Arteris, Inc.

Good afternoon, everyone, and welcome to the Arteris First Quarter 2025 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 Software Investor Relations. Please go ahead.

Thank you, and good afternoon. With me today from Arteris Charlie Janik chief executive officer and Nick Hawkins chief financial officer Charlie will begin with a brief review of the business highlights for the first quarter ended March 31 2025 Nick will review the financial results for the first quarter followed by the company's outlook for the second quarter in the full year of 2025 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 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 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 or 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, 2025. In addition, for a definition of certain of the key performance indicators, used in this presentation, such as annual contract value, contract design starts, and remaining performance obligations, please see the press release for the quarter ended March 31, 2025. Listeners who do not have a copy of the press release for the quarter ended March 31, 2025 may obtain a copy by visiting the investor relations section of the company's website. In addition, management will be referring to the Q1 2025 earnings presentation which can be found in the investor relations section of the company's website under the events and presentations tab. Now, I will turn the call over to Charlie.

Thank you, Erica, and thanks to everyone for joining us on our call today. In the first quarter of 2025, we achieved another record annual contract value plus royalties of $66.8 million and generated $2.7 million in non-GAAP positive free cash flow, as demand for commercial semiconductor system IP products continues to grow. Our success during the quarter saw steady adoption across enterprise computing, communications, and automotive semiconductors, driven by growing chiplet and SOC design complexity, as well as proliferation of AI applications. During the quarter, we had several key design wins. Four came from top 30 global technology companies expanding their deployment of Arteris products. The largest win included Magellan SOC integration automation software, as well as interconnect IP for various applications, including memory controllers and consumer electronic projects. Another of the large wins came from an expanded reorder from a top five technology company with products and services, including hyperscale computing and consumer electronics. Also, a major automotive OEM expanded its use of Arteris product portfolio for its next generation of EV vehicles. Another key win, and one of the three new Arteris customers in a quarter, was with an industry-leading Japanese automotive OEM. This customer licensed our products to support their new in-house development of autonomous driving SOCs that include AI and functional safety capabilities. They selected Arteris based on the combination of our product's superior performance, lower power, area efficiency, and high resilience for their mission-critical applications. With this latest addition, we now have 10 automotive OEMs as direct Arteris customers. Adoption of our technology also continues to be strong with advanced semiconductor companies. For example, our physically aware FlexNoc IP with AI and functional safety support was chosen for the development of next-chips, next-generation vision-based ADAS technology to realize the future of autonomous driving with sustainability. We are seeing increased movement from internal system IP solutions to commercial vendors such as Arteris as customers desire resource efficiency, quality, and faster solutions delivery. I am pleased to report that our penetration of the increasingly complex microcontroller MCU system IP market continues with initial receipt of royalties from a top five MCU manufacturer. This penetration is driven by continued increases in MCU complexity, as well as ever more stringent latency and cost requirements. In addition to our customer momentum, we continue to deliver new technology. In the last earning call, we announced FlexGen, our AI-driven smart NOC IP technology, which has the potential to revolutionize semiconductor designs by delivering up to 10x engineering productivity, lowering power consumption, and improving overall performance. We now have over 20 customer SOC projects evaluating FlexGen, which is a promising start for this innovative product, which we expect will generate revenue and ACV