and we are participating in the next couple of months, and we look forward to updating all of you on our business progress in the course to come. Please, looking forward to your questions.
Operator
Our first question is from Hans Moisesben with Roads of Light Securities. Please proceed.
Hans Moisesben
Thank you for taking the question. This is McLean on for Hans. Could you please provide the mix of licensing engagements in the quarter between automotive, communications, machine learning, and et cetera? And I had a follow-up as well. Thank you.
Charlie Janik
Nick, do you want to take this one or do you want me to pick it? Yeah, so automotive is about 20% roughly. I'm sorry, I was on mute.
Erica
I was on mute. I'm sorry. But carry on. I'm sorry I haven't started. You might as well finish.
Charlie Janik
Yeah, so automotive is about 20% roughly. Consumer, roughly 25%. Enterprise is probably something like 15%, and then the rest of it. And then royalties are somewhere around 8%.
Hans Moisesben
Okay, thank you. That's very helpful. And then just lastly, if you could just expand on the general trend for the deals overall, that would be helpful.
Charlie Janik
Yeah, so automotive continues to be a strength. We've added a number of automotive customers for the quarter and for the year. The automotive royalties are going nicely. We are also very excited about our progress in machine learning. There are some new exciting applications for machine learning ASICs that are coming up, including ASICs for the CHAT GPT large language models. And we'll also continue to be excited by the unforeseen space applications. So there seems to be a lot of work going on in both terrestrial and orbital space applications.
Hans Moisesben
Thank you for that caller. That's helpful. Thank you.
Operator
As a reminder, do star 1 on your telephone keypad if you would like to ask a question. Our next question is from Gus Richard with Northland. Please proceed.
Gus Richard
Yes, thanks for taking the question.
spk04
Charlie, I was wondering if you could talk a little bit about SEMIFOR and how that fits into your product portfolio. Is it just a separate standalone product, or will there be some integration with the existing product suite?
Charlie Janik
Yes, so as you know, There is a register. So what Semifloid does, it basically is a very high performance, high capability register management product that is extremely fast and extremely high capacity. So we also have a register management capability in the Magellan product line. So initially we are going to – sell them separately, side by side, but our plan is over the long term for the 74 register managements to be increasingly integrated into the next generation Magellan products. So it's standalone, short term, integrated in the medium term.
spk04
And then on the FlexNoc 5, is there an ASP uplift for this new product, and how far along are you in showing that or selling that to customers?
Charlie Janik
Right. So the FlexNoc 5 has essentially integrated physical awareness in it, And that capability has a significant ASP uplift compared to the FlexNoc 4 without physical awareness. So we do anticipate a revenue uplift from that. And it is a product that we have so far delivered to several early access customers who are providing us feedback as they test a product in their projects. So we're in an early access stage with the FlexNoc 5, but we have custom installations.
Erica
And if I can just add some color to that, excellent answer. The impact to me, you talked about where it's at in terms of customer adoption. There are some early access customers, and we expect to see sort of revenue accretion in the second half from that through the ASP uplift.
spk04
Got it. And then the last one for me, you know, in your prepared comments, you talked a little bit about, you know, the impact of the macro and, you know, headwinds from China and some of the trade issues. And I was just wondering if you could expand on that a little bit and just kind of Give us a sense of how much of a headwind that's creating for you in the short term.
Charlie Janik
Yeah. Um, so yeah, I mean there are some, some, uh, definite macro headwinds. Um, uh, there's also some, uh, macro tailwinds, uh, but we continue to see the strength in our business. Um, and, uh, we see continued investment by customers in developing new applications for automated driving, car electrification, um, edge and data center machine learning and machine-to-machine communications based on 5G. So we're seeing a relatively steady number of design starts. And in general, our customers are investing in designing their way out of recessions. So while there might be some tailwind on royalties based on unit volumes that could be somewhat reduced, the design start seems to be just fine as our customers turn to engineering new products.
Erica
Can I add some numerical color to that as well, that answer? The headwinds you point out are very true and very real, and that is what we have been talking about. If you remember back to the Q3 earnings call, uh we referenced to the um the expected bis related china headwinds in uh q3 sorry 23 um and we talked then about a seven percent uh estimated impact on uh overall revenue for 23 as a result of that uh we're not backing away from that uh thought we also don't know yet because we haven't seen the full the full impact there definitely is some And so that by itself is sort of a $4 to $5 million impact on 23. And on top of that, we have something like a royalties impact negative of a million, which is just an inability of our customers to ship volume. And so those two together are sort of like a $5 to $6 million impact, which it shouldn't be huge news at that point, but it's short term. So... The royalties will recover as volumes recover, and the whole China situation will recover as well.
spk04
Got it. All right. Thank you. That's it for me.
