Arteris, Inc.

Good afternoon, everyone, and welcome to the Arteris Second 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, 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.

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 second quarter ended June 30, 2023. Nick will review the financial results for the second quarter, followed by the company's outlook for the third 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 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 or reports filed by our terrorists 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 June 30, 2023. In addition, For a definition of certain 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 June 30, 2023. Listeners who do not have a copy of the press release of the quarter ended June 30, 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 for joining us on the call this afternoon. We're excited to report a strong second quarter with annual contract value plus trailing 12-month royalties of $58.2 million, up 21% year-over-year when adjusted to exclude DJI as discussed in previous calls. Driving our growth in the second quarter was the addition of 12 new customers and 22 confirmed design starts with strong adoption of Arteris products by companies ranging from innovative startups to established market-leading system houses. In the second quarter, five of the top 10 largest technology companies engaged with Arteris. As we have stated previously, we believe as the volume of logic and IP cores continues to increase, so does the overall soc complexity and the ability to effectively connect all of the underlying parts established companies who today develop and license the bulk of ip are increasingly looking to outsource system ip connectivity needs to commercial vendors such as arteris we are seeing an emergent confirmation of this trend in our customer base In the second quarter, we closed deals with three of the top 10 global semiconductor companies who have historically used internal system IP solutions. These wins demonstrates the willingness of major semiconductor companies to increasingly deploy commercial system IP products from commercial vendors such as Arteris. Deals in the second quarter were driven by strong demand across all our core market segments and particularly with design wins in enterprise computing, automotive, and consumer electronics, often driven by addition of artificial intelligence and machine learning, or AIML, logic onto the chip. We also closed a Magilum SOC integration automation deal with a top 10 semiconductor company. AIML technology infusion into chips continues to significantly increase their size and complexity across all vertical markets, and particularly in enterprise computing. This, in turn, is driving the increased adoption of Arteris products. As previously discussed, one of the major enterprise computing AI ML design wins in the second quarter was Stent Storrent, who has licensed both NCore Cache-coherent interconnect and FlexNOC non-coherent interconnect based on superior performance, power consumption, and flexibility. Led by Jim Keller, 10th Store End develops high-performance computing and data center RISC-V SOCs and chiplets. This is an example of Arteria's ability to support AI ML high-end computing, as well as the emerging RISC-V ecosystem. Another enterprise computing win driven by AI ML use worth highlighting was in a major hyperscale system company in the top 10 of largest global technology companies. AIML also increasing the complexity of autonomous driving electronics together with the functional safety needs and electrification, driving our terrorist adoption for automotive electronics. Our continuing focus on the automotive supply chain and our strong relationship with many OEM manufacturers continue to pay off again in a quarter. We added 17 automotive deals across semiconductor companies, T1s, and OEMs. Specific to automotive OEMs in the second quarter, we signed five contracts directly with OEMs, three of which were expansion of our terrorist technology use, and two were new customers. We also added a new tier one customer. This level of automotive activity demonstrates the continued rapid adoption of our terrorist system IP by leading players in the automotive electronics industry. As an example, one of the new automotive semiconductor companies is BOS Semiconductor, which selected Arteria's FlexNOT network on chip IP along with its automotive safety technology to be the autonomous driving chip's communication backbone, while also deploying our Magilem software to speed up and automate SoC integration. Advanced SoCs require best-in-class network on chip technology for low power and safe connectivity, So we remain excited that Arteria's products continue to be a leading choice for innovative solutions in the automotive market. Another emerging opportunity in the AI ML semiconductor space is generative AI. GPT-4 in particular is quite expensive in terms of computation. One of the generative AI imperatives is to reduce the cost of queries. which can partially be accomplished through specific ASIC and accelerator hardware. As an example of a generative AI cost optimization approach, one major generative AI ASIC utilizes Arteris system IP and is ready for mass production this year. Generative AI and GPT-4 in particular require movements of very large amounts of data inside SOC semiconductors and represent another leap in complexity and value of system IP. Arteris is continuing to pursue additional generative AI, ASIC, and accelerator opportunities in close collaboration with numerous companies which are trying to develop innovative SOCs that lower the cost per query. Turning to our product portfolio, Arteris delivered the production version of new FlexNOC 5 physically aware network on chip or NOC IP toward the end of the quarter. This new FlexNOC5 NOC IP product addresses the problem that engineers designing SOCs with all 60 nanometer processes can design perfectly good logic data handling architectures that can be difficult to implement during physical design, potentially leading to numerous revision cycles and schedule delays. FlexNOC5 with its physical awareness allows customers to analyze physical constraints during the development of logic architectures and essentially turn over a physical verified design to place in rod groups or physical layout contractor companies in order to accelerate physical design schedules and minimize change orders. In the first month of shipment of our new FlexNOC 5 IP, we signed several production evaluation license deals. Additionally, we are pursuing numerous FlexNOC 5 licensing opportunities and expect broader option to start in the second half of 2023. Additionally, during the quarter, we released a new version of NCore Cache Coherent Interconnect IP, Coder Cache Last Level Cache IP, and both Magilem and CSR Compiler SOC integration automation software, delivering on multiple customer requested enhancements, which will be applicable both to our existing customer base and potential new customers going forward. Certain macroeconomic headwinds, including geopolitical uncertainties and global recessionary concerns, remain in place, as discussed on a previous call. We also continue to be impacted by the US BIS restrictions with respect to China-US trade, as well as tightening credit conditions globally. We believe that Arteris is serving customers operating in areas of exciting and rapid innovation and growth, including automotive, and enterprise computing, communication, consumer electronics, and industrial applications, leveraging innovations such as AI, ML, including generative AI, autonomous vehicles, and machines, electrification, and the emerging RISC-V ecosystem, which are driving the need for increased use of commercial system IP. With that, I'll turn it over to Nick to discuss our financial results in more detail.