in the second half of the year. In the first quarter, Arteris also released the latest generation of Magilem register management automation software used for semiconductor hardware and software integration. This latest technology provides a single source of data for development of SOCs and chiplets by chip architects, hardware designers, firmware engineers, verification teams, and documentation teams, helping to mitigate the silicon failure risks associated with the unfortunate and quite common instances of out-of-date specifications, interpretation differences across various teams, and user errors. The latest product improves performance and scalability to address the needs of any semiconductor design, ranging from simple IoT devices to state-of-the-art complex artificial intelligence SOCs, FPGAs, and chiplets. I'm also proud to see that our focus on innovation being recognized in three prominent categories in the 23rd Annual American Business Awards out of 3,600 nominations. These included the Gold Award for the Most Innovative Tech Company of the Year, another Gold Award for Technical Innovation of the Year for our NCore NOC IP with its support for ARM, RISC-V, x86, and mixed architectures, and the Silver Award in the Product Innovation category for our FlexNOC and NCore NOC tiling technology in support of advanced AI computing in the data center and the edge. Beyond actively driving in-house innovation, Arteris continues to expand ecosystem collaboration to provide full solutions to our customers, including leveraging our product's physical awareness to support the faster development of advanced electronics with more predictable power, performance, and area, or PPA, for SOCs and chiplets. We recently announced that Arteris joined the Intel Foundry Accelerator Program, becoming members of the IP Alliance, enabling silicon designs using Intel's 18A advanced process node to collaborate on physically aware NOCs for future nodes. Additionally, Arteris also became a founding member of Intel Foundry's new Chiplet Alliance, which aims to create a robust network of ecosystem partners to ensure interoperability and to accelerate creation of a wide range of multi-die silicon applications. Similarly, Arteris also joined the IMEC-sponsored Automotive Chiplet Forum, whose goal is to share insights and ensure industry alignment and interoperability for automotive chiplet-based architectures, where our NOC products with ISO 26262 functional safety capabilities will play an increasingly important role moving forward. Lastly, we announced the opening of our new Engineering and Customer Support Center in Krakow, Poland. This new location will support the development of network-on-chip IP and SoC integration automation software for the semiconductor industry. Arteris has hundreds of customers worldwide who are supported by workforce across 11 countries. The addition of a hub in Poland will expand the company's global footprint and provide Arteris with expanded access to top engineering talent for product development, validation, and customer support. We believe the scale and scope of our long-term opportunity remain robust and are supported by our current products and strong product pipeline of new silicon system IP technologies, as well as growing relationships with some of the largest and most advanced electronics companies in the world. Our customers continue to innovate in exciting high-growth areas, such as generative AI, autonomous driving, 5G and 6G communications, using our terrorist products, and global support. We are diligently monitoring the current global economic uncertainty, although this did not lead to any deal cancellations or delays in the first quarter. Nevertheless, we do see greater potential for variability in financial outcomes for the year due to this economic uncertainty. The clearest impacts are potential short-term headwinds to royalties as a result of waning customer global confidence and automotive and other tariffs. Additionally, our overseas-based OPEX is likely to increase should the recent weakness of the U.S. dollar persist or worsen. As a potential offsetting factor, we are seeing opportunities for our customer base to accelerate outsourcing of their silicon system IP needs to our tariffs to accelerate their products' time to market, reduce their own costs, and increase their operating efficiencies. Nick will cover these impacts more when he discusses our guidance. With that, I'll turn it over to Nick to discuss our financial results in more detail.