Operator
And our final question is from Ambrish Saravastria with BMO. Please proceed.
Saravastria
Hi, guys. This is Jameson on for Ambrish. Thanks for the question. So I just have just a couple brief ones. So I'm just kind of curious. You are talking about these macro headwinds. It seems like taking place or expecting at least the first half more so than the back half. So should we expect, looking at the first half of 2023, should we expect a relatively flat growth versus 2022 and then an acceleration in the back half in terms of revenue?
Erica
Yes, that's exactly what we're saying. It's not out of line with what other people in the semi-space broadly have been headlining recently. We don't know exactly when these things are going to improve, but you hit the nail on the head.
Saravastria
Perfect. I just want to clarify one other thing. It's the gross margin. I think that you have mentioned in the past there's some seasonality in gross margins, especially in the first quarter where where we are at least modeling a step down before a gradual increase to the year, followed by a step down in 1Q. Is that still something that we should be expecting? Or is that something that I guess is largely, might not be the case anymore as you continue to grow your revenues? Thank you.
Erica
Yeah, it's a great question. It's actually, the answer is unfortunately a mathematical one. The vast bulk of our customer revenue is related to our field application engineers. And we obviously don't hire and file those linearly with revenue numbers. So as you hit lower revenue quarters, then the same dollars of FAEs are spread over a small amount of revenue and vice versa when you have high revenue quarters. So typically, you'll see higher gross margin in high revenue quarters and lower gross margin in low revenue quarters. And as you rightly point out, Q1 is a relatively low revenue quarter, so the margins would typically be a little bit lower than normal. Okay. Wonderful. Thank you so much. It's plus minus 1%. Quarter to quarter, it's plus minus 1%.
spk06
Plus minus 1%. Okay. Wonderful. Thank you so much.
Operator
Our next question is from Ethan Pasnick with Callen. Please proceed.
Ethan Pasnick
Yeah, hi. This is Ethan Pasnick on for Matt Ramsey. I had a question on how we should think about, I guess, use of cash and OPEX throughout the year. We've heard, seen a lot of companies kind of, I guess, tighten the belt, but how are you balancing cash staying prudent versus some of the growth initiatives that are currently underway?
Erica
Let me give us a little bit of color around OPEX and free cash flow. Throughout 2022, we were continuing to increase our OPEX, particularly in engineering. G&A has been flat now for about a year. Sales has been relatively flat. Marketing, we have added to in the fourth quarter, but we're not expecting that to grow at all going forward. So the real growth in OPEX into 2023, over and above the exit rate, is really in next-gen products in R&D. So Flex Knot 5 that we've talked about, for example, which doesn't have a revenue impact until the second half, as you pointed out, and then it increases sequentially quarter over quarter after that as the higher SPs kick in. But of course we have the OPEX throughout the year. And then we have some, we've invested quite heavily into marketing, into digital marketing, product marketing, and sort of customer positioning marketing which is all about increasing our positioning with customers. And part of the result we saw of that was the ARM engagement, the ARM partnership that we announced earlier on that we expect to have some not insubstantial upside even as we speak and then more so in the future in the automotive space. And then you mentioned cash flow. So the... Yeah, a lot of times people will ask, well, so how would you, I mean, I've asked the same question, how could you go from a negative eight to a negative eight guided on pre-cash flow? Part of that you have to take into account that we have this advance payment from customers which we weren't expecting right at the death of 2022, which is around two and a half million. So the negative 7.8 that we actually reported for 2022 underlying was actually a negative 10.3 which is exactly in line with our q3 guidance for the full year if you then add that back to 2023 what we should have had in 2023 instead of negative eight and a half we end up with negative six so really underlying you've got your improvement from 10 negative 10.5 to negative six and the majority of that negative cash flow for 2023 is taking place in the first quarter, which you can see from the first quarter guidance, which is approximately negative eight. And the rest of 2023, therefore, is guided to be relatively flat in terms of free cash flow, which puts us in a very good place, we think, to be cash flow neutral during 2024 and then cash flow positive thereafter.
Flex Knot
Okay. I got it.
