Arteris Announces Financial Results for the Second Quarter 2022 and Estimated Third Quarter and Full Year 2022 Guidance

Aug 09, 2022 at 4:06 PM EDT

CAMPBELL, Calif., Aug. 09, 2022 (GLOBE NEWSWIRE) -- Arteris, Inc. (Arteris or Arteris IP), a leading provider of network-on-chip (NoC) interconnect and other intellectual property (IP) technology that manages the on-chip communications in system-on-chip (SoC) semiconductor devices, today announced financial results for the second quarter ended June 30, 2022 as well as estimated third quarter and full year 2022 guidance.

“We’re excited to report our continued momentum in 2022, with Annual Contract Value plus Trailing-Twelve-Month Royalties of $51.7 million in the second quarter,” said K. Charles Janac, President and CEO of Arteris IP. “Despite macroeconomic headwinds, we believe that Arteris IP is well positioned to make progress even in a challenging economic environment. We continue to see higher levels of silicon integration, driving system houses to become more involved in silicon design.”

Second Quarter 2022 Financial Highlights:

  • Annual Contract Value (ACV) and Trailing-twelve-month (TTM) royalties of $51.7 million, up 18% year-over-year
  • Revenue of $14.8 million, up 37% year-over-year
  • Remaining performance obligation (RPO) of $55.7 million, up 11% year-over-year
  • Operating loss of $5.4 million or 37% of revenue
  • Non-GAAP operating loss of $1.9 million or 13% of revenue, compared to a loss of $3.0 million in the year-ago period
  • Net loss of $5.7 million or $0.18 per share
  • Non-GAAP net loss of $2.2 million or $0.07 per share
  • Non-GAAP free cash flow of $0.1 million or 1% of revenue

Second Quarter 2022 Business Highlights:

  • Added nine Active Customers in the second quarter, including major new customer wins such as Telechips in automotive, Pliops in consumer and Sunrise Memory in enterprise, as well as a leading automotive OEM, leading enterprise hyperscaler, and a leading AI/ML semiconductor company;
  • We made a major release of our Ncore cache coherent interconnect product to multiple automotive and enterprise customers;
  • 18 confirmed design starts in the second quarter across our core markets, including in automotive, datacenter, and in mobile computing;
  • We announced Inuitive as a customer, which will use our IP in the development of next generation vision processing for edge devices for robotics, drones, augmented reality and virtual reality, and mobile products; and
  • We announced the addition of Claudia Fan Munce to Arteris IP’s Board of Directors. Claudia’s experience includes a distinguished 30-year career at IBM, a Stanford University lecturer, and board of director roles at major public companies.

Estimated Third Quarter and Full Year 2022 Guidance:

 Q3 2022FY 2022
 (in millions, except %)
ACV + TTM royalties$51.0 - $53.0$48.0 - $52.0
Revenue$10.5 - $12.5$49.5 - $52.5
Non-GAAP operating loss (%)41.2% - 56.2%24.3% - 39.3%
Free cash flow (%)(56.2)% - (41.2)%(25.1)% - (10.1)%

The guidance provided above are forward-looking statements and reflect our expectations as of today's date. Actual results may differ materially. Refer to the section titled "Forward-Looking Statements" below for information on the factors, among others, that could cause our actual results to differ materially from these forward-looking statements.

Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP operating loss, Non-GAAP operating loss margin, Non-GAAP net loss, Non-GAAP net loss per share, free cash flow and free cash flow margin are Non-GAAP financial measures. Additional information on Arteris’ historic reported results, including a reconciliation of these Non-GAAP financial measures to their most comparable GAAP measures, is included in the financial tables below. A reconciliation of Non-GAAP guidance measures reported above to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future, although it is important to note that these factors could be material to Arteris' results computed in accordance with GAAP.

Definitions of the other business metrics used in this press release including ACV, active customers, confirmed design starts and RPO are included below under the heading “Other Business Metrics.”