Thank you, Charlie, and good afternoon, everyone. As I review our first thought results today, please note I will be referring to GAAP as well as non-GAAP metrics. A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 1Q2025 earnings presentation, which can be found in the investor relations section of the company's website under the events and presentations tab. We had a strong first quarter, characterized by beating our guidance on all key financial measures. Turning to slide five of the presentation, total revenue for the first quarter was $16.5 million, up 28% year over year. benefiting from approximately 0.5 million one-time revenue and exceeding the top end of our guidance range. At the end of the first quarter, annual contract value or ACB plus royalties was $66.8 million, up 15% year-over-year, above the midpoint of our guidance range and a record high for the company. Remaining performance obligations or RPO at the end of the first quarter were $88.9 million, representing 19% year-over-year increase. Once again, a new high for our terrorists. Non-GAAP gross profit for the quarter was $15.3 million, representing a gross margin of 92%. GAAP gross profit for the quarter was $15.0 million, representing a gross margin of 91%. Now turning to slide six. Non-GAAP operating expense in the quarter was $18.4 million, up 9% sequentially and 8% year-over-year, impacted by the timing of certain nonlinear expenses, and in part driven by the weaker US dollar increasing the cost of our overseas operations. Additionally, we continue to grow the investment in our R&D and field application engineering teams that drive technology innovations and solution support. Total gap operating expense for the first quarter was $22.7 million, representing a 10% year-over-year increase. As we look ahead, we plan to focus spending on strategically critical areas, in particular in key people who can help drive product development, enhance customer support through field application engineering, and expand the geographic and key account reach of our global sales team. We believe that these ongoing investments can accelerate our top-line growth. At the same time, we are driving operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for approximately three years. Non-GAAP operating loss for the first quarter was $3.2 million, close to the top end of our guidance range. This represents a $2.1 million or more 40% improvement compared to the loss of $5.3 million in the prior year period. Gap operating loss in the first quarter was $7.7 million compared to a loss of $9.1 million in the prior year period. Non-gap net loss in the quarter was $3.6 million or diluted net loss per share of $0.09 based on approximately 40.9 million weighted average diluted shares outstanding. Gap net loss in the quarter was $8.1 million or diluted net loss per share of 20 cents. Moving to slide seven and turning to the balance sheet and cash flow. We ended the quarter with $55.1 million in cash, cash equivalents, and investments, and we have no financial debt. Free cash flow, which includes capital expenditure, was positive $2.7 million for the quarter. above the top end of our guidance, benefiting from some early customer payments that were due early in the second quarter. I would now like to turn to our outlook for the second quarter and full year 2025 and reflux now to slide eight. Looking forward, the current economic turbulence has created some marked uncertainty for our business, and consequently we have revisited our 2025 guidance. As a general contextual comment, our view is that the current economic turbulence presents three key financial considerations for 2025. First, the current trade challenges may result in short-term reduction for end demand for some of our customers' products and in our key market verticals, especially automotive and consumer. It is, however, not yet clear what, if any, impact there will be to our royalty revenue in 2025. The first quarter unit sales outputs from our customers have generally been better than expected. However, it is possible that this is in part resulting from pull forward demand for our customers' products in anticipation of increased tariff costs. Consequently, we have not adjusted our overall FY25 revenue guidance at the midpoint since we believe that the overall net impact will not be materially different from our prior expectations. Second, since the start of the year, the US dollar has weakened against most major currency pairs. While the significant majority of our revenue is invoiced in US dollars, approximately 40% of our expenses are denominated in foreign currencies, predominantly the euro, which is appreciated by up to 10% against the US dollar this year. In the event that the U.S. dollar exchange rates remain at current levels, we estimate that the annual impact on our terrorist expenses would be approximately $1 million. However, due to unrelated offsetting expense factors, we are not adjusting our midpoint guidance for non-GAAP operating income and free cash flow for FY 2025. Third, while our terrorist products are not subject to tariffs, there is a potential existential impact of the ongoing trade disputes and collateral economic impacts to our business environment, including factors such as consumer and industrial confidence. As a result, we have widened our top-line guidance ranges. This economic turbulence is exogenous to our terrorist business operations, and it is hard to forecast with certainty the longevity or collateral consequences of changing economic policies. That being said, while the industrial markets remain clouded with tariff and geopolitical uncertainty, we see our customers' long-term growth and therefore our license and royalty revenue remaining robust. For the second quarter of 2025, we expect ACV plus royalties of $66 million to $70 million, revenue of $16.1 million to $16.5 million, with non-GAAP operating loss of $4 million to $3 million, and non-GAAP free cash flow of negative $5 million to zero, which reflects the reverse effect of early customer payments that benefited the first quarter, as I mentioned earlier. Therefore, we expect free cash flow for the first half overall to be positive at the midpoint. For the full year of 2025, our guidance is as follows. ACV plus royalties to exit 2025 at $71 million to $79 million. Revenue of $65 million to $71 million. Non-GAAP operating loss of between $14 million to $7 million. Non-GAAP free cash flow of zero to positive $8 million. In spite of the near-term challenges I outlined, we are very encouraged by the continued strong deal pipeline, and I would reiterate the point raised earlier by Charlie that we are seeing promising signs of an accelerated interest by some major customers to increase their outsourcing to the commercial market for the system IP products that Arteris specializes in. With that, I will turn the call over to the operator and open it up for questions. Operator.

