8-K: Arteris Reports Strong Finish to 2023 with Revenue Growth and Increased Customer Base

Arteris, Inc. announced its financial results for the fourth quarter and full year 2023, showcasing revenue growth and a significant increase in active customers, while also providing guidance for 2024.

Summary

• Arteris reported a 12% year-over-year revenue increase in Q4 2023, reaching $12.5 million.
• The company's Annual Contract Value (ACV) and trailing twelve months (TTM) variable royalties totaled $56.1 million, a 7% increase year-over-year.
• Remaining performance obligation (RPO) grew by 26% year-over-year to $72.7 million.
• For the full year 2023, revenue reached $53.7 million, a 7% increase compared to the previous year.
• Arteris added 23 net new active customers in 2023, including several major electronics companies.
• The company experienced its highest level of quarterly design activity with 29 confirmed design starts in Q4 2023.
• Arteris is guiding for Q1 2024 ACV plus TTM royalties between $55.0 and $59.0 million and revenue between $12.1 and $13.1 million.
• For the full year 2024, Arteris expects ACV plus TTM royalties between $62.0 and $68.0 million and revenue between $54.5 and $57.5 million.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong revenue growth and customer acquisition, but the company is still operating at a loss and has negative free cash flow. The guidance for 2024 is positive but not overly aggressive.

Positives

• Arteris experienced strong revenue growth in both Q4 and full year 2023.
• The company significantly increased its customer base, adding 23 net new active customers in 2023.
• Arteris achieved a record number of license deals and customer chip designs.
• The company's technology is being adopted in complex applications like Generative AI and advanced mobility.
• Arteris's interconnect IP achieved the highest level of functional safety for automotive technology.
• The company received ISO 9001:2015 certification, validating its quality management systems.

Negatives

• Arteris reported an operating loss of $9.2 million for Q4 2023 and $35.1 million for the full year 2023.
• The company's non-GAAP free cash flow was negative, at $(3.4) million for Q4 2023 and $(17.2) million for the full year 2023.
• Arteris reported a net loss of $10.5 million or $0.29 per share for Q4 2023 and $36.9 million or $1.03 per share for the full year 2023.
• The company's non-GAAP operating loss increased from $16.2 million in 2022 to $19.8 million in 2023.

Risks

• Arteris faces significant competition from larger companies and third-party providers.
• The company has a history of net losses.
• The success of Arteris depends on the adoption of their solutions by semiconductor companies in various markets.
• The company's ability to sustain or grow licensing revenue is crucial.
• Macro-economic conditions and geopolitical conflicts could adversely impact Arteris and its customers.
• Arteris is exposed to regulatory, operational, financial, and political risks due to its international operations.
• The company must protect its proprietary technology and inventions through patents and other IP rights.
• Disruptions in networks or security breaches could pose a risk to the company.

Future Outlook

Arteris provided guidance for Q1 2024 and full year 2024, expecting ACV plus TTM royalties between $55.0 and $59.0 million and revenue between $12.1 and $13.1 million for Q1 2024. For the full year 2024, they expect ACV plus TTM royalties between $62.0 and $68.0 million and revenue between $54.5 and $57.5 million.

Management Comments

• We're excited to report a strong finish to 2023, with Annual Contract Value and Trailing-Twelve-Month Variable Royalties of $56.1 million, above the high end of our guidance range.
• We believe that the accelerating adoption of commercial System IP solutions across the industrys most complex applications including Generative AI and advanced mobility is becoming clear.
• With 23 net new Active Customers in 2023, including several of the worlds largest electronics companies, as well as a record number of license deals and customer chip designs, the scale and scope of our long-term opportunity remains robust.

Industry Context

The announcement highlights the increasing adoption of commercial System IP solutions, particularly in complex applications like Generative AI and advanced mobility, reflecting a broader trend in the semiconductor industry towards specialized and high-performance solutions. Arteris's focus on network-on-chip (NoC) interconnect IP positions them well in this growing market.

Comparison to Industry Standards

• Arteris's 7% year-over-year revenue growth for the full year 2023 is a solid performance in the semiconductor IP market, which is experiencing varied growth rates depending on the specific segment.
• Companies like ARM Holdings, a major player in processor IP, have seen significant growth in certain areas, while others have faced headwinds due to market conditions.
• The 26% year-over-year increase in RPO indicates strong future revenue potential, which is a positive sign compared to industry averages.
• The addition of 23 net new active customers is a strong indicator of market acceptance and growth, which is a key metric for companies in the IP licensing space.
• The achievement of ISO 26262 ASIL D certification for their Ncore IP is a significant milestone, placing them in a competitive position for automotive applications, where safety standards are paramount.

Stakeholder Impact

• Shareholders may view the revenue growth and customer acquisition positively, but the ongoing losses and negative free cash flow may be a concern.
• Employees may be encouraged by the company's growth and market traction.
• Customers will benefit from the company's innovative solutions and focus on quality.
• Suppliers and creditors will be impacted by the company's financial performance and future growth prospects.

Next Steps

• Arteris will host a conference call on February 20, 2024, to review its Q4 and full year 2023 financial results and discuss its financial outlook.
• The company will continue to focus on expanding its customer base and driving adoption of its System IP solutions.

Key Dates

Keywords

System IP, Semiconductor, Interconnect IP, Network-on-Chip, SoC, Annual Contract Value, Variable Royalties, Design Starts, Active Customers, Generative AI, Automotive, ISO 26262, ISO 9001