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Arteris, Inc. (AIP)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue was $15.5M, up 24% YoY, with GAAP gross margin at 90% and non-GAAP gross margin at 91%; record ACV + royalties reached $65.1M and record RPO hit $88.4M .
  • Non-GAAP operating loss improved to $2.8M, a clear beat versus prior Q4 guidance of $4.0–$5.0M; GAAP net loss was $8.2M ($0.20 per share) and non-GAAP net loss was $3.9M ($0.10 per share) .
  • Free cash flow was -$2.7M, missing Q4 guidance (-$0.9M to +$1.1M) due to working capital timing; the company ended Q4 with ~$52.3M cash, cash equivalents, and investments, and no financial debt .
  • Q1 2025 guidance: revenue $15.7–$16.1M; FY 2025 revenue: $66.0–$70.0M; both accompanied by improving non-GAAP operating loss ranges and a target to turn positive FY free cash flow ($1.0–$7.0M) .
  • Product and commercial catalysts: FlexGen Smart NoC (up to 10x engineering productivity, ~30% wire-length improvement in complex SoCs), expanding MCU wins (Infineon, GigaDevice), and rising chiplet projects that increase ASPs and license counts per design .

What Went Well and What Went Wrong

What Went Well

  • Record commercial metrics: ACV + royalties reached $65.1M and RPO rose to $88.4M, both record highs, reflecting strong deal flow and customer expansion, including top-tier tech and automotive wins .
  • Operating efficiency and margin stability: non-GAAP operating loss improved to $2.8M; GAAP/non-GAAP gross margin held at ~90%/91%; management emphasized prudent OpEx control and expects further improvement in 2025 .
  • Strategic product momentum: FlexGen Smart NoC announced (AI-driven automation, up to 10x engineering productivity, and power/latency gains); >75% of FlexNoC customers chose physically aware FlexNoC 5; management: “FlexGen…providing expert-level NoC topologies in hours or days instead of weeks” .

What Went Wrong

  • Free cash flow miss: Q4 FCF came in at -$2.7M, below guidance, driven by receivables timing (customer payments slipped post-quarter close), despite full-year FCF of -$1.0M .
  • Royalties composition: the “royalties and other” line was slightly lower YoY due to fewer one-time audit benefits vs. 2023; variable royalties grew 20% YoY, and >30% ex-Mobileye, but Mobileye’s inventory correction weighed on automotive royalty mix .
  • Balance sheet equity: stockholders’ equity turned negative (-$1.2M) at year-end despite ~$52.3M liquidity and no financial debt, highlighting cumulative losses and deferred revenue liabilities .

Financial Results

Core Financials (GAAP)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$14.575 $14.713 $15.489
Gross Margin (%)90% 90% 90%
Operating Loss ($USD Millions)$(7.441) $(7.919) $(7.102)
Net Loss ($USD Millions)$(8.344) $(7.687) $(8.204)
EPS (GAAP, $USD)$(0.22) $(0.20) $(0.20)

Non-GAAP Metrics

MetricQ2 2024Q3 2024Q4 2024
Gross Margin (%)92% 92% 91%
Operating Loss ($USD Millions)$(3.489) $(3.312) $(2.755)
EPS (Non-GAAP, $USD)$(0.11) $(0.08) $(0.10)

Revenue Breakdown

MetricQ2 2024Q3 2024Q4 2024
Licensing, support & maintenance ($USD Millions)$13.553 $13.507 $14.016
Variable royalties & other ($USD Millions)$1.022 $1.206 $1.473

