Q3 2022 Arteris Inc Earnings Call
Please standby the conference will begin momentarily. Thank you for your patience and I thought you. Please remain on the line.
[music].
Good afternoon, everyone and welcome to the R. Terrorists third quarter 2022 earnings call. Please note that this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of our tariff Inc. With all rights reserved.
For opening remarks, and introductions I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.
Thank you and good afternoon with me today from our tariffs are Charlie Janet <unk>, Chief Executive Officer, and Nick Hawkins Chief Financial Officer.
Surely will begin with a brief review of the business results for the third quarter ended September 32022.
Nick will then review the financial results for the third quarter, followed by the company's outlook for the fourth quarter and full year of 2022, 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 involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated and 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, a terrorist issued today and in the documents and reports filed by our charged from time to time with the Securities and Exchange Commission.
Please note during this call we will cite certain non-GAAP measures, including 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 the means of evaluating and understanding of the company's 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 September 32022.
In addition for a definition of key performance indicators used in this presentation such as annual contract value confirmed design starts active customers and remaining performance obligations. Please see the press release for the quarter ended September 32022.
Listeners, who do not have a copy of the press release for the quarter ended September 32022 may obtain one by visiting the Investor Relations section of the company's website.
I will now turn the call over to Charlie.
Thank you Erica.
Thanks to everyone for joining us on the call. This afternoon.
We are excited to report solid results for the third quarter annual contract value plus trailing 12 month royalties of $53 million up 17% year over year.
This is despite high silicon contract ending in Q2, which we moved $3 3 million.
Contract value as previously announced.
We achieved a major milestone with over $3 billion systems shifts.
<unk> connected by a tariff system IP since inception.
Demonstrating market demand for our solution, we added 10 gig customers in the quarter the company record.
Total confirm design starts with 'twenty, one Soc projects in the third quarter.
Deals in the third quarter were driven by strong demand for it.
Tariff system IP deployments software across our core markets.
<unk> multiple transactions in automotive consumer electronics Enterprise data Center Communications machine learning and industrial application.
We're also seeing increasing demand for space oriented applications.
We closed a direct automotive OEM licensing deal with a major.
International Electric car manufacturer.
This customer selected our tourists because of our track record of successful completion of automated driving associates by multiple customers and our ability to provide flexible technology.
Labeling the potential for this customer to create differentiated value and to meet their project goals and safety compliance.
<unk> also extended and expanded.
Our long term automotive semiconductor agreement.
And saw strong automotive electronics demand globally.
<unk> was also selected for a major space oriented program.
Due to the combination of technology performance and reliability.
In addition, our resilience technology was the primary reason for our tours being selected for this environmentally challenging obligation.
Additionally, <unk> was chosen by a leading.
<unk> communications Oems to deploy our network on chip interconnect technology.
Sina Dot AI also highlighted the use of our <unk> IP for flexibility and adaptability as part of the <unk> machine learning system on chip platform for the embedded edge announced in August .
Furthermore, microchip entered into a multi year agreement licensing our <unk> IP to enhance performance security configure ability and dual power the next generation of Microcontrollers.
For aerospace embedded vision embedded computing and machine learning.
Also.
We expanded our partnership with arm in the automotive space to leverage leading edge on processor IP without tariff system IP to enable best in class solutions for autonomous driving cockpit infotainment vision radar and Lidar automotive communication and other automotive subsystems.
The partnership to deliver solutions that should accelerate our mutual customers ability to realize associates with high performance power efficiency for complex and demanding safety critical tasