10-K: Arteris, Inc. Reports Full Year 2023 Results, Highlights Growth in Key Metrics

Arteris, Inc. reports a revenue increase to $53.7 million for 2023, alongside a net loss of $36.9 million, while also adding 23 net new active customers.

Summary

• Arteris, Inc., a provider of semiconductor system IP, announced its full year 2023 financial results, showing a revenue of $53.7 million, up from $50.4 million in 2022.
• The company experienced a net loss of $36.9 million in 2023, compared to a net loss of $27.4 million in the previous year.
• Cash flows used in operating activities were $15.7 million for 2023, compared to $6.8 million in 2022.
• As of December 31, 2023, Arteris had an Annual Contract Value (ACV) of $50.9 million, with total ACV and trailing-twelve-months variable royalties and other revenue reaching $56.1 million.
• The company added 23 net new active customers in 2023, and its solutions have been incorporated into over 760 unique SoC Design Starts since inception.
• The company estimates that its solutions have been incorporated into three and a half billion production SoCs since inception.
• The company's research and development expenses were $45.1 million, representing 84% of its revenue.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While revenue is growing and the company is adding new customers, the increasing net loss and cash burn are concerning. The company is operating in a growing market, but faces significant competition and risks.

Positives

• The company's revenue increased by 7% year-over-year, indicating growth in its core business.
• The company added 23 net new active customers, expanding its customer base.
• The company's solutions have been incorporated into a large number of SoC designs and production SoCs, demonstrating market adoption.
• The company's ACV and trailing-twelve-months variable royalties and other revenue increased year-over-year, indicating growth in recurring revenue.

Negatives

• The company's net loss increased to $36.9 million in 2023, indicating ongoing challenges with profitability.
• Cash flows used in operating activities increased to $15.7 million, suggesting a need for improved cash management.
• The company's research and development expenses represent a significant portion of its revenue, which may impact profitability in the short term.

Risks

• The company faces significant competition from larger companies and third-party providers.
• The company has a history of net losses and may not achieve or maintain profitability in the future.
• The company depends on market acceptance of third-party semiconductor IP.
• The company's success depends on sustaining or growing its licensing revenue.
• The company may incur significant expenses without any guarantee of generating revenue.
• Claims by other companies that the company infringes their intellectual property rights could adversely affect its business.
• The company is subject to government regulation, including import, export and economic sanctions laws and regulations.
• Product errors or defects could expose the company to liability and harm its reputation.
• The company's dependence on international customers and operations subjects it to a range of additional risks.
• The company faces risks associated with doing business in China.
• Litigation may impair the company's reputation and lead to significant costs.

Future Outlook

The company expects to incur further net losses in the short term as it invests in its business. The company believes that market growth will be driven by an increasing number of SoC designs and growing complexity, increasing average selling prices of interconnect IP and SIA, and the growing proliferation of the NoC interface IP market segment.

Management Comments

• The company is focused on fast-growing semiconductor market segments.
• The company intends to continue providing regular introductions of interconnect IP products to enable the semiconductors that are connecting cars, roads, and the cloud resulting in the Internet of Cars.
• The company is also focused on the emerging edge and wireless communications markets, which are particularly sensitive to power consumption and idle power.
• The company intends to maintain its focus on automotive, enterprise computing, and consumer electronics, as well on technologies such as Safety, AI/ML and others, while expanding further within communications and industrial markets.

Industry Context

The document highlights the increasing complexity of SoCs and the growing demand for sophisticated System IP solutions, particularly in the automotive, enterprise computing, communications, consumer electronics, and industrial markets. The shift towards third-party IP for cost benefits and faster time to market is also emphasized, positioning Arteris as a key player in this evolving landscape.

Comparison to Industry Standards

• The document mentions that the design costs of an advanced SoC have risen five times from the 16nm technology node to the 5nm technology node, according to the Semiconductor Industry Association, and are now extending to 3nm technology and beyond, highlighting the increasing importance of cost efficiencies provided by System IP solutions.
• The document cites Omdia's estimate that the automotive SoC market will grow from nearly $7.0 billion in 2023 to over $13.1 billion in 2027, at a CAGR of over 17.1%, indicating a strong growth potential for Arteris in this sector.
• The document also references Informa Tech LLC's estimate that over half of all light vehicles sold in 2027 will be equipped with ADAS systems considered Level 2 and above, further emphasizing the growing demand for Arteris's solutions in the automotive market.
• The document mentions Ericsson's estimate that there will be 9.2 billion global mobile endpoints by 2028, with mobile traffic up to 21 exabytes per month, up from 6 exabytes in 2022, highlighting the growth in the communications market and the need for Arteris's interconnect IP solutions.

Legal Proceedings

• The company is currently involved in ongoing litigation related to patent infringement claims.

Related Party Transactions

• The company has a lease agreement with Isabelle Geday, a member of the Board of Directors.
• The company has a consulting agreement with Isabelle Geday.
• The company entered into a no-fee non-exclusive evaluation license agreement of Magillem products with Transchip.

Stakeholder Impact

• Shareholders may be concerned about the increasing net loss and cash burn.
• Employees may be affected by the company's financial performance and any potential restructuring.
• Customers may benefit from the company's continued innovation and product development.
• Suppliers may be impacted by the company's financial performance and any potential changes in its supply chain.

Next Steps

• The company plans to continue to expand its global sales and application engineering organization.
• The company intends to continue to target acquisitions to achieve its objective of making its System IP solutions critical to the next generation of SoC design and development.
• The company plans to continue to work with customers to deliver product enhancement releases for existing products.
• The company aims to deliver at least one new interconnect IP or SIA product every year, addressing new SoC technology needs.

Key Dates

Keywords

semiconductor IP, interconnect IP, System-on-Chip, SoC, Network-on-Chip, NoC, IP deployment software, SIA, automotive, enterprise computing, communications, consumer electronics, industrial