Ethan Pasnick
Thank you for that. detailed answer. Admittedly, I may have missed this in the beginning of the Q&A, but I was wondering if you could discuss the full year outlook a little bit more in detail. Obviously, I'm aware that the team has significant visibility, but maybe kind of parse out areas you're seeing, I guess, downward pressure or or if there are areas where maybe there's accelerated interest in terms of shipments and royalties. So I would be curious to hear that fleshed out a little bit more.
Charlie Janik
Yeah, I mean, as Nick pointed out, we're seeing a bit of a headwind from China, right? So it has sort of a modest impact on our growth rate there. On the other hand, Continued Strength in Automotive, There's some new exciting machine learning applications that are coming up that is creating excitement both in the customer base and that requires new silicon to be designed. So I think there's offsetting tailwinds and headwinds. And so you have impact on consumer. strengthen automotive, strengthen machine learning.
Erica
And to your point on a question on royalties, yeah, for certain royalties in 2022, and in fact early 2023, are directly impacted by recessionary impacts because recessionary impacts directly impact. Volumes are seeing that from all the semis, that their unit shipments are down pretty much across the board. And so that impacts directly our royalties. But of course, because we're designed in, the strength of our model is because we're designed in, as those recessionary impacts recede, then so do royalties accelerate. So we're expecting some acceleration of royalties in the second half and significantly thereafter into 2024 and beyond. I would point out that royalties for automotive are still on a tear um the um you probably noticed that the automotive is one area that does not seem to be suffering right now particularly uh still still doing uh still doing very well and so our uh automotive royalties uh has now more than doubled in the last two years so just give me an idea of the scope of that uh that increase and we're adding new deals all the time new design ins
Flex Knot
Understood. Thank you very much.
Operator
As a reminder, it is star one on your telephone keypad. If you would like to ask a question, we will just pause for a brief moment to pull for any final questions. Once again, it is star one. There are no more questions at this time. We can conclude today's conference. Thank you, everybody, for your participation. You may disconnect your lines at this time and have a wonderful day.
Charlie Janik
Thank you, everyone. Thank you. you Thank you. Thank you. Thank you.
Operator
Good afternoon, everybody, and welcome to Altair's 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 Altair's Incorporated with all rates reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Arteris
Thank you and good afternoon. With me today from our terrace are Charlie Janik, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the fourth quarter and full year ended December 31, 2022. Nick will review the financial results for the fourth quarter and full year, followed by the company's outlook for the first quarter and full year of 2023. We will then open the call for questions. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of the 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 our terrorists issued today. and in the documents and reports filed by our tariffs 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 that they provide investors with a 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, 2022. 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 December 31, 2022. Listeners who do not have a copy of the press release for the quarter ended December 31, 2022 may obtain a copy by visiting the investor relations section of the company's website. Now I will turn the call over to Charlie.
Charlie Janik
Thank you, Erica. And thanks to everyone for joining us on the call this afternoon. We're excited to report a strong finish to 2022 with annual contract value plus trailing 12-month royalties of $52.4 million, up 22% year-over-year when adjusted to exclude high silicon and DJI as discussed in previous calls. We continue our growth in 2022 illustrated by adding 38 active customers and reaching 82 design stars during the year and over 3 billion systems shipped with SOCs connected by our Terra system IP since inception. We continued our progress in automotive semiconductor electronics by closing eight automotive customer licenses in 2022. Demonstrating the continued demand for our solutions, we had a total of 24 confirmed SOC project design starts in the fourth quarter. We also added 14 new customers in the quarter, contributing to the 20% year-to-year increase in customers deploying Arteris IP. 2022 deals were driven by strong demand for Arteris products across all of our core markets, and led in particular by automotive and consumer electronics, followed by enterprise computing, industrial, and communication applications. In Q4, we also continued to see Arteris technology sales to automotive OEMs, including in China, where Arteris IP was licensed for next generation electric vehicle designs. Besides OEMs, we also saw strong automotive momentum with Pier Ones and numerous semiconductor companies. For example, Telechip licensed Arteris IP in the fourth quarter for advanced automotive solutions. These solutions help to ensure security requirements are met when designing