Conference Call

Arteris will host a conference call today on August 9, 2022 to review its second quarter 2022 financial results and to discuss its financial outlook.

 Time:4:30PM ET 
 United States/Canada Toll Free:877-407-9208 
 International Toll:1-201-493-6784 
 Conference ID:13730927 

A live webcast will also be available in the Investor Relations section of Arteris’ website at: https://ir.arteris.com/events-and-presentations

A replay of the webcast will be available in the Investor Relations section of the company’s web site approximately two hours after the conclusion of the call and remain available for approximately 30 calendar days.

About Arteris

Arteris IP (Nasdaq: AIP) provides system-on-chip (SoC) system IP consisting of network-on-chip (NoC) interconnect IP and IP deployment technology to accelerate system-on-chip (SoC) semiconductor development and integration for a wide range of applications from AI to automobiles, mobile phones, IoT, cameras, SSD controllers, and servers for customers such as Bosch, Mobileye, Samsung, Toshiba and NXP. Arteris IP products include the Ncore® cache coherent and FlexNoC® non-coherent interconnect IP, the CodaCache® standalone last level cache, and optional Resilience Package (ISO 26262 functional safety), FlexNoC AI Package, and PIANO® automated timing closure capabilities. Our IP deployment products provide intelligent automation that accelerates the development and increases the quality of SoC hardware designs and their associated software and firmware, verification and simulation platforms, and specifications and customer documentation. Customer results obtained by using Arteris IP products include lower power, higher performance, more efficient design reuse and faster SoC development, leading to lower development and production costs.

Investor Contacts:
Arteris
Nick Hawkins
Chief Financial Officer
IR@arteris.com

Sapphire Investor Relations
Erica Mannion and Michael Funari
+1 617 542 6180
IR@arteris.com

Forward-Looking Statements

This press release contains forward-looking statements, including but not limited to, statements regarding our future financial and operating performance, including our GAAP and Non-GAAP guidance for the third quarter and full year 2022; our market opportunity and its potential growth; our position within the market and our ability to drive customer value. Any forward-looking statements contained herein are based on our historical performance and our current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent our expectations as of the date of this press release. Subsequent events may cause these expectations to change, and we disclaim any obligation to update the forward-looking statements in the future, except as required by law. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from our current expectations. Important factors that could cause actual results to differ materially from those anticipated in our forward-looking statements include, but are not limited to, the significant competition we face from larger companies and third-party providers; our history of net losses; whether semiconductor companies in the automotive market, AI/ML market, 5G and wireless communications market, large scale cloud and data center market and consumer electronics market incorporate our solutions into their end products and the growth and economic stability of these end markets; our ability to attract new customers and the extent to which our customers renew their subscriptions for our solutions; the ability of our customers’ end products achieving market acceptance or growth; our ability to sustain or grow our licensing revenue; our ability, and the cost, to successfully execute on research and development efforts; the occurrence of product errors or defects in our solutions; if we fail to offer high-quality support; the occurrence of macro-economic conditions that adversely impact us, the effects of geopolitical conflicts, such as the military conflict between Russia and Ukraine, our customers and their end product markets; the range of regulatory, operational, financial and political risks we are exposed to as a result of our dependence on international customers and operations; our ability to protect our proprietary technology and inventions through patents and other IP rights; whether we are subject to any liabilities or fines as a result of government regulation, including import, export and economic sanctions laws and regulations; the occurrence of a disruption in our networks or a security breach; risks associated with doing business in China; and the other factors described under the heading “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 to be filed with the Securities and Exchange Commission (SEC) on August 9, 2022. All forward-looking statements reflect our beliefs and assumptions only as of the date of this press release. We undertake no obligation to update forward-looking statements to reflect future events or circumstances. Our results for the quarter ended June 30, 2022 are not necessarily indicative of our operating results for any future periods.

