Arteris, Inc.

Good afternoon, everyone, and welcome to the Arteris first 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 Arteris Incorporated with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

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 first quarter ended March 31, 2023. Nick will review the financial results for the first quarter, followed by the company's outlook for the second 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 federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to differ materially 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 actual 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 US GAAP. These 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 March 31, 2023. 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 end of March 31, 2023. Listeners who do not have a copy of the press release for the quarter end of March 31, 2023 may obtain a copy by visiting the investor relations section of the company's website. Now I will turn the call over to Charlie.

Thank you, Erica. And thanks to everyone joining us on the call this afternoon. We're excited to report a solid start to 2023 with annual contract value plus trailing 12-month royalties of $54.8 million, up 20% year-over-year when adjusted to exclude high silicon and DJI as discussed in previous calls, and up 5% sequentially. We continued our growth into 2023 with the addition of seven new customers and 22 confirmed design starts in the first quarter. Deals in the first quarter were driven by strong demand for Arteris products across our core market segments and led in particular by design wins in automotive and enterprise computing. Royalty revenue in the quarter was primarily driven by automotive followed by consumer electronic products. An element of Arteris strategy is to service both semiconductor and system companies. This is continuing to yield positive results. With the added focus on the broader automotive supply chain, including OEMs, and following last year's Arm Automotive Partnership, we are pleased to report that in the year to date, Arteris has secured four OEM design wins, including three new car companies across the US, Europe, and APAC. These new relationships demonstrate Arteris' ability to engage across the broader global automotive supply chain. This is important as establishing direct relationships with auto manufacturers can create additional opportunities for those car companies to encourage their own supply chains to leverage Arteris technology as well. Advanced SOCs require best-in-class network-on-chip technology for low power and safe connectivity, so we remain excited that Arteris products continue to be the leading choice for innovative solutions in the automotive SOC market. AI and machine learning also continue to be strong growth drivers for Arteris. New advanced AI electronics tend to require and benefit from network on chip IP and SOC integration automation. In the first quarter, Arteris closed numerous global AI and machine learning customer deals across various vertical markets driven by strong demand for Arteris technology. One of those notable AI wins in the Americas was 10th Storrent for enterprise computing applications. 10th Storrent develops AI high-performance computing and data center RISC-V SOCs and chiplets. The 10th Storrent team extensively evaluated Arcturus N-Core cache-coherent interconnect IP and selected it for the next generation products along with our FlexNoc non-coherent interconnect IP. This is an example of Arteris' ability to support AI high-end computing and the emerging RISC-V ecosystem. Another design win in the quarter was a selection of Arteris by ASIC Land, an APAC-based ASIC design house. Arteris system IP products will be deployed in ASIC Land's AI chips for automotive, enterprise computing, and edge computing applications for consumer and industrial markets. Another design win in the AI space was Accelera, AI, a European provider of advanced solutions for edge computing, with Arteris products used to accelerate computer vision at the edge. Arteris was chosen for its ability to enable Accelera AI engineers to meet performance, ultra-low power, and time to market objectives in its Metis AI platform. The emerging generative AI technology is opening another potential future application for Arteris products. While promising, generative AI is quite computationally expensive with query costs over 10 times higher than heuristic search algorithms. Arteris anticipates that there will be an increase in AI and machine learning hardware design activity in an effort to lower the computation costs of processing the large language models. With Arteris already designed in over 150 different machine learning chips, The generative AI ASIC and accelerator activity presents another exciting potential future opportunity for our company. Turning to our product portfolio, we are very excited about both our new FlexNOC 5 innovation and the SEMIFOR acquisition we discussed last quarter. Over the last several years, as semiconductor manufacturing process nodes have progressed, the associated Physical effects have begun to impact how engineers design SOCs, including causing multiple iterations of physical layout network-on-chip connectivity, which in turn impacts project schedules. To address this growing challenge for customers, in February, we announced FlexNOC 5 physically aware network-on-chip IP with unique and patented technology. We are happy to report that we have delivered a feature-complete early access version of FlexNOC 5 to multiple customers. We anticipate being able to ship a full production release in second quarter 23 with a positive impact on our revenue and ACV growth forecasted in second half of 2023. Expanding the Arteria's product portfolio in the first quarter, we announced the acquisition of Semifor, a leader in hardware software interface technology. The addition of semaphore complements our Magilem connectivity and register management technology, allowing Arteris to provide a more comprehensive SOC integration solution. Together with our NOC interconnect IPs, Arteris is now able to provide a complete solution, helping to increase chip design performance, power efficiency, and productivity, while improving the customer's overall SOC design economics from reducing product schedules to lowering the risk of costly redesigns. Macroeconomic uncertainties and global recessionary concerns continue to create headwinds. We also continue to be impacted by the U.S. BIS regulations with respect to China-U.S. trade, as well as tightening credit conditions in the USA, which may affect our smaller startup customers. 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, enterprise computing, consumer electronics, and AI across all applications, driving the needs for increased use of commercial system IP. With that, I'll turn it over to Nick to discuss our financial results in more detail.