KPIs

KPIQ2 2024Q3 2024Q4 2024
ACV + Royalties ($USD Millions)$60.1 $60.5 $65.1
Remaining Performance Obligations ($USD Millions)$77.5 $78.4 $88.4
Free Cash Flow ($USD Millions)$0.3 $1.1 $(2.7)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ResultChange
Revenue ($USD Millions)Q4 2024$14.7–$15.7 $15.489 Within, near top end
ACV + Royalties ($USD Millions)Q4 2024$63.0–$67.0 $65.1 Met midpoint
Non-GAAP Operating Loss ($USD Millions)Q4 2024$4.0–$5.0 $2.755 Beat
Free Cash Flow ($USD Millions)Q4 2024-$0.9 to $1.1 -$2.7 Miss
Revenue ($USD Millions)Q1 2025N/A$15.7–$16.1 New
ACV + Royalties ($USD Millions)Q1 2025N/A$65.5–$67.5 New
Non-GAAP Operating Loss ($USD Millions)Q1 2025N/A$3.0–$4.0 New
Free Cash Flow ($USD Millions)Q1 2025N/A-$2.0 to $2.0 New
Revenue ($USD Millions)FY 2025N/A$66.0–$70.0 New
ACV + Royalties ($USD Millions)FY 2025N/A$73.0–$77.0 New
Non-GAAP Operating Loss ($USD Millions)FY 2025N/A$8.5–$12.5 New
Free Cash Flow ($USD Millions)FY 2025N/A$1.0–$7.0 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
AI/technology initiativesRecord ACV; new wins across AI, automotive; ecosystem partnerships (Andes, Armv9 support) NoC tiling announced; strong enterprise AI demand; AI ~40% of revenue across verticals FlexGen Smart NoC launched (10x productivity); >75% adoption of physically aware FlexNoC 5 Accelerating product innovation
MCU expansionStrategy to expand into MCUs; multiple new OEMs and design starts Plan to broaden focus to MCUs; ASPs lower but high volume royalties Infineon and GigaDevice wins; roadmap to capture full generations every ~3 years Building momentum
ChipletsEarly customer adoption; ecosystem build Enterprise chiplets highlighted (hyperscale); tiling supports scalable AI clusters More chiplet projects; multiple dies, multiple licenses per project → higher ASP Expanding opportunity
Royalties/mixRoyalties relatively small % of revenue; cyclicality in auto AI/enterprise rising; auto robust in China; Mobileye headwinds low overall revenue impact (<1%) Variable royalties +20% YoY; >30% YoY ex-Mobileye; fewer one-time audit benefits Mixed but improving ex-specific headwinds
Regional trends (China)Steady; capital crunch but robust design activity Strong China auto design activity; presence across OEMs/Tier-1s; balanced global mix Continued engagement; mobile inventory correction impact within auto royalties Stable design activity
R&D/OpEx disciplineNon-GAAP OpEx down YoY; laser focus on cash flow Non-GAAP OpEx flat; guidance improved; positive FCF streak OpEx control continues; non-GAAP op loss beat; aim to turn positive FY FCF in 2025 Improving efficiency

Management Commentary

  • CEO: “In the fourth quarter of 2024, we achieved a record annual contract value, plus royalties, of $65.1 million…fueled by increased adoption of AI-driven enterprise computing and automotive SoCs” .
  • CEO on FlexGen: “FlexGen…delivering up to 10x engineering productivity…reduces manual iteration by over 90%…expert-level NoC topologies in hours or days” .
  • CFO: “Non-GAAP operating loss in the quarter was $2.8 million, which came in above the top end of our guidance range…We ended the quarter with [$52.3 million] in cash, cash equivalents and investments, and we have no financial debt” .
  • Strategy: mix-and-match interconnect approach with ARM CMN + FlexNoC; involvement in PC chipsets (x86) broadens architecture-neutral footprint .

Q&A Highlights

  • Bookings strength: Q4 characterized as strong deal flow; typical seasonal peak in bookings in Q4 .
  • Pricing/ASP: Complex SoC ASPs tracking toward ~$1M per project; FlexGen uplift ~30%; MCUs carry lower ASPs but higher volumes; buying “everything” could be ~$1.5M per project .
  • Royalties dynamics: “Royalties and other” slightly lower YoY due to fewer audit benefits; variable royalties +20% YoY, and >30% YoY ex-Mobileye; auto still ~half of variable royalties .
  • Free cash flow seasonality: cash inflows weighted to 2H; Q4 FCF miss due to receivables timing; targeting positive FY 2025 FCF .
  • Chiplets: more complexity, multiple dies and companies → higher ASPs and more licenses per program .

Estimates Context

  • S&P Global consensus EPS and revenue estimates were unavailable due to API limit constraints; as a result, we cannot provide Wall Street consensus comparisons for Q4 2024, Q3 2024, Q2 2024, or FY 2025. Values would normally be retrieved from S&P Global, but were not accessible at this time.

Key Takeaways for Investors

  • Commercial momentum is strong: record ACV + royalties ($65.1M) and record RPO ($88.4M) point to durable demand and multi-quarter visibility .
  • Profitability trajectory improving: non-GAAP operating loss improved to $2.8M, beating guidance; OpEx discipline continues; FY 2025 guide implies further losses narrowing .
  • Free cash flow miss appears timing-related: Q4 FCF - $2.7M due to receivables timing; management targets positive FY 2025 FCF .
  • Product catalysts: FlexGen Smart NoC (10x productivity) and FlexNoC 5 (>75% adoption) should support pricing power and customer penetration, especially in complex AI SoCs .
  • Mix evolution: chiplets likely lift ASPs and license counts per program; MCU expansion (Infineon, GigaDevice) lowers ASPs but increases royalty scale and design counts .
  • Royalties resilience: variable royalties +20% YoY and >30% ex-Mobileye suggest underlying strength despite auto-specific headwinds .
  • Liquidity sound: ~$52.3M cash/investments and no financial debt provide runway, though negative equity (-$1.2M) is a watch item for capital structure improvements .

Financial Appendix: Additional Business Highlights (Q4 timeframe)

  • Selected by TIER IV for intelligent vehicles (Oct 29, 2024); Tenstorrent expanded deployment of Arteris NoCs (Nov 5, 2024); GigaDevice licensed FlexNoC 5 for automotive MCUs (Nov 19, 2024) .
  • Partnership with SiFive delivering pre-verified RISC-V datacenter solutions (Oct 21, 2024); NoC tiling innovation announced to accelerate semiconductor design (Oct 15, 2024) .