Arteris, Inc.
Condensed Consolidated Statements of Loss and Comprehensive Loss
(In thousands, except share and per share data)
(Unaudited)

 Three Months Ended
June 30,
 Six Months Ended
June 30,
  2022   2021   2022   2021 
Revenue       
Licensing, support and maintenance$14,033  $10,056  $24,608  $16,217 
Variable royalties and other 789   757   1,969   1,254 
Total revenue 14,822   10,813   26,577   17,471 
Cost of revenue (1) 1,289   867   2,268   1,735 
Gross profit 13,533   9,946   24,309   15,736 
Operating expenses:       
Research and development (1) 10,371   6,425   19,827   12,963 
Sales and marketing (1) 4,456   2,281   8,377   4,729 
General and administrative (1) 4,132   4,761   8,147   8,012 
Total operating expenses 18,959   13,467   36,351   25,704 
Loss from operations (5,426)  (3,521)  (12,042)  (9,968)
Interest and other income (expense), net 109   (200)  28   (314)
Loss before provision for income taxes (5,317)  (3,721)  (12,014)  (10,282)
Provision for income taxes 351   188   474   344 
Net loss and comprehensive loss$(5,668) $(3,909) $(12,488) $(10,626)
        
Net loss per share attributable to common stockholders, basic and diluted$(0.18) $(0.20) $(0.39) $(0.55)
Weighted average shares used in computing per share amounts, basic and diluted 32,258,228   19,874,925   31,940,293   19,354,965 

(1) Includes stock-based compensation expense as follows:

 Three Months Ended Six Months Ended
 June 30, June 30,
 2022 2021 2022 2021
 (in thousands)
Cost of revenue$260 $14 $356 $27
Research and development 1,493  221  2,637  420
Sales and marketing 728  25  999  49
General and administrative 903  118  1,701  215
Total stock-based compensation expense$3,384 $378 $5,693 $711


Arteris, Inc.

Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)

 As of
 June 30, 2022 December 31, 2021
ASSETS    
Current assets:   
Cash$81,301  $85,825 
Accounts receivable, net 4,705   13,873 
Prepaid expenses and other current assets 8,862   6,949 
Total current assets 94,868   106,647 
Property and equipment, net 3,017   2,438 
Equity method investment 12,169    
Operating lease right-of-use assets 2,361   2,765 
Intangibles, net 2,721   2,959 
Goodwill 2,677   2,677 
Other assets 3,339   2,957 
TOTAL ASSETS$121,152  $120,443 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$1,567  $1,722 
Accrued expenses and other current liabilities 10,758   10,573 
Operating lease liabilities, current 1,027   961 
Deferred revenue, current 28,104   28,403 
Vendor financing arrangements, current 1,077   833 
Total current liabilities 42,533   42,492 
Deferred revenue, noncurrent 19,681   20,773 
Operating lease liabilities, noncurrent 1,394   1,851 
Vendor financing arrangements, noncurrent 239   266 
Deferred income, noncurrent 10,444    
Other liabilities 1,151   2,157 
Total liabilities 75,442   67,539 
Stockholders' equity:   
Preferred stock, par value of $0.001 - 10,000,000 shares authorized and no shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively     
Common stock, par value of $0.001 - 300,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 32,622,817 and 31,530,682 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 33   31 
Additional paid-in capital 97,237   91,945 
Accumulated other comprehensive loss (81)  (81)
Accumulated deficit (51,479)  (38,991)
Total stockholders' equity 45,710   52,904 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$121,152  $120,443 


Arteris, Inc.

Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 Six Months Ended
June 30,
  2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net loss$(12,488) $(10,626)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation and amortization 929   733 
Stock-based compensation 5,693   711 
Operating non-cash lease expense 13   (31)
Other, net (1)  (8)
Gain on deconsolidation of subsidiary (149)   
Changes in operating assets and liabilities:   
Accounts receivable, net 9,168   5,932 
Prepaid expenses and other assets (2,232)  (2,872)
Accounts payable (1)  973 
Accrued expenses and other liabilities (704)  (34)
Deferred revenue (1,391)  3,716 
Net cash used in operating activities (1,163)  (1,506)
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of property and equipment (205)  (359)
Payments relating to investment in equity method investment (520)   
Net cash used in investing activities (725)  (359)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Payments of contingent consideration for business acquisition (1,573)   
Proceeds from issuance of common stock    5,435 
Principal payments under vendor financing arrangements (407)  (325)
Proceeds from exercise of stock options 443   298 
Payments to tax authorities for shares withheld from employees (843)   
Payments of deferred offering costs (256)  (178)
Payments of principal portion of term loan    (300)
Net cash (used in) provided by financing activities (2,636)  4,930 
NET (DECREASE) INCREASE IN CASH (4,524)  3,065 
CASH, beginning of period 85,825   11,744 
CASH, end of period$81,301  $14,809 


Non-GAAP Financial Measures

To supplement our financial results, which are prepared and presented in accordance with GAAP, we use certain Non-GAAP financial measures, as described below, to understand and evaluate our core performance. These Non-GAAP measures, which may be different than similarly-titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We define "Non-GAAP Gross Profit and Non-GAAP Gross Margin" as GAAP gross profit and GAAP gross margin, adjusted for stock-based compensation expense included in cost of revenue. We define “Non-GAAP Loss from Operations” as our income (loss) from operations adjusted to exclude stock-based compensation, acquisition costs and amortization of acquired intangible assets. We define “Non-GAAP Net Loss” as our net income (loss) adjusted to exclude stock-based compensation, acquisition costs, amortization of acquired intangible assets and gain on extinguishment of debt.

We define “Non-GAAP EPS”, as our Non-GAAP Net Income (Loss) divided by our GAAP weighted-average number of shares outstanding for the period on a diluted basis. Management uses Non-GAAP EPS to evaluate the performance of our business on a comparable basis from period to period.

The above items are excluded from our Non-GAAP Gross Profit, Non-GAAP Income (Loss) from Operations and Non-GAAP Net Income (Loss) because these items are non-cash in nature, or are not indicative of our core operating performance, and render comparisons with prior periods and competitors less meaningful. We believe Non-GAAP Gross Profit, Non-GAAP Income (Loss) from Operations and Non-GAAP Net Income (Loss) provide useful supplemental information to investors and others in understanding and evaluating our results of operations, as well as provide a useful measure for period-to-period comparisons of our business performance.

We define free cash flow as net cash (used in) provided by operating activities less cash used for purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors, even if negative, about the amount of cash used in our operations other than that used for investments in property and equipment.

Other Business Metrics

Annual Contract Value (ACV) – we define Annual Contract Value for an individual customer agreement as the total fixed fees under the agreement divided by the number of years in the agreement term. Our total ACV is the aggregate ACVs for all our customers as measured at a given point in time. Total fixed fees includes licensing, support and maintenance and other fixed fees under IP licensing or software licensing agreements but excludes variable revenue derived from licensing agreements with customers, particularly royalties. We monitor ACV to measure our success and believe the increase in the number shows our progress in expanding our customers’ adoption of our solutions. ACV fluctuates due to a number of factors, including the timing, duration and dollar amount of customer contracts.

Active Customers – we define Active Customers as customers who have entered into a license agreement with us that remains in effect. The retention and expansion of our relationships with existing customers are key indicators of our revenue potential.

Confirmed Design Starts – we define Confirmed Design Starts as when customers confirm their commencement of new semiconductor designs using our interconnect IP and notify us. Confirmed Design Starts is a metric management uses to assess the activity level of our customers in terms of the number of new semiconductor designs that are started using our interconnect IP in a given period. We believe that the number of Confirmed Design Starts is an important indicator of the growth of our business and future royalty revenue trends.

Remaining Performance Obligations (RPO) – we define Remaining Performance Obligations as the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and contracted amounts that will be invoiced and recognized as revenue in future periods.

