Arteris, Inc. (AIP) Earnings

Management highlights

- Core Business Demand: Growing AI integration across semiconductors (from data center chips to edge and physical AI devices) has increased demand for Arteris' advanced connectivity and security system IP. Two-thirds of current customer engagements are for AI chips, as the need for efficient, secure on-silicon data movement grows with increasingly complex chips and chiplets. Many Arteris semiconductor customers beat Q1 revenue projections and raised full-year guidance, which has flowed through to Arteris' growing royalty stream. - Q1 2026 New Deal Highlights: The company secured multiple large expansion deals across key verticals, including a leading global hyperscaler expanding Arteris NoC use for next-gen data center chips, a leading global memory supplier adopting Arteris system IP for HBM development, Renesas expanding licenses for its 400 TOPS fifth-generation automotive ADAS SoC, a leading European 5G/6G player expanding Arteris use for telecom chip development, and a leading U.S. space infrastructure company expanding use for next-generation satellite applications. Arteris IP was also used in AMD chips on the successful Artemis II Orion mission. - Product Development and Partnerships: The company continues to see growing adoption of its FlexGen Smart Knock IP, and is working with early adopters on two new chiplet and multi-die optimized system IP products expected to launch in production in H2 2026, focused on AI, HPC, and ADAS designs. Arteries recently announced a collaboration with MIPS to accelerate physical AI chip development, where MIPS will use Arteris FlexGen and Magilum SoC integration automation software for scalable SoC platforms targeting automotive MCUs, ADAS, robotics, and embedded computing. - Cycuity Acquisition Update: Arteris acquired Cycuity, a leading chip cybersecurity company, to expand its system IP portfolio. The company is leveraging its existing relationships with over 200 semiconductor customers, and has already seen strong cross-vertical interest, including a top five U.S. hyperscaler licensing Arteris cybersecurity IP in Q1 to mitigate chip-level security vulnerabilities. Cycuity's solutions identify and mitigate cybersecurity risks during the chip design phase, before mass production, addressing a growing market need. - Organizational Update: CFO Nick Hawkins announced his retirement effective August 31, 2026. He will continue to lead through the Q2 reporting cycle and serve as an advisor post-retirement to support an orderly transition. The company notes it has no debt, positive free cash flow, and Hawkins led the finance function through Arteris' IPO and three acquisitions, leaving the company in a strong position. - Industry Recognition: Arteris was ranked #4 on Fast Company's 2026 list of the world's most innovative companies in North America, and won a 2026 Stevie Award for Technology Innovation of the Year in software for its Cycuity semiconductor cybersecurity products.

Guidance

- Quarterly Guidance (Q2 2026): Arteris expects ACV plus royalties of $95 million to $99 million, total revenue of $23 million to $24 million, and a non-GAAP operating loss of $2 million to $3 million. The company will discontinue quarterly free cash flow guidance going forward due to growing deal size causing volatile quarter-to-quarter fluctuations that make the metric less useful for investors; annual free cash flow guidance will remain. - Full Year 2026 Guidance Update: Management raised full-year 2026 guidance across top and bottom line metrics, driven by stronger than expected Q1 performance and a very strong start to Q2 (the strongest April deal flow on record, 4x larger than any prior April). Full-year 2026 ACV plus royalties guidance is now $102 million to $106 million, a $2 million upward revision from prior guidance. Full-year 2026 total revenue guidance is now $91 million to $95 million, also a $2 million upward revision, representing 32% year-over-year growth at the midpoint. Non-GAAP operating loss guidance is now $4.5 million to $8.5 million, a $0.5 million upward improvement (narrower loss) from prior guidance. Non-GAAP full-year free cash flow guidance is positive $5 million to positive $9 million, maintained as positive. - Profitability Outlook: Arteris remains on track to hit its next strategic goal of reaching non-GAAP profitability by the end of 2026, with management expecting to report a non-GAAP operating profit as early as Q4 2026, driven by continued revenue growth and disciplined expense management that delivers operating leverage.

Segment performance

Arteris reports results by vertical market segment for licensing revenue: Enterprise Computing (including data centers, HPC, AI infrastructure) is now the largest segment, contributing 30-35% of total annual contract value (ACV) licensing revenue, driven by growing demand for its network on chip technology for AI chips and high bandwidth memory development. Automotive is the second largest segment, also contributing 30-35% of ACV licensing revenue, and remains a solid long-term royalty generator with high-volume chip deployments for ADAS and autonomous driving systems. Aerospace and Defense contributes close to 10% of ACV following the Cycuity cybersecurity acquisition, with growing demand from space infrastructure and government security programs. Consumer Electronics, Communications, and other end markets make up the remaining ~20-30% of ACV. Total company GAAP revenue for Q1 2026 was $22.9 million, up 39% year-over-year; trailing 12-month royalties hit a record $7.9 million, up 67% year-over-year. Total remaining performance obligations (contracted future revenue) were $118 million, up 33% year-over-year.

Risks & headwinds

The only risk disclosure in the call is the standard forward-looking statement warning: management notes that forward-looking statements are based on current expectations and assumptions, and involve material risks and uncertainties that could cause actual results to differ materially from anticipated outcomes. Additional information on risk factors can be found in the company's SEC filings. No operational failures, current material risks, or unplanned issues were discussed during the call.

Analyst Q&A

• Q: What is the timeline for new hyperscaler and high bandwidth memory (HBM) design wins to generate royalties, and do these new chips deliver higher royalty per unit than prior generations? /

  A: Design cycles for data center AI products are 2 to 3 years, much faster than automotive design cycles, which can take up to 6 years. These are high-priced chips that are getting more expensive over time as they shrink to smaller process nodes, so per-chip royalties will be higher than prior generation products. Volumes for these chips are larger than they have been historically, and product lifecycles are shorter than automotive, with faster market churn.

• Q: What share of the guidance raise comes from stronger royalty performance versus stronger expected licensing deal flow, and when will data center become a larger revenue contributor than automotive? /

  A: The guidance raise reflects both very strong royalty growth (Q1 year-over-year royalty growth was over 100%) and robust licensing deal flow, including a record-setting April that was 4x larger than any prior April in company history. Enterprise computing (which includes data center) is already the largest vertical for licensing revenue, slightly larger than automotive, with both segments falling in the 30% to 35% ACV contribution range. Automotive will remain a solid long-term royalty generator due to higher volumes, even as data center licensing grows.

• Q: How has the Cycuity cybersecurity acquisition performed in its first full quarter, and what is the pipeline outlook? /

  A: The acquisition closed in mid-January, so it is still early days, but initial performance is promising. Cycuity already had strong government security orders in process that have closed, and the company is seeing promising early commercial deal flow in Q2. Arteris' existing base of over 200 semiconductor customers is a large potential market for Cycuity's chip cybersecurity products, and growing focus on chip-level security makes this a high-potential line of business for the company.