Telechip's new business area solutions such as advanced driver assistance systems, ADAS, and microcontroller units, MCUs. Advanced SoCs require best-in-class network-on-chip technology for low power and safe connectivity, and we're excited that the Arteris products continue to be the leading choice for high-performance, innovative solutions in the advanced SoC automotive markets. Besides automotive, other applications are also getting more sophisticated for growing AI and machine learning electronics, including smart edge devices. The advanced SoCs that power them typically use ARM or RISC-V processor IP and tend to increasingly require Arteris network-on-chip interconnect IP for SoC connectivity. To that end, Arteris and Sci-5 announced a partnership to accelerate RISC-V SoC designs for edge applications to speed up electronics product innovation for consumer electronics and industrial markets. Turning to our product portfolio, we are very excited about our new FlexNoc 5 innovations and the 74 acquisition. Over the last several years, as semiconductor manufacturing process technology went beyond 17 nanometer, with many new SOC designs starting at 5 nanometer and increased 3 nanometer ramp-up, the associated physical effects have started to impact how engineers design SOCs by causing physical layout driven network on chip connectivity iterations, which have a growing impact on project schedules. To address this growing challenge our customers face, we announced FlexNOC 5, physically aware network on chip IP with unique and patented technology. This fifth generation of our core interconnect technology provides customers with up to five times faster physical convergence over manually driven physical iterations for new and derivative designs across automotive, communications, consumer electronics, enterprise computing, and industrial applications. Continuing our efforts to expand the scope of IP and SOC solutions, in the fourth quarter we acquired Semifor, a leader in hardware software interface automation, providing register management technology. SEMIFOR is used by customers to effectively design, verify, document, and help in the validation of the hardware-software integration that is essential to every SOC and is used by leading semiconductor and system companies across automotive, consumer electronics, communication, enterprise computing, and other applications. The addition of SEMIFOR complements both our Magilum IP deployment automation and our network-on-chip IP, and expands our SOC solutions by providing a critical SOC integration layer, which in turn allows customers to accelerate hardware, software development, and convergence. With the new FlexNOC 5 innovations and SEMIFOR acquisition, we expect our customers to be able to accelerate their SOC designs. We are physically aware IP connectivity and to better integrate SOC hardware and software layers, improving the overall SOC economics while reducing project schedules and risks of costly redesign. As previously discussed, we are seeing short-term macroeconomic uncertainties and global recessionary impacts, particularly in the first half of 2023. We're also seeing headwinds from the tightening U.S. BIS regulations with respect to U.S.-China trade. However, we believe that our terrorist is well-positioned to continue to make progress even in this challenging economic environment as our customers innovate in areas such as automotive, consumer electronics, and machine learning across all applications driving the need for use of commercial system IP. With that, I'll turn it over to Nick to discuss our financial results in more detail.
Erica
Thank you, Charlie, and good afternoon, everyone. As I review our fourth quarter and full year results today, please note that I will be referring to non-GAAP metrics A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. I want to start by summarizing our key results for the fourth quarter. Total revenue for the fourth quarter was $11.2 million. At the end of the fourth quarter, ACV plus trailing 12-month royalties and other revenue was $52.4 million, up 22% year over year, when adjusted to exclude High Silicon and DJI as Charlie mentioned. Gross profit was $10.1 million representing a gross margin of 90%. Non-GAAP gross profit for the quarter was $10.2 million representing a gross margin of 91%. Total operating expense for the fourth quarter was $19.2 million compared to $17.6 million in the prior year period. Non-GAAP operating expense for the quarter was $16.0 million compared to $13.3 million in the prior year period. The increase was primarily driven by a combination of investment in sales and marketing to drive product awareness and strong engagement with customers and strategic partners. Additionally, we continue to invest in certain next-generation products while significantly driving operating leverage in G&A expense. Operating loss for the fourth quarter was $9.1 million compared to a loss of $7.3 million in the year-ago period. Non-GAAP operating loss was $5.8 million, or 51.8%, compared to a loss of $2.8 million in the year-ago period. Net loss for the quarter was $7.2 million, or diluted net loss per share of 21 cents. Non-GAAP Net loss for the quarter was $4 million or diluted net loss per share of 12 cents based on approximately 33.6 million weighted average diluted shares outstanding. So the balance sheet and cash flow. We ended the quarter with $72.6 million in cash, cash equivalents and investments. Cash flow used in operations was approximately $400,000 for the quarter. while free cash flow, which includes capital expenditure, was approximately negative $800,000, or 7.1%. Moving on to our annual results, total revenue for 2022 was $50.4 million, up 33% year-over-year, reflecting strong growth across IP licensing and royalty revenues. Gross profit for 2022 was $46.1 million, representing gross margin of 92%. Total operating expenses were $75 million compared to $55.9 million in the year ago period. Non-GAAP operating expenses were $62.8 million compared to $49.9 million in the year ago period. The increase was primarily due to the incremental costs expected of a public company. Operating loss was $28.9 million, increasing from a loss of $21.8 million in the year-ago period. Non-GAAP operating loss was $16.2 million, or 52.1%, increasing from a loss of $15.5 million in the year-ago period. Our operating losses are in part derived from our subscription-based ratable revenue recognition, which defers a portion of revenues. We define RPO, or Amending Performance Obligations, as the amount of contracted feature revenue. RPO was $57.7 million as of December 31, 2022. Net loss in 2022 was $27.4 million, or net loss per share, basic and diluted, of $0.84. Non-GAAP net loss was $14.7 million, or net loss per share, basic and diluted, of 45 cents, based on approximately 32.6 million weighted average shares outstanding. Cash flow used in operations was $6.8 million in 2022, while free cash flow, which includes capital expenditure, was negative $7.8 million, or 15.5%, which was better than previously guided, partly as a result of a 2.5 million favorable timing of cash received earlier from customers. I'd now like to turn to our outlook for the first quarter and the full year 2023. For the first quarter, we expect ACV plus 12-month royalties of $51.5 million to $55.5 million and revenue of $11 million to $13 million with non-GAAP operating loss margin of 55% to 75%. and non-GAAP pre-cash flow margin of negative 56.7% to negative 81.7%, partly resulting from the $2.5 million early payment from customers in the fourth quarter of 2022 that I mentioned earlier. For the full year, we expect revenue of $56 million to $60 million. ACV plus trailing 12-month royalties to exit 2023 at $60.4 million to $65.4 million. Non-GAAP operating loss margin of 28.5% to 43.5%. And non-GAAP free cash flow margin of negative 9.7% to negative 19.7%, reflecting the concentration of negative free cash flow into the first quarter. Finally, I would draw your attention to the shelf registration statement that we filed with SEC in November for a maximum aggregate operating price of $150 million, including a prospectus supplement for an ATM or at the market offering of up to $50 million. We have not activated the ATM at this stage and have no intention to do so at the current stock price levels. With that, I will turn the call over to the operator and open up questions.
Operator
Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause for one moment to poll for questions.
Charlie Janik
So thank you for your interest and time in Arcturus. We look forward to meeting you, to meeting with some of you at the upcoming investor conferences. And we are participating, that we are participating next couple of months. And we look forward to updating all of you on our business progress in the course to come. Please, looking forward to your questions.
Operator
Our first question is from Hans Moisesen with Roosevelt Securities. Please proceed.
Hans Moisesben
Thank you for taking the question. This is McLean on for Hans. Could you please provide the mix of licensing engagements in the quarter between automotive, communications, machine learning, and etc.? And I had a follow-up as well. Thank you.
Charlie Janik
Nick, do you want to take this one or do you want me to take it? Yeah, so... So automotive is about 20% roughly. I'm sorry. I was on mute.
Erica
I was on mute. I'm sorry. But carry on. You might as well finish.
Charlie Janik
Yeah. So automotive is about 20% roughly. Consumer roughly 25%. Enterprise is probably something like 15%. And then the rest of it. And then royalties are somewhere around 8%.
Hans Moisesben
Okay, thank you. That's very helpful. And then just lastly, if you could just expand on the general trend for the deals overall, that would be helpful.
Charlie Janik
Yeah, so automotive continues to be a strength. We've added a number of automotive customers for the quarter and for the year. The automotive royalties are going nicely. We are also very excited about our progress in machine learning. There are some new exciting applications for machine learning ASICs that are coming up, including ASICs for the CHAT GPT large language models. And we'll also continue to be excited by the unforeseen space applications. So there seems to be a lot of work going on both terrestrial and orbital space applications.
Hans Moisesben
Thank you for that, Collar. That's helpful. Thank you.
Operator
As a reminder, do Star 1 on your telephone keypad if you would like to ask a question. Our next question is from Gus Richard with Northland. Please proceed.
Gus Richard
Yes. Thanks for taking the question.
spk04
Tony, I was wondering if you could talk a little bit about SEMIFOR and how that fits into your, you know, product portfolio. Is it just a separate standalone product or will there be some integration with the existing product suite?
