Arteris, Inc. (NASDAQ:AIP) Q1 2026 Earnings Call Transcript

Arteris, Inc. (NASDAQ:AIP) Q1 2026 Earnings Call Transcript May 12, 2026

Arteris, Inc. beats earnings expectations. Reported EPS is $-0.03, expectations were $-0.08.

Operator: Good afternoon, everyone, and welcome to the Arteris First Quarter 2026 Earnings Call. Please note that this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Erica Mannion: Thank you, and good afternoon. With me today from Arteris are Charlie Janac, chief executive officer and Nick Hawkins, chief financial officer. Charlie will begin with a brief review of the business results for the first quarter ended March 31, 2026. Nick will review the financial results for the first quarter of 2020 followed by the company’s outlook for the second quarter and the full year of 2026. We will then open the call for questions. Before we begin, I would 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 are based on management’s current expectations and assumptions and involve material risks and uncertainties that could cause actual results and 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 of 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, among others, non GAAP net loss, non GAAP net loss per share, and free cash flow, which are not measures prepared in accordance with US GAAP. The non GAAP measures are presented as we believe that they provide 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 US 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, 2026. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, and remaining performance obligations, please see the press release for the quarter ended 03/31/2026. These key performance indicators are presented for supplemental informational purposes only should not be considered a substitute for financial information presented in accordance with GAAP and may differ from similarly titled metrics or measures used by other companies securities analysts, or investors.

Listeners who do not have a copy of the press release for the quarter ended March 31, 2026 may obtain a copy by visiting the investor relations section of the company’s website. In addition, management will be referring to the first quarter 2026 earnings presentation, which can be found in the Investor Relations section of the company’s website under Events and Presentations tab. Now I will turn the call over to Charlie.

Karel Charles Janac: Thank you, Erica. And thanks to everyone for joining us on our call today. 2026 was a robust quarter for Arteris, as we reached another record annual contract value plus royalties of 92.8 million representing a 39% year on year increase. We also achieved record revenue, record royalties, and record revenue log. Customer engagement in the quarter both existing customer renewals as well as adding new logos. We won license deals in enterprise computing, automotive, communications, consumer electronics, and aerospace and defense sectors. AI integration into all types of electronics from data centers, to edge devices and physical AI systems, is increasing the demand for advanced connectivity and security products and now 2-thirds of our customer engagements are into AI chips.

New chips and chiplets continue to get more complex and perform more advanced computing. Efficient, safe, secure data movement within those devices is essential which is driving the growing adoption of Arteris products and solutions. Every semiconductor must move data to be a chip or chiplet. Rapidly advancing data movement powered by chips is evident in recent earnings releases by semiconductor companies. Many of these companies are also our Arteris customers and have both beaten their first quarter revenue projections and raised guidance for the year. This performance has clearly flowed through into our royalty stream, which has increased 67% year over year. Enterprise computing, includes data centers, high performance computing, or HPC, including high bandwidth memory or HBM, and other AI infrastructure companies was again the biggest contributor to our licensing activity in the quarter.

This includes a leading global hyperscaler, which expanded its use of our Arteris network on chip technology for its next generation of data center chips. Advanced AI data centers are experiencing strong demand for HPM, and I am pleased to say that another leading global memory supplier is now utilizing our Arteris system IP to accelerate their memory chip development. Automotive also continues to be a strong sector for us where our technology is helping to meet the needs of physical AI systems. An example was an important first quarter deal announcement with Renesas. That increased their licenses and deployed our system IP for their most advanced R-Car Gen5 SoC series. Tailored for advanced driver assistance and automatic driving systems, This latest SoC delivers AI performance of up to 400 trillion operations per second.

Or TOPS. With multi die chiplet extensions to boost AI performance using our Arteris network on chip technology for silicon data movement. In communications where efficient, safe, and secure data movement is also playing an increasingly important role in transmitting data particularly between data centers and edge and endpoint devices. In the first quarter, 1 of the leading European 5G and 6G communications equipment players further expanded the use of Arteris technology to accelerate the integration of advanced telecommunication chips. Satellites, extend communications into aerospace and defense with the pace of innovation and development of advanced, resilient, safe, and secure semiconductors is growing rapidly. In the first quarter, a leading US space infrastructure company expanded its use of Arteris for the development of next generation space applications.

Beyond Earth’s orbit, it was a pleasure to see the success of the Artemis II mission where AMD chips with built in Arteris technology were used to support critical sensor fusion, data routing, and image processing for the Orion spacecraft. This is yet another example of Arteris’ use in data intensive space exploration. We continue to see adoption of our FlexGen Smart NoC IP in major accounts and startups. We are also working with early adopters on 2 products, for optimized chiplet and multi-die system IP. Which we anticipate deploying in production during the 2026 with focus on AI, HPC, and ADAS designs. We broaden our system IP portfolio which addresses key aspects of advanced chip design through the acquisition of Semifore, a leading chip cybersecurity company.