Ladies and gentlemen, we will now begin the question and answer session. Should you have any questions, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys.

One moment while we prepare our Q&A roster. Your first question comes from the line of Josh Buchalter from TD Cowen.

You may now ask your question.

Hey guys, thank you for taking my question and congrats on the steady results in an interesting backdrop. I guess I wanted to hit on the tariff and the trade environment right now. You know, you're being upfront with sort of your cautious view. I guess I wanted to ask more directly, are you seeing any changes from your customers' behaviors yet? And in particular, on their willingness and desire to invest in their IP and SLC roadmaps going forward, or is no change yet and you're just being more cautious on the back half?

Oh, I mean, semiconductors, so IP and ADA is not really subject to any tariffs directly, right? We are seeing... some replanning of projects in China due to not only tariffs, but also some of the increasing regulations coming from the U.S. But on the other hand, what we're also seeing is that as the larger companies want to, they're looking at their efficiencies, and so there seems to be an increased willingness by those companies to outsource system IP to commercial vendors such as Arteris. And the Arteris type of companies actually tend to do fairly well in markets. There are just, you know, under uncertainty because, you know, our customers tend to design their way out of recessions. So while there may be some impact on royalties, which are up to the small portion of our revenue at this point in time, the licensing activity remains robust. Thank you for all of that.

And just to add to that, Josh, thanks for the question. This is Nick speaking. So, yeah, just to reiterate in case anybody missed it, while we're pointing out that there is some economic uncertainty around because things are changing day to day, as you know, The business is still robust. We're not seeing the change in the pipeline one way or the other. So we think we're well set for the year, which is why we haven't changed our full year midpoint guidance on any of the metrics. There is, as you rightly point out, a great deal of uncertainty still. So we don't know what the knock-on impact and what the collateral impact might be, which is why, in common with many other companies, we've just widened our guidance range because we have less certainty right now.

Okay, it makes sense. Thank you for the color, both of you. And for my follow-up, I wanted to ask about FlexGen. It sounds like you're increasingly confident in the success of that platform. Could you maybe elaborate on why – What's driving the expectations for revenue and ACB in the second half of the year and where sort of you're seeing initial traction from an application standpoint for FlexGen? Thank you.

So we've been working on FlexGen for three years. We've been delivering it to customers since second half of last year. We have right now at the moment about 20 projects evaluating FlexGen. The feedback has been almost universally positive, and we have been able to get it to production status, full production status, back in February of this year with the release of FlexGen 1.2, which is the third release of it. And we anticipate that it's going to generate substantial bookings and then revenue, which is rateable, in the second half. So we're very pleased with the reception of FlexGen. And the applications are fairly broad, right? They range from automotive, data center, enterprise, consumers. So it's a pretty broad spectrum of companies that are using it for evaluations right now.

And just to add a little bit of color to that as well, Josh, as I'm sure you know from previous commentaries, uh the uh any increase from flexgen which is likely to be through its asp as much as as as major new customers um the is likely to be first uh will be uh mathematically felt first in uh rpo and acv because they step up um uh contract by contract immediately uh the revenue because of its radical nature if everything is running on a sort of two and a half to three and a half year contract design term because it's regrettable the impact on revenue from any second half deal signed or even second quarter deals signed will be much more muted. So we'll see the full effect in 2026. It also may benefit free cash flow, of course, but to the extent that people pay, customers pay up front.