Charlie Janik
Yes. So, as you know, there is a, so what SEMIFOR does, It basically is a very high performance, high capability register management product that is extremely fast and extremely high capacity. So we also have register management capability in the Magellan product line. So initially, we are going to sell them separately, side by side, But our plan is over the long term for the 74 register managements to be increasingly integrated into the next generation Magellan products. So it's standalone short term integrated in the medium term.
spk04
And then on the FlexNOC 5, is there a you know, an ASP uplift for this new product? And, you know, how far along are you in, you know, showing that or selling that to customers?
Charlie Janik
Right. So the FlexNoc 5 has essentially integrated physical awareness in it. And that capability has a significant ASP uplift compared to the FlexNOC 4 without physical awareness. So we do anticipate a revenue uplift from that. And it is a product that we have so far delivered to several early access customers who are providing us feedback as they test a product in their projects. So we're in an early access stage with the FlexNoc 5, but we have custom installations.
Erica
And if I can just add some color to that, excellent answer. The impact to me, you talked about where it's at in terms of customer adoption. There are some early access customers, and we expect to see sort of revenue accretion in the second half from that through the ASB uplift.
spk04
Got it. And then the last one for me, you know, in your prepared comments, you talked a little bit about, you know, the impact of the macro and, you know, headwinds from China and some of the trade issues. And I was just wondering if you could expand on that a little bit and just kind of Give us a sense of how much of a headwind that's creating for you in the short term.
Charlie Janik
Yeah. Um, so yeah, I mean there are some, some definite macro headwinds. Um, uh, there's also some, uh, macro tailwinds, uh, but we continue to see the strength in our business. Um, and, uh, we see continued investment by customers in developing new applications for automated driving, car alterification, um, edge and data center machine learning and machine-to-machine communications based on 5G. So we're seeing a relatively steady number of design starts. And in general, our customers are investing in designing their way out of recessions. So while there might be some tailwind on royalties based on unit volumes that could be somewhat reduced, The design start seems to be just fine as our customers turn to engineering new products.
Erica
Can I add some numerical color to that as well, that answer? The headwinds you point out are very true and very real, and that is what we have been talking about. If you remember back to the Q3 earnings call, We referenced to the expected BIS-related China headwinds in Q3, sorry, FY23. And we talked then about a 7% estimated impact on overall revenue for 23 as a result of that. We're not backing away from that thought. We also don't know yet because we haven't seen the full impact. There definitely is some. And so that by itself is sort of a $4 to $5 million impact on 23. And on top of that, we have something like a royalties impact negative of a million, which is just an inability of our customers to ship volume. And so those two together are sort of like a $5 to $6 million impact, which it shouldn't be huge news at that point, but it's short term. So... The royalties will recover as volumes recover, and the whole China situation will recover as well.
spk04
Got it. All right. Thank you. That's it for me.
Operator
And our final question is from Ambrish Saravastria with BMO. Please proceed.
Saravastria
Hi, guys. This is Jameson on for Ambrish. Thanks for the question. So I just have just a couple brief ones. So I'm just kind of curious. You are talking about these macro headwinds. It seems like taking place or affecting at least the first half more so than the back half. So should we look at the first half of 2023? Should we expect a relatively flat growth versus 2022 and then an acceleration in the back half in terms of revenue?
Erica
Yes, that's exactly what we're saying. It's not out of line with what other people in the semi-space broadly have been headlining recently. We don't know exactly when these things are going to improve, but you hit the nail on the head.
Saravastria
Perfect. I just want to clarify one other thing. It's the gross margin. I think that you have mentioned in the past there's some seasonality in gross margins, especially in the first quarter where where we are at least modeling a step down before a gradual increase to the year, followed by a step down in 1Q. Is that still something that we should be expecting, or is that something that I guess is largely, might not be the case anymore as you continue to grow your revenues? Thank you.
Erica
Yeah, it's a great question. It's actually, the answer is unfortunately a mathematical one. The vast bulk of our customer revenue is related to our field application engineers. And we obviously don't hire and file those linearly with revenue numbers. So as you hit lower revenue quarters, then the same dollars of FAEs are spread over a small amount of revenue and vice versa when you have high revenue quarters. So typically, you'll see higher gross margin in high revenue quarters and lower gross margin in low revenue quarters. And as you rightly point out, Q1 is a relatively low revenue quarter, so the margins would typically be a little bit lower than normal. Okay.
spk06
Wonderful.