This technology is critical to the security of chips regardless of their complexity. We are starting the process of leveraging our deep relationships with over 200 semiconductor design companies and are already seeing strong interest from many of these customers across many verticals, including data center, aerospace, and defense, consumer, automotive, and communications. By way of example, a top-5 US based hyperscaler, which is an existing Arteris customer, has licensed Arteris security technology in the first quarter to help mitigate cybersecurity risks. The ever increasing focus on cybersecurity threats is highlighting the need for our solutions, which identify, and help mitigate cybersecurity vulnerabilities during the chip development phase, before silicon mass production.

We recently announced a collaboration with MIPS to accelerate the development of physical AI chips. MIPS will use Arteris FlexGen Smart NoC IP and Magillem SoC integration automation software to help accelerate the development of scalable SOC platforms targeting high growth markets in physical AI including automotive microcontroller units, MCUs, and advanced driver assistance systems ADAS, robotics, and embedded computing. Lastly, Arteris was named to Fast Company’s list of the world’s most innovative companies of 2026. Arteris ranks number 4 in the most innovative companies in the North America category. As this year’s list shines a spotlight on businesses that are shaping industry through their innovations. Arteris joins the ranks of Google NVIDIA, Anthropic, and more in Fast Company’s 2026 list.

Of world’s most innovative companies. Arteris also won a Stevie Award for 2026 technology innovation of the year in the software category, for our security semiconductor cybersecurity products. On an organizational front, today, we also announced that Nick Hawkins, our CFO, has chosen to retire effective 08/31/2026. Nick will take us through our Q2 report and continue to serve as an adviser to Arteris after his retirement date to facilitate an orderly transition. Nick leaves the company in great shape. With no debt, positive free cash flow, and major contributions to 3 acquisitions. Nick has been an invaluable partner during a transfer transformative period for Arteris. We thank Nick for his dedication to the company and wish him all the best.

With that, I will turn it over to Nick to discuss our financial results in more detail.

Nicholas Bryan Hawkins: Thank you, Charlie. Good afternoon, everyone. It has been a rewarding and enjoyable experience to help lead our Arteris through an important stage in its development. I am proud of the exceptional finance team we have built and what the company has accomplished. During my 7 years at Arteris, in addition to leading the company through its IPO, I have also led our M&A processes, including the important recent acquisition of the cybersecurity company, Semifore. Arteris has grown substantially in revenue and market capitalization, is now cash flow positive and is transitioning to profitability this year. It has been a privilege to serve under Charlie and our excellent board alongside our industry leading leadership team and all our people.

Arteris is well positioned for the future. And I look forward to following the company’s continued progress in the years ahead. As I review our first quarter 2026 results today, please note I will be referring to GAAP as well as non GAAP metrics. Please note also that a reconciliation of GAAP to non GAAP financials is included in today’s earnings release, which is available on our website. Also, a reminder, I will be referring to the 1Q 2020 earnings presentation, which can be found in the Investor Relations of the company’s website under the Events and Presentations tab. We had a strong first quarter, beating the top end of our revenue and ACV plus royalties guidance and meeting the top end of our non GAAP operating income guidance range. Turning to Slide 5 of the presentation.

Total revenue for the first quarter was $22.9 million up 39% year over year and above the top end of our guidance range. Notably, trailing 12-month royalties was $7.9 million, 67% higher year over year, setting a new record high. Our royalty stream today is fueled by a balanced mix of customers across all our vertical markets, And our large royalty reporters, which we define as over 6-figure dollars per quarter, are in automotive, consumer, enterprise computing, and aerospace and defense. The number of customers reporting a quarter-million-plus royalty dollars has grown from 1 a year ago to 3 currently. Further highlighting our rapidly diversifying and growing royalty revenue stream. At the end of the first quarter, ACV plus royalties was $92.8 million up 39% year over year.

Above the top end of our guidance range and at a new record high. Remaining Performance Obligations, or RPO, which is our contract future revenue at the end of the first quarter totaled $118 million, 33% higher year over year and another record high for Arteris. We expect just over half of our RPO at the end of the quarter will be recognized as revenue in the 12 months starting 04/01/2026. Non GAAP gross profit in the quarter was $20.1 million representing a gross margin of 87%. GAAP gross profit in the quarter was $19.7 million representing gross margin of 86%. This now reflects for the first time the inclusion of subcontractor costs as cost of revenue for certain security government contracts. Now moving to Slide 6. Non GAAP operating expense in the quarter was $22.6 million In line with our operating leverage goals, we are maintaining our commitment to limit overall growth in OpEx to 50% of our revenue growth.

