Arteris, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. 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 second quarter ended June 30, 2026. Nick will review the financial results for the second quarter of 2026, followed by the company's outlook for the third quarter and the full year of 2026. 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 are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results to differ materially from those anticipated. 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 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 U.S. GAAP. The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how the company management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended June 30, 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 June 30, 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 June 30, 2026 may obtain a copy by visiting the investor relations section of the company's website.

In addition, management will be referring to the second quarter 2026 earnings presentation, which can be found in the investor relations section of the company's website under the Events and Presentations tab. I will turn the call over to Charlie.

Thank you, Erica, and thanks to everyone for joining us on our call today. The Arteris second quarter of 2026 produced multiple record-breaking results. We reached another record annual contract value plus royalties exiting the quarter at $99.5 million, representing a 44% year-on-year increase. We achieved record revenue, royalties, and RPO backlog. License deal flow in the quarter was driven by several large deals with existing and new customers. These wins spanned all key verticals led by growth in enterprise computing and automotive, followed by aerospace and defense, communications, consumer electronics, and industrial markets for varieties of semiconductors, including chiplets, system on chip or SOCs, application-specific integrated circuits or ASICs, field programmable gate arrays or FPGAs, and microcontrollers. Further to our diversification strategy, no single customer made up more than 10% of our revenue in the first half of 2026.

Our customer design activity was healthy again in the quarter. For the trailing 12 months to June 30th, 2026, our customers reported 21% higher number of design starts year-over-year. Rapidly evolving high-performance computing or HPC workloads continue to drive demand for more complex chips and chiplets across data centers, smart devices, and physical AI systems. This, in turn, is increasing the demand for Arteris products that help deliver the underlying high performance, efficient, safe, and secure data movement essential to semiconductors in the AI era. In the second quarter of 2026, the majority of our customers' design starts supported AI or HPC use cases as part of the device, and this trend is continuing. Data center chip and chiplet development continues to be a key revenue driver for Arteris.

Over the past four quarters, enterprise computing has made up an average of 29% of Arteris ACV plus royalties, with AI infrastructure representing some of the biggest deals in the second quarter. As an example, one of the world's largest hyperscale cloud companies has chosen to adopt and standardize on Arteris for its infrastructure silicon system IP. Arteris technology will enable the high-performance and energy-efficient semiconductor data movement for the next generation of data centers. Large-scale compute must adapt quickly for rapidly evolving software workloads that require ASICs, SOCs, and chiplets with interconnect that can support the throughput, bandwidth, and power requirements, making Arteris the obvious choice for scale-up and scale-out architectures.

Another example of Arteris' progress in data center applications was a large win with one of the top U.S. semiconductor design houses building custom ASICs for various hyperscalers, where Arteris' FlexGen smart NoC IP is increasingly being used for the underlying data movement in chiplets and multi-die chips to support high-end scale-up AI compute. Additionally, we announced that Speedata, developer of the purpose-built analytics processing unit, or APU, has deployed Arteris in its Callisto processor that runs large volume analytics processing for applications which require high bandwidth-capable chips, often in data centers. Physical AI, from automotive to aerospace and defense, and along with industrial applications such as robotics, continues to experience strong and growing demand for Arteris products and solutions. Here, performance, energy, safety, security, and proven reliability are essential for foundational semiconductors.

Li Auto, a leader in China's new energy vehicle market, has successfully deployed its in-house designed autonomous driving chips in their newest SUV model. Multiple chips designed with Arteris are used in each vehicle and around 2,560 trillion operations per second, or TOPS, to effectively and safely perform autonomous driving and other advanced driving tasks. As customers take deliveries of these vehicles, we are starting to see initial royalty contributions. Another example is SiEngine, a provider of advanced automotive chips, selecting Arteris for its next generation SoC platforms for the intelligent cockpit, advanced driver assistance applications, and AI cockpit drive fusion solution with high performance and functional safety requirements. On the product side, we're seeing equally strong momentum with customer adoption of new technologies. Following the acquisition of Cycuity earlier this year, which provides semiconductor cybersecurity assurance, we recently announced an expanded partnership with Arm.

The Cycuity hardware security assurance technology is already in use by Arm during the design phase of selected CPUs. Moving forward, Arm engineering teams are expanding their adoption of Cycuity technology across additional next-generation processors to help identify and mitigate potential security weaknesses and vulnerabilities, supporting the delivery of robust and resilient CPUs. We are honored to be supporting the Arm leadership in the application of cybersecurity hardware assurance for safer CPU hardware. We see similar cybersecurity hardware assurance opportunities with other IP suppliers, semiconductor companies, and system houses building silicon for applications ranging from AI infrastructure to mission-critical applications, where cybersecurity is rapidly moving from a should to a must technology, accelerated by rapid development in frontier AI models and growing sets of required standards and regulations.

On the NoC IP front, the number of FlexGen smart NoC customers continues to grow as customers are increasingly seeing the value in automation and wire length efficiency, which helps reduce power, that Arteris smart NoC IP offers. In the first half of 2026, we closed multiple seven-figure deals for FlexGen with major semiconductor customers. On the ecosystem front, we announced a collaboration with IC-Link by imec, which is imec's service provider for high-end ASICs and silicon photonics. Arteris technology will be deployed as part of their ongoing efforts to accelerate and simplify the development of next-generation HPC chiplets and ASIC chips. Our customers continue to innovate in exciting high-growth areas. All of these require a combination of high performance, energy efficiency, safety, and security.

Overall, Arteris continues to be in a strong position to support growing semiconductor applications in the AI era across data centers, edge devices, and physical AI systems, helping customers to innovate and develop their next generation of silicon chips and chiplets with our technology. I'm happy also to announce that we have completed our ATM program, raising $72 million to support our ability to invest in industry-leading system IP products, global customer support, and additional tuck-in acquisitions. As previously announced, Nick Hawkins will be retiring following a distinguished tenure as our CFO. Nick helped lead Arteris through its successful IPO, built an excellent finance organization, delivered at or above financial guidance on nearly all financial metrics, and was instrumental in achieving a positive free cash flow operation while laying the foundation for near future non-GAAP profitability.