Thanks, both. Appreciate it.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touchstone phone. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your next question comes from the line of Kevin Gerrigan from Rosenblatt Securities. Please ask your question.

Yeah. Hey, Charlie and Nick, congrats on the solid results. Hey, you guys spoke about accelerated interest from companies that have insourced. Are you also seeing accelerating decision timelines by customers that are kind of going from having an initial conversation to signing the licensing agreement than you've previously seen?

Not really. I mean, people are generally trying to accelerate their design cycles, but the licensing... activity is really pretty much steady, I would say, you know, steady growth. And there is, of course, a number of large companies that are looking to, basically what we're seeing is that they're saying, okay, for whatever we're doing today, we're going to keep the existing system IP, but we're not going to invest in it for the next generation because it's becoming more complex and more difficult. And so the next generation tends to get outsourced, right? So we're pretty pleased with that area of the business. And we think ultimately because of the complexity and new application, most of the system IP is going to ultimately get outsourced. And we're going to go from maybe two-thirds of the market being internal to maybe one-third of the market being internal and two-thirds being commercial. So I think this economic uncertainty is actually accelerating that, even though we're not seeing much impact on faster decision-making on individual projects.

And Kevin, thanks for the question. This is Nick. Just to add to Charlie's excellent commentary, there are two key things that are driving that. One is a pure economic one, which is driven out by the complexity, the increase in complexity of SOC designs, and it's becoming tougher and tougher to support internal teams, which are very expensive, and typically we look at a sort of a 10x payback from taking an Arteris license versus doing the design internally. So pure economics, and in times like we have at the moment. That is something that our customers, we're noticing, are supremely focused on, is improving their OPEX and improving the bottom line. And the second is actually just a scarcity issue, and we've touched on this before. There is a scarcity of qualified hardware engineers who are capable of designing networks on chip. And that is something that actually FlexGen plays into very well because it decreases the amount of sophistication required by a customer's design team to be able to design a NOC. So those two factors are quite interesting and almost inexorable drivers of the move to the commercial market.

Okay, great. I appreciate the color on that.

And then, you know, as a follow-up on your joining the Intel Foundry Alliance program, I know it's only been, you know, two weeks or so since the announcement, but have you guys seen any increase in interest? And do you think this, by joining the Alliance, you know, it could help you land a customer or two that you might have otherwise thought you wouldn't be able to capture? Yeah.

Yeah, I mean, a lot of this is related to Libu 10 taking over as CEO of Intel, right? And what we're expecting is that Libu is going to be much more open toward commercial solutions, both EDA and on the IP side. And also that there is a commitment by Intel toward continued investment in the foundry technology and in customer relationships for the foundry. So we want to make sure that we participate in the 18A sort of process deployment and that we're basically the main system IP partner for that alliance. So, yes, we expect that this will result in some additional business over the next 12 months.

Yeah, that makes sense. Okay, great. Thanks, guys, and congrats again on the results. Your next question is from the line of Gus Richard from Marflin.

Please ask your question.

Yeah, thanks for taking the questions. First of all, was book to bill approximately one in the quarter? That was kind of what I was coming up with.

Yeah, so Gus, thanks, but we don't disclose bookings, and so I don't really want to comment on that.

Okay. Okay. Always got to ask. You always got to ask. Second question, Charlie, you know, you joined two chiplet alliances, IMEC and Intel. And just wondering a couple of questions around chiplets. You know, how do you see that evolving? Has the industry coalesced around UCIE standard or, you know, is another interconnect standard competing with that? And, you know, sort of what is the, you know, how long is it going to take for things to settle out so people can mix and match chiplets is kind of where I'm trying to get at.