We believe that our investments into product development and customer success will help to accelerate our top line growth in the coming years, At the same time, we are delivering operating leverage which is being driven across all cost categories, and we remain disciplined in our spending and investments. In particular, in G&A spending, which has on average grown at less than 1-third of the rate of revenue a non GAAP basis. Over the last 3 years. This has resulted in a 31 percentage point improvement in non GAAP operating margin over that period. Total GAAP operating expense for the first quarter was $29 million which included acquisition related expenses of $600 thousand in the first quarter. Non GAAP operating loss in the quarter was $2.5 million at the top end of our guidance range.

GAAP operating loss for the first quarter was $9.3 million compared to a loss of $7.7 million in the prior year period. Non GAAP net loss in the quarter was $1.2 million or diluted net loss per share of $0.03. GAAP net loss in the quarter was $8 million or diluted net loss per share of $0.17 Moving to Slide 7. And turning to the balance sheet and cash flow. We ended the quarter with $41.9 million in cash, cash equivalents and investments, and we have no financial debt. Free cash flow, which includes capital expenditure, was negative $7.4 million in the first quarter. Including approximately $3 million of deal consideration elements and fees related to the Semifore acquisition that closed in the quarter. I would now like to turn to our outlook for the second quarter.

And the full-year 2026 and refer now to Slide 8. First, starting with the next quarter, we will no longer be guiding quarterly free cash flow. As our average deal size continues to grow, we believe that the consequent fluctuations in quarter to quarter operating cash flows make the guidance of this KPI less helpful to investors. Additionally, on an annual basis, we are already free cash flow positive, having delivered that in 2025 and guiding increased positive free cash flow for 2026. This was our first strategic financial objective. We are now focused on delivering our next strategic financial objective the inflection to non GAAP profitability towards the end of the current year. For 2026, we expect ACV plus royalties of $95 million to $99 million revenue of $23 million to $24 million, non-GAAP operating loss of $3 million to $2 million and free cash flow of positive $2 million to positive $8 million.

As we look forward to the full year of 2026, we are seeing continued strength in semiconductors and signs of an upward trend cycle in the market. Consequently, we are raising our guidance for the full year on top and bottom line metrics. For the full-year 2026, our guidance is as follows: ACV plus royalties to exit 2026 at $102 million to $106 million an increase of $2 million from prior guidance. Revenue of $91 million to $95 million, $2 million higher than prior guidance and representing a 32% year over year increase at the midpoint. Non GAAP operating loss of between $8.5 million to $4.5 million, an improvement of $500 thousand from prior guidance. And non GAAP free cash flow of positive $5 million to positive $9 million We are seeing a strong start to the second quarter.

With momentum and increasing customer engagement leading us to believe that we will see continued strength in the second half of the year. Building on our strong revenue growth, coupled with carefully focused expense discipline, that is delivering operating leverage. We continue to believe that Arteris is on a path to profitability, and we expect to report a non GAAP operating profit for period as early as the fourth quarter of the current year. With that, we will turn the call back to the operator for the Q&A portion of the call.

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. On your touch tone phone, and you will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press the star followed by the number 2. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kevin Cassidy of Rosenblatt. Please go ahead.

Analyst (Kevin Cassidy): Yes. Thanks for taking my question. Congratulations on the great results. And, Nick, congratulations on a successful career. And all the best as you go through the next stage. My question yes. Yeah. On the, the hyperscaler design win and the also the high bandwidth memory, what is the timeline of those products coming to market? Or generating royalties? Guess I am trying to get a feel. Is there a acceleration in any of these hyperscaler ASICs or any of these development Kevin, this is Nick.

Nicholas Bryan Hawkins: Let me handle the royalties part of that question. You know, generally speaking, the design cycle in that space is a little bit quicker than you would expect in, say, automotive, which is quite a long design cycle, as you know, can be up to 6 years in some cases. In this sphere, it is more like 2 to 3 years that we would expect to see something floating through from that. Okay.

Analyst (Kevin Cassidy): And same with on the high bandwidth memory?

Nicholas Bryan Hawkins: Several. Yeah. Yeah.

Karel Charles Janac: I mean, those are those are all going into data center AI. And those are basically some of the quickest design cycles that we see but also the volumes are actually more significant than they used to be in the past. But these products have a much faster churn than, like Nick said, the automotive, for example, And so they rise quicker, and they also die quicker.