Arteris, Inc.
Reconciliation of GAAP Measures to Non-GAAP Measures
(In thousands, except percentages, share and per share data)
(Unaudited)

Non-GAAP Gross Profit and Gross Margin

 Three Months Ended
June 30,
 Six Months Ended
June 30,
  2022   2021   2022   2021 
Gross profit$13,533  $9,946  $24,309  $15,736 
Add:       
Stock-based compensation expense included in cost of revenue (1) 260   14   356   27 
Non-GAAP gross profit$13,793  $9,960  $24,665  $15,763 
Gross margin 91%  92%  91%  90%
Non-GAAP gross margin 93%  92%  93%  90%

(1) See table in footnote (1) to the condensed consolidated statements of loss and comprehensive loss above for breakdown of stock-based compensation expense by line item.

Non-GAAP Loss from Operations

 Three Months Ended
June 30,
 Six Months Ended
June 30,
  2022   2021   2022   2021 
Loss from operations$(5,426) $(3,521) $(12,042) $(9,968)
Add:       
Stock-based compensation expense (1) 3,384   378   5,693   711 
Acquisition costs (2)    55      238 
Amortization of acquired intangible assets (3,4) 120   119   239   238 
Non-GAAP loss from operations$(1,922) $(2,969) $(6,110) $(8,781)

(1) See table in footnote (1) to the condensed consolidated statements of loss and comprehensive loss above for breakdown of stock-based compensation expense by line item.

(2) Includes advisory, legal, accounting, valuation, and other professional or consulting fees associated with the Magillem acquisition.

(3) Represents the amortization expenses of our intangible assets attributable to the Magillem acquisition.

(4) Includes amortization of acquired intangible assets as follows:

 Three Months Ended Six Months Ended
 June 30,  June 30,
  2022   2021   2022   2021 
Research and development$85  $85  $170  $169 
Sales and marketing 35   34   69   69 
Total amortization$120  $119  $239  $238 
        

Non-GAAP Net Loss and Non-GAAP EPS, Basic and Diluted

 Three Months Ended
June 30,
 Six Months Ended
June 30,
  2022   2021   2022   2021 
Net loss$(5,668) $(3,909) $(12,488) $(10,626)
Add:       
Stock-based compensation expense (1) 3,384   378   5,693   711 
Acquisition costs (2)    55      238 
Amortization of acquired intangible assets (3,4) 120   119   239   238 
Gain on extinguishment of debt          (10)
Non-GAAP net loss (5)$(2,164) $(3,357) $(6,556) $(9,449)
        
Net loss per share attributable to common stockholders, basic and diluted$(0.18) $(0.20) $(0.39) $(0.55)
Per share impacts of adjustments to net loss (6)$0.11  $0.03  $0.18  $0.06 
Non-GAAP EPS, basic and diluted$(0.07) $(0.17) $(0.21) $(0.49)
        
Weighted average shares used in computing per share amounts, basic and diluted 32,258,228   19,874,925   31,940,293   19,354,965 

(1) See table in footnote (1) to the condensed consolidated statements of loss and comprehensive loss above for breakdown of stock-based compensation expense by line item.

(2) Includes advisory, legal, accounting, valuation, and other professional or consulting fees associated with the Magillem acquisition.

(3) Represents the amortization expenses of our intangible assets attributable to the Magillem acquisition.

(4) See table in footnote (4) to the Non-GAAP Loss from Operations above for breakdown of amortization of acquired intangible assets by line item.

(5) Our GAAP tax provision is primarily related to foreign withholding taxes and income tax in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the US. Accordingly, there is no significant tax impact associated with these Non-GAAP adjustments.

(6) Reflects the aggregate adjustments made to reconcile Non-GAAP Net Loss to our net loss as noted in the above table, divided by the GAAP diluted weighted average number of shares of the relevant period.

Free Cash Flow

 Six Months Ended
June 30,
  2022   2021 
Net cash used in operating activities$(1,163) $(1,506)
Less:   
Purchases of property and equipment (205)  (359)
Free cash flow$(1,368) $(1,865)
Net cash used in investing activities$(725) $(359)
Net cash (used in) provided by financing activities$(2,636) $4,930