Yeah. So chiplets are already in production. But these are homogeneous chiplet SOCs where essentially it's one company, one process. And so you have... you know, multi-die chips like Intel Meteor Lake essentially shipping in very significant volumes. What is just now starting to be established is a heterogeneous chiplet environment where the chiplets are coming from different suppliers. They're coming from different processes. They have to be packaged in innovative ways. And so This is going to take a number of years, even though people are already investing today, which is kind of why we're very interested in this particular aspect of the system IP world, because basically we make chips communicate on single die, but now we have to make chips communicate across multiple dies or multiple chiplets in a more efficient manner, and that makes the system IP much more complex and much more valuable, right? So we're very excited about that. In order to make this work, the industry and the whole ecosystem has to standardize in terms of some standards. So clearly you mentioned UCIE, Gus, and that seems to be the communication mechanism for cash coherent communication between multiple guys, right? but we're basically trying to make multiple dives that have multiple processors look like a single programming space to the software. So it's quite complex. And so you need standards like UCIE. You need standards like IP Exact, System Verilog. And so we expect that over the next couple of years that the industry will call us along, you know, based on a few standards in order to lower the cost of each individual project because the only way that this is going to really work economically is if these things are repeatable based on certain standards and we're committed to support whatever standards are emerging. And the whole ecosystem has to coalesce around the standards in order to make these heterogeneous multi-die chiplets, SOCs, an economic reality.

Got it. And effectively, as this happens, you need a Switzerland knock for the chiplets.

Exactly.

And then, you know, you talked about the market being two-thirds internal today, one-third outsourced. Roughly, what's your estimate on how big the market is today for system IPs?

Okay, so it's about somewhere between a billion and billion two. The NOC itself is about 600, 700 million, something like this. There is probably 300 million in the SIA integration software. This is the software that's used to package, connect, and configure the various IP blocks. And then there's about another... probably another $300 million or $250 million in system IP blocks that don't do any processing. They're used to essentially make the chip function better and communicate better, more efficiently. Things like last-level caches, memory controllers, and so on and so forth, reorder buffers, and things that just manipulate the traffic around. So it's about $1.2 billion. One, 1.2 billion.

Got it. Super helpful. And then the last one for me, you know, you talked about your large customers considering outsourcing. And, you know, obviously the next generation will be more expensive, more complex, you know, limited resources, et cetera. But my question is, is there some underlying technological change that is making this happen now rather than two years from now or two years ago? What, you know, so what is prompting people to, okay, we got to do this?

Well, I mean, you know, when Arteris started, which was more than 20 years ago, you had one processor and one, you know, two channels of memory and a couple IOs, right? So it was relatively easy to do this in-house. Then you started getting multiple, multi-core processors. So you had to introduce cache coherency. The next revolution came with AI. So you have these big AI sections, which have their own internal and external data communication requirements and very high bandwidth and so on and so forth. And now you have the rise of chiplets. So with each of these, it's becoming more expensive and more difficult to do. So there isn't one single thing where the CFOs and the SVPs of engineering of these big companies wake up and say, oh, my God, we've got to make a change. But with each of these developments, it becomes really, really complex. And I know, Gus, you went to the Intel Foundry Day as well, and there was a Kevin O'Buckley slide which talked about a chiplet system that was 12 times the size of what's possible with reticles, right, which is about 600 square millimeters. So these were chiplet systems 12 times the size. And so when you start to deal with these kinds of monsters, it gets very, very expensive. And that was drives the adoption of commercial IP solutions, which can be amortized over many more projects than just one company can do.

Right, and then last question for me, and I'll step back. You know, you're in a certain position where it would take you so much R&D to get to what's needed for, you know, 12X the reticle size. You know, sort of what would it take, you know, a large company that does huge SOCs to develop something for the chip-led

I mean, these large companies, they have very large budgets, right?

