Arteris, Inc.

Good afternoon, everyone, and welcome to the Arteris third 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 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 third quarter ended September 30, 2023. Nick will review the financial results for the third quarter followed by the company's outlook for the fourth quarter and full year of 2023. 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 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 U.S. GAAP. The non-GAAP measures are presented as we believe 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 September 30, 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 ended September 30, 2023. Listeners who do not have a copy of the press release for the quarter ended September 30, 2023 may obtain a copy by visiting the investor relations section of the company's website. I will now turn the call over to CEO, Charlie Janet.

Thank you, Erica, and thanks to everyone for joining us on the call this afternoon. We're pleased to report a solid third quarter with annual contract value plus trailing 12-month royalties of $57.3 million and the addition of 22 new customer chip designs. We added two new customers and numerous license expansion deals from existing customers, three of which were with top 10 global technology companies. Our customers' design pipelines continue to be robust across enterprise computing, consumer electronics, automotive, industrial, and communications, with many SoC projects incorporating machine learning or AI applications. As we have stated previously, we believe that SoC design complexity, including in the emerging chiplet markets, continues to grow, leading to increasing importance of commercial system IP. Several established companies who today develop the bulk of their system IP internally are looking to either augment those capabilities or improve their schedules and costs by outsourcing system IP connectivity to commercial vendors such as Arteris. We're seeing an emerging confirmation of this trend in our customer base. One of the customers we added in the third quarter is another top semiconductor company. securing a long-term foundational relationship with yet another industry leader. Arteris is now engaged with the majority of the world's top semiconductor companies who have historically used internal system IP solutions. Though some of these relationships are only initial engagements, These design wins demonstrate the willingness of major semiconductor companies to deploy commercial system IP products from leading and proven commercial vendors such as Arteris. Deals in the third quarter were characterized by strong demand across all our core market segments, led by design wins in enterprise computing, consumer electronics, communications, and automotive. The growing wave of artificial intelligence and machine learning, or AIML, applications is evidenced by our licensing activity, as over half of our licensing deals in the third quarter are enabling AIML design. As an example of our continuing AIML momentum, we recently announced the deployment of Arteris FlexDoc Interconnect used in New Realities Inference Servers SoC. As part of this new inference server, Arcturus provided connectivity for their NR1 SOC to support the movement of very large amounts of data in generative AI applications. The challenges that new reality was facing require addressing SOC density and latency performance to provide improved total cost of ownership. This new reality-influenced server connected by Arteris is further proof that our system IP is an essential part of building and deploying such AI solutions. Another example is our partnership with Fraunhofer IESE, a leading research institute in the area of software and system engineering methods to accelerate the development of AI MLSOCs. In very high bandwidth applications, such as those used for general AI and large language models, DRAM performance is a critical piece of the puzzle to move the amounts of data needed with customer AI requirements. The performance of our TerraSystem IP coupled with Fraunhofer Memory Exploration Framework is expected to enable mutual customers to improve performance, reduce cost, and accelerate the development of AI ML electronics. We are also seeing continued success with leading semiconductor industry players across multiple verticals, including high-performance computing, mobile handsets, networking, and more, as highlighted by the announcement of our partnership with Allchip, a top-tier provider of silicon design and production services. Through this partnership with Arteris, Allchip can deliver to its customers highly optimized SOCs, taking full advantage of the efficiency, scalability, and configurability of our NOC technology, with particular focus on AI, autonomous driving, vision systems, and consumer electronic products. We are seeing a growing number of different processor IPs deployed, ranging from those provided by ARM to various RISC-V providers and internal architectures, often connected together on the same SoC. Arteris is working closely with ARM and several RISC-V providers, including a recently announced partnership with Semidynamics, who provide customizable RISC-V processor IP and specializes in high-bandwidth, high-performance cores. The partnership aims to provide a better joint solution for data center-oriented AI ML applications. I'm proud to mention Arteris' continuous innovation was recognized with two awards granted during the quarter. The first, Technical Innovation of the Year, was given in the 20th Annual International Business Awards for our FlexNOC 5 Physically Aware NOC. Arteris was chosen among over 3,700 nominations from organizations in over 60 countries. The second award, Autonomous Vehicle Technology of the Year was given by Autotech Breakthrough for Arteria's fundamental role in building advanced driver assistance systems, ADAS, and autonomous driving SOCs, which combine AI and functional safety. Autotech Breakthrough analyzes the industry's automotive and transportation technology innovation, and Arteria's was chosen among over 1,600 technology innovations from 15 different countries. Moreover, I'd like to provide an update on the momentum of our recent product release, which we believe is the industry's first and only commercially available physical-aware FlexNOC 5 NOC IP, which we launched at the end of the second quarter. Given the growing need for effective physical closure for all SoCs below 60 nanometer, we are seeing strong customer interest. We have now shipped FlexNOC 5 to nine customers, including several top technology companies. In addition, we are seeing growing customer interest in FlexNOC 5 adoption in the fourth quarter of 2023 and out into 2024 and subsequent years. Finally, I'm pleased to announce that we achieved an important milestone with the ISO 9001 Quality Management System Certification, setting the solid foundation for further growth as we continue to expand our product portfolio and silicon deployment, which has already reached 3.5 billion devices. Currently, certain macroeconomic headwinds, including geopolitical uncertainties and global recessionary concerns, remain in place. We continue to be impacted by U.S. BIS restrictions with respect to China-U.S. trade, as well as tightening credit conditions globally, which is impacting the ability of our smaller customers to raise capital. Notably, in the third quarter, we saw increasing softness in the China market, as well as further lengthening of sales cycles globally. While these dynamics may create near-term headwinds, We believe that the scale and the scope of our long-term opportunity remains robust. The fourth quarter has historically been our strongest quarter. We're encouraged by what we're seeing in the current fourth quarter. We have a robust 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. With that, I'll turn it over to Nick to discuss our financial results in more detail.