Arteris, Inc.

Good afternoon, everyone, and welcome to the Arteries' fourth quarter and year-end 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 Arteries, 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 fourth quarter and full year ended December 31, 2023. 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 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 actual results to differ appear in the press release our terrorists issued today and in the documents and 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. 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, 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 December 31, 2023. Listeners who do not have a copy of the press release for the quarter ended December 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 CEO, 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 2023 with annual contract value plus trailing 12-month variable royalties of $56.1 million. We added four new customers in the fourth quarter, totaling 23 new customers for the year. Our customer base continues to expand across all of our key verticals and regions, with particular success in automotive, enterprise, consumer, and communications. Our customer base has now delivered approximately 3.5 billion SoCs to their electronic systems customers. The continued growth of SoC design complexity and associated design costs increasingly drives our customer base toward commercial system IP. As we look back at 2023, this accelerating industry adoption of commercial system IP solutions is demonstrated by a record number of license deals and record high customer chip design activity with 29 confirmed design starts for the quarter and 95 for the year. I'm delighted to note that we added four new major semiconductor and system house companies as customers during the year. Not only are we seeing growth in a number of our customers, but we're also seeing further design penetration within our existing customer base. License revenue is strong across all of our vertical markets and balanced across geographies. Notable achievement includes strong adoption of FlexNoc version 5 of the physically aware network on chip, which now represents the majority of FlexNoc sales. Customer design wins from the past years are developing into a growing royalty base for our tariffs, as we've seen a 32% year-over-year increase in royalties in 2023. Historically, our royalty revenue was primarily driven by leading-edge applications within the consumer space. But today, we see that our royalty stream is comprised of a broader mix across numerous customers in automotive, consumer electronics, and enterprise computing, and other applications. Our continued momentum in artificial intelligence and machine learning, or AIML space, remains strong, with AIML representing over 50% of our license deals in a quarter across a broad section of our verticals. For example, Rain AI is another innovative AI chip company which recently selected the Arteris FlexNoc 5 physically aware network on chip IP for use in its Edge AI accelerator. The low power, low latency, and high bandwidth capabilities of FlexNoc 5 will be critical in helping RAIN and its customers to process the large data requirements needed for generative AI applications. Communications, where AI supports the globally accelerating transition to 5G, is another vertical where we saw strong adoption of Arteris products for the growing need for high bandwidth, low power 5G chips that can only reach their performance goals by leveraging Arteris system IP. As an example, HQ, a leading innovator in 5G and AI technologies, has licensed Arteris FlexNoc for use in its comprehensive multi-mode 4G, 5G base station chip. It is a RISC-V-based device that offers a scalable architecture, high throughput, and low power consumption, effectively shrinking an entire base station onto a single SOC. J-LINX is another innovator in communications infrastructure, which has licensed both our N-Core and FlexNoc interconnect IPs for use in their next-generation modem SOC with the aims to provide telecom players with power to deliver ultra-high-capacity, multi-gigabit links over longer distances at an optimized total cost of ownership. In automotive, we have seen an accelerating proliferation of AI-enabled Advanced Driver Assistance Systems and other advanced electronics to support electrification, automated driving, and electronic unit ECU consolidation, ensuring all electronics adhere to automotive functional safety standards and other mission-critical applications. To continue to expand our technology to better support this endeavor, in Q4, we announced that Encore Cache Computer and Interconnect IP has achieved ISO 26262 certification, a key milestone to ensure safe technology is incorporated into modern vehicles and other autonomous systems. Similarly, our Magellan SOC integration automation software also received its ISO 26262 TCL1 functional safety certification, further expanding upon Arteris' ongoing commitment to support mission-critical safety applications. The strong focus on automotive was recognized in the fourth quarter, with Arteris being awarded the Autonomous Vehicle Technology of the Year Award by Autotech Breakthrough. Finally, In the fourth quarter, Arteris achieved ISO 9001 quality management system certification, further supporting customer confidence in our commitment to product and process quality. Currently, certain macroeconomic dynamics, including geopolitical uncertainties and the US BIS restrictions with respect to China-U.S. trade, continue to impact our business. While these dynamics do create near-term headwinds, we believe that the scale and scope of our long-term opportunity remains robust. This is illustrated by a robust product pipeline of new system 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.