Erica
Thank you so much. It's plus minus 1%. Quarter to quarter, it's plus minus 1%.
spk06
Plus minus 1%. Okay. Wonderful. Thank you so much.
Operator
Our next question is from Ethan Pasternak with Callen. Please proceed.
Ethan Pasnick
Yeah, hi. This is Ethan Pasternak on for Matt Ramsey. I had a question on how we should think about, I guess, use of cash and OPEX throughout the year. We've heard, seen a lot of companies kind of, I guess, tighten the belt, but how are you balancing cash staying prudent versus some of the growth initiatives that are currently underway?
Erica
Let me give us a little bit of color around OPEX and free cash flow. Throughout 2022, we were continuing to increase our OPEX, particularly in engineering. G&A has been flat now for about a year. Sales has been relatively flat. Marketing, we have added to in the fourth quarter, but we're not expecting that to grow at all going forward. So any growth in OPEX into 2023, over and above the exit rate, is really in next-gen products in R&D. So Flex Knot 5 that we've talked about, for example, which doesn't have a revenue impact until the second half, as you pointed out, and then it increases sequentially quarter over quarter after that as the higher SPs kick in. But of course we have the OPEX throughout the year. And then we have some, we've invested quite heavily into marketing, into digital marketing, product marketing, and sort of customer positioning marketing which is all about increasing our positioning with customers. And part of the result we saw of that was the ARM engagement, the ARM partnership that we announced earlier on that we expect to have some not insubstantial upside even as we speak and then more so in the future in the automotive space.
Flex Knot
And then you mentioned cash flow.
Erica
So the... A lot of times people will ask, well, so how would you, I've asked the same question, how can you go from a negative eight to a negative eight guided on free cash flow? Part of that you have to take into account that we have this advance payment from customers which we weren't expecting right at the death of 2022, which is around two and a half million. So the negative 7.8 that we actually reported for 2022 underlying was actually a negative 10.3 which is exactly in line with our q3 guidance for the full year if you then add that back to 2023 what we should have had in 2023 instead of negative eight and a half we end up with negative six so really underlying you've got an improvement from 10 negative 10.5 to negative six and the majority of that negative cash flow for 2023 is taking place in the first quarter, which you can see from the first quarter guidance, which is approximately negative eight. And the rest of 2023, therefore, is guided to be relatively flat in terms of free cash flow, which puts us in a very good place, we think, to be cash flow neutral during 2024 and then cash flow positive thereafter.
Flex Knot
Okay. I got it.
Ethan Pasnick
Thank you for that. detailed answer. Admittedly, I may have missed this in the beginning of the Q&A, but I was wondering if you could discuss the full year outlook a little bit more in detail. Obviously, I'm aware that the team has significant visibility, but maybe parse out areas you're seeing downward pressure or or if there are areas where maybe there's accelerated interest in terms of shipments and royalties. So I would be curious to hear that fleshed out a little bit more.
Charlie Janik
Yeah, I mean, as Nick pointed out, we're seeing a bit of a headwind from China, right? So it has sort of a modest impact on our growth rate there. On the other hand, continued strength in automotive, There's some new exciting machine learning applications that are coming up that is, you know, creating excitement both in the customer base and that it requires new silicon to be designed. So I think there's, you know, offsetting tailwinds and headwinds. And so, you know, you have impact on consumer Strength in automotive, strength in machine learning.
Erica
And to your point on the question on royalties, yeah, for certain royalties in 2022, and in fact early 2023, are directly impacted by recessionary impacts because recessionary impacts directly impact. Volumes are seeing that from all the semis, that their unit shipments are down pretty much across the board. And so that impacts directly our royalties. But of course, because we're designed in, the strength of our model is because we're designed in, as those recessionary impacts recede, then so do royalties accelerate. So we're expecting some acceleration of royalties in the second half and significantly thereafter into 2024 and beyond. I would point out that royalties for automotive are still on a tear. You've probably noticed that automotive is one area that does not seem to be suffering right now, particularly. It's still doing very well. And so our automotive royalties has now more than doubled in the last two years. So just give me an idea of the scope of that increase. And we're adding new deals all the time, new design-ins.
Flex Knot
Understood. Thank you very much.
Operator
As a reminder, it is star one on your telephone keypad. If you would like to ask a question, we will just pause for a brief moment to pull for any final questions. Once again, it is star one. There are no more questions at this time. We can conclude today's conference. Thank you, everybody, for your participation. You may disconnect your lines at this time, and have a wonderful day.
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