Arteris, Inc. (AIP) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance with significant revenue growth, improved operating losses, and positive cash flow. The Q&A section reveals increased customer interest in comprehensive solutions, boosting licensing ASPs. Despite a potential negative from equity raising, the overall sentiment remains positive due to strong financial metrics, optimistic guidance, and strategic collaborations.

Key Financial Performance

Annual Contract Value plus Royalties $83.6 million, a 28% year-over-year increase. This growth was driven by strong performance across major vertical markets, including enterprise computing, automotive, and consumer electronics, as well as other applications like communications, industrial, and aerospace and defense.

Total Revenue (Q4 2025) $20.1 million, up 16% sequentially and 30% year-over-year. The increase was attributed to strong deal execution and growth in variable royalties.

Total Revenue (Full Year 2025) $70.6 million, a 22% year-over-year increase. This growth was fueled by a balanced mix of customers across all vertical markets and a significant rise in variable royalties.

Remaining Performance Obligations (RPO) $117 million, a 32% year-over-year increase. This reflects strong deal execution and contracted future revenue growth.

Non-GAAP Gross Profit (Q4 2025) $18.5 million, representing a gross margin of 92%. This was driven by efficient cost management and revenue growth.

GAAP Gross Profit (Q4 2025) $18.3 million, representing a gross margin of 91%. Similar to non-GAAP gross profit, this was supported by revenue growth and cost efficiency.

Non-GAAP Operating Expense (Full Year 2025) $77.2 million, a 14% year-over-year increase. The rise was due to reinvestments in technology innovations, customer support, and global sales teams.

GAAP Operating Expense (Full Year 2025) $96.8 million, which included $1.4 million in acquisition-related expenses. This reflects the company's investment in growth and acquisitions.

Non-GAAP Operating Loss (Q4 2025) $2.2 million, an improvement over the prior year. This was attributed to revenue growth and controlled operating expenses.

GAAP Operating Loss (Q4 2025) $8.5 million, compared to a loss of $7.1 million in the prior year period. The increase was due to acquisition-related expenses and other costs.

Non-GAAP Net Loss (Q4 2025) $2.3 million or $0.05 per share. This was an improvement over the prior year, driven by revenue growth and cost management.

GAAP Net Loss (Q4 2025) $8.5 million or $0.19 per share. The loss reflects acquisition-related expenses and other costs.

Free Cash Flow (Q4 2025) Positive $3 million. This was driven by strong revenue growth and efficient cost management.

Free Cash Flow (Full Year 2025) Positive $5.3 million. This reflects the company's ability to generate cash while investing in growth.

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Operating Highlights

FlexGen AI-driven Smart NoC IP: Strong customer adoption in 2025, licensed for over 30 production device deployments across vertical markets including AMD for AI chiplet designs, Dream Chip for automotive, and NanoXplore for aerospace applications. Optimized for lower power usage, latency, and accelerated development cycles.

Ncore cache coherent interconnect IP: Licensed for edge and server applications. Selected by Altera for advancing intelligence computing from cloud to edge applications.

Cycuity acquisition: Acquired Cycuity, a semiconductor cybersecurity assurance provider, to strengthen product portfolio. Cycuity's products enable early detection of cybersecurity risks in semiconductor hardware and firmware. Strategic move to address growing cybersecurity concerns in semiconductors, targeting AI data centers, networks, and devices.

AI-driven semiconductor designs: Expanding proliferation from data center to edge and physical AI, driving increased deployment of Arteris technology.

Automotive and consumer electronics: Significant impacts in enterprise computing, automotive, and consumer electronics markets.

CHASSIS program: Arteris is a founding member of the CHASSIS program, creating an open automotive chiplet platform with partners like Bosch, BMW, and Renault.

Revenue growth: Fourth quarter revenue of $20.1 million, up 30% year-over-year. Full year 2025 revenue of $70.6 million, up 22% year-over-year.

Royalty revenue: Variable royalties increased 50% year-over-year, with a record high in the fourth quarter.

Customer retention: Maintained a 90%+ customer retention rate, with growing adoption by top technology companies and large enterprises.

AI and chiplet projects: Tripled the number of chiplet projects incorporating Arteris technology over the past two years, focusing on AI-driven designs.

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Risk or Challenges

Cybersecurity Risks: The acquisition of Cycuity highlights the growing concern over cybersecurity risks in semiconductor hardware and firmware. The increasing volume of sophisticated cyberattacks targeting data in semiconductors poses a significant challenge. Newly reported cybersecurity silicon vulnerabilities have grown by over 15x in the last 5 years, indicating a rapidly escalating threat.

Market Competition: The company faces competitive pressures in the AI-driven semiconductor design market, with major players like AMD, NXP, and others also innovating in this space. This competitive landscape could impact Arteris' ability to maintain or grow its market share.

Economic Uncertainty: Economic uncertainties could impact customer spending on semiconductor technologies, potentially affecting Arteris' revenue growth and financial performance.

Supply Chain Challenges: The reliance on semiconductor supply chains, which are prone to disruptions, could pose risks to the timely delivery of products and services.

Strategic Execution Risks: The integration of Cycuity into Arteris' operations presents execution risks, including potential challenges in aligning the new product line with existing operations and ensuring its successful market adoption.

Customer Retention and Adoption: While the company boasts a 90%+ customer retention rate, maintaining this level of retention and driving adoption of new products like FlexGen and Cycuity's offerings will be critical to sustaining growth.

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Guidance & Outlook

First Quarter 2026 Guidance: ACV plus royalties of $85 million to $89 million; revenue of $20.5 million to $21.5 million; non-GAAP operating loss of $3.5 million to $2.5 million; non-GAAP free cash flow of negative $1.5 million to positive $1.5 million.

Full Year 2026 Guidance: ACV plus royalties to exit 2026 at $100 million to $104 million; revenue of $89 million to $93 million, including approximately $7 million from the Cycuity business; non-GAAP operating loss of $9 million to $5 million, approximately $1 million of which is related to the Cycuity acquisition; non-GAAP free cash flow of positive $5 million to positive $9 million.

Path to Profitability: Arteris expects to report a non-GAAP operating profit for a period as early as the fourth quarter of 2026.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you help us size the cross-sell opportunity by outlining which customer segments you expect to engage first and expand on how security changes your ability to increase content per customer over time?

A:Hardware security assurance is becoming a major issue due to a 15x growth in hardware security attacks on semiconductors. The Cycuity hardware assurance software can be used by a larger customer base and any semiconductor company, opening significant opportunities to enhance system IP value and address semiconductor security needs.

Q:Are you seeing more interest from customers to deploy an entire suite of solutions, and does this increase licensing ASPs above $1 million?

A:Yes, there is increased interest in deploying the entire suite of solutions. Licensing ASPs are significantly above $1 million, especially with the Cycuity acquisition and chiplet projects, which involve multiple licenses and royalties. Security requirements like ISO 21434 certification in markets such as automotive and aerospace also drive ASP growth.

Q:Can you talk more about the strength in royalties and whether it was driven by a specific end market or customer diversification strategy?

A:The strength in royalties is due to both customer diversification and growth in major reporters, which increased from 1 to 9 over five years. These reporters span multiple segments, including automotive, consumer enterprise, and aerospace, with automotive being the largest vertical.

Q:In Q4, royalties had a significant quarter-on-quarter step-up. Was there any catch-up royalty in that number, or should it be considered the run rate going forward?

A:There was a single royalty pickup of less than $0.5 million in Q4, contributing to the 50% variable increase. Excluding this, the year-over-year growth rate was still in the low 40s percent, above the long-term guidance CAGR. However, such pickups cannot be guaranteed in the future.

Q:How much of the revenue guidance increase was due to Security, and what is its impact on the P&L and OpEx?

A:Of the $91 million midpoint revenue guidance, $7 million is attributed to Cycuity. Cycuity is expected to contribute a $1 million loss for the year but break even by Q4. It will also cause a 1-2 percentage point drop in gross margin due to GAAP accounting for subcontractor expenses.

Q:What is the status of the equity raising effort announced during the Cycuity acquisition?

A:The company is in the process of activating the equity raising effort, which cannot occur during a quiet period. Small amounts may be raised in Q1, depending on market conditions, but there is no intent to utilize the full available amount.

Q:Review of Unclear Management Responses

A:None of the questions were avoided or lacked clarity. All responses were detailed and addressed the questions directly.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AIP Transcript

Arteris, Inc. (AIP) Q4 2025 Earnings Call Transcript

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The earnings call reveals strong financial performance with a 13% increase in revenue and a 15% rise in ACV plus royalties, reflecting growing demand. Record high revenue and strategic wins with major clients like AMD are positive indicators. While there are some concerns about expenses, the optimistic guidance for revenue and cash flow, alongside strategic partnerships and product developments, suggests a positive outlook. However, the lack of clarity on certain metrics in the Q&A slightly tempers enthusiasm, but the overall sentiment remains positive, likely leading to a stock price increase of 2% to 8%.

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AIP Slides

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2025-11-04

AIP Report

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