And so they can do, they can decide to invest in their, in sort of the chiplet infrastructure. But as Nick pointed out, the problem is getting the people, keeping them together for a number of years and be able to amortize that investment over relatively few projects. I mean, most of these companies are doing two to three chiplet projects right now, right? They're not doing 10 to 15 like they're doing single-die projects, right? So, you know, the cost is, you know, the CFO of those companies looks at it and says, you know, why are we doing that, right? And so, you know, companies like Arteris have a faster learning than any internal team, and we can amortize that investment, which is starting to be quite large, against many, many more projects. Faster learning and basically amortization of the R&D over many more projects is the advantage that we would have against any internal team. It's steady progress in this outsourcing to commercial solutions. It's not going to happen overnight, but the trend and the direction and the vector is clear.

Got it. Thanks a lot. Thanks for your patience. Your next question is from the line of Blaine Curtis from Jefferies.

Please go ahead.

Hey guys, thanks for letting me take a last question here. Charlie, I just want to curious what you would point to in terms of the annual forecast you're looking for continued growth on the licensing side. I was wondering if you could talk to it by an end market perspective, where you're most hopeful of for the remainder of the year.

So clearly the highest growth at the moment is in AI. There's AI projects for data center training. There's AI projects for data center inference. There's projects for edge inference. And actually, AI is making it into the endpoints like phones and cars. So that's the large number of projects. And I think we're probably where half of the design starts in the quarter. We're actually somehow AI related, right? We continue to be bullish about automotive. the automotive industry as some cycles, but people are designing now automotive chips for six or seven years from now that are going to, so that is also pretty robust. And we're very excited about our microcontroller entry. The microcontrollers are now becoming much more complex, so they need network on chip and software that helps the microcontrollers come together more efficiently. And then there's the usual consumer and enterprise applications, which are also steady, right? And what's really happening, you know, Gus sort of asked about the market size, right? There's probably about 60, 600, 700 SOCs that are being designed a year. And we have only 15% of that, right? So there's plenty of growth. And each project uses more and more system IP. So which becomes more and more valuable, right? And so we're very bullish about the opportunity that we have in front of us, and our main challenge is to make sure that we remain the main independent, neutral player in this particular piece of the world.

Gotcha. Thanks. And then just for Nick, I wanted to ask you on the OpEx, you were – I think last quarter talking about keeping SG&A flat. Obviously, it's at a higher level in the first half. Just kind of curious if flat's still the right way to think about it.

So when we talked about four-year guidance last time around, Blaine, we characterized or I characterized 2025 as an up year by about 10%. So roughly half the rate of top-line growth. So we've got revenue growing this year guided at 18%. And we're sort of maintaining our view on OPEX at about half of that, so 9% to 10% overall. And I think that's still reasonable. Where we're getting all that operating leverage, and this is maybe what you're recalling, is in G&A, which has now been flat for three full years, including the 25, 24, 23, have been completely flat the way we're guiding it right now. Where we're putting the investment in is in R&D, sales, and field application engineering because they're all driving short, medium, and long-term top-line growth. And we think there's huge opportunities left. Next thing. Could I also just add on to Charlie's point? I was trying to cut in, but I realized I was on mute. But just to put some numbers around Charlie's commentary, AI-related deals now account for north of 55% of our total business. So that's growing really nicely. But that, of course, is a horizontal, not a vertical, as you know. The two highest growth rate verticals for us are, again, not surprisingly, are automotive in terms of when I'm looking at ACB and royalties, automotive and enterprise. And enterprise is, of course, part of the AI story because that's obviously the backbone of the AI workload. So that's very exciting. And, in fact, it's our fastest-growing royalty segment as well, is enterprise.

Thank you.

There are no further questions at this time. I'd like to turn the call over to Mr. Charlie Janik for closing comments. Sir, please go ahead.

Yes, well, thank you for your interest in our terrace. I hope that you're pleased with the results that we delivered in Q1. And we look forward to meeting with you at the upcoming investor conferences that we're participating in during the next couple of months. And we look forward to updating you all on our business progress in the course to come.

So thank you very much. This concludes today's conference call. Thank you very much for your participation. You may now disconnect.