Analyst (Kevin Cassidy): Okay. Yeah. That would still be my question is the life cycle of the products as they come to the market. Also, I would imagine as they go down the process to smaller process nodes that price of the, products go up. So your overall royalties could be increasing compared to the past generation?

Nicholas Bryan Hawkins: Yeah.

Karel Charles Janac: that is good, Kevin. Sorry, Nick. At least these tend to be high priced chips. Right.

Analyst (Kevin Cassidy): Right. And getting more expensive. Yes. Okay. Great. Thank you.

Operator: Once again, if you wish to ask a question, please press 1 to join the queue. And your next question comes from the line of Joshua Buchalter of TD Cowen.

Analyst (Josh Buchalter): Congrats on the results and more importantly, best wishes and a big thank you to Nick on your next endeavor. I guess, to start, maybe big picture, as we think about the raise of the annual guidance, how much of this is would you just categorize as coming from the better royalty environment that you spoke to just from better chip sell through? Versus, confidence in licensing deals that are you expect to sign over the next several quarters? Thank you.

Nicholas Bryan Hawkins: So let me take that 1, Charlie. So, Joshua, thanks for your kind words. it is been a pleasure, I have gotta say. The on the increased guidance I mean, I will say just 1 general thing, which is, you know, philosophically, we tend to be careful on our guidance. We are very mindful of guiding our friends on the street. Diligently. And so we do not like to get over our skis on guidance but we are seeing a very strong trajectory in royalties. So the 12 months trailing was up 67%. But actually, year over year first quarter, interesting was up over 100%. So we are seeing a nice pickup there, and we are seeing more people reporting bigger and bigger numbers. So that is part of it. There is I would categorize the first quarter as robust and good for from a deal flow perspective in dollars.

The start to the second quarter was very strong. We actually had the strongest April on record in terms of deal flow by a significant margin. So something like 4x bigger than the next biggest April we have ever seen. So we are seeing a lot of activity. We are seeing a really strong pipeline on deals. I think that we want to wait until we are a little further through the quarter to see if this robustness, continues and persists. Before we look at future guidance.

Analyst (Josh Buchalter): Okay. Thank you for all the color there. And then maybe following up on some of Kevin’s questions earlier. You have been highlighting some pretty sizable hyperscale data center wins, I think, with FlexGen but other IP over the last few quarters. How should we think about the scale of data center overall compared to your historic auto exposure? Given it moves faster, as you mentioned, in response to Kevin’s, what is a reasonable time frame at which that could be, you know, a more meaningful portion of overall revenue in the model? Thank you.

Karel Charles Janac: Yeah. I mean, the data center segment from a license perspective is growing, very nicely. Right? So on the royalty side, because data center though the chips are higher priced, the volumes are lower. You know, we expect automotive to be, you know, continue to be a pretty solid royalty generator. But on the license side, we are definitely seeing solid growth from our data center customers.

Nicholas Bryan Hawkins: If I can add to that also from a quantitative perspective, Joshua, enterprise is now which is where our data center business resides. In our verticals, is now the largest of our verticals in terms of license generation. it is slightly now higher than automotive, which used to be the number 1. They are both in the sort of 30% to 35% range. what is interesting is aerospace and defense now. Partially as a result of the addition of security is now close to 10% of our ACV. So it is an interesting developing field.

Analyst (Josh Buchalter): Thank you for the color, both.

Operator: Once again, if you wish to ask a question, please press 1 to join the queue. And we have a follow-up question from Kevin Cassidy of Rosenblatt. Please go ahead.

Analyst (Kevin Cassidy): Yes. Thanks for taking my follow-up question. Just on the Semifore acquisition and now that you have had them for a quarter or so, can you say is it coming in better than expected, or, does the outlook I guess if you could go, what is the pipeline look like from here?

Karel Charles Janac: So we have really started in January, so it is early days. There were some pretty good government orders in flight. Which we closed. So that is very promising. And for the second quarter, we are starting to see some very, very promising deals from the from the commercial side. So we think that this acquisition is going to turn out just fine. And cybersecurity because of the MIPS product and other sort of AI based technologies, the cybersecurity coming to the forefront and we think that all of our customers, when we say there is more than 200, can use the Semifore product. So we are very excited about the potential but it looks promising, but it is relatively early days.

Analyst (Kevin Cassidy): Okay. Thank you.

Operator: There are no further questions at this time.

Karel Charles Janac: I will now turn the call back over to Charlie Janac for closing remarks. Well, thank you for joining our call today. And for your interest in Arteris. We look forward to meeting with you and updating you on our business progress in the quarters ahead, and seeing some of you at some investment conferences. So thank you for your support.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you, everyone, for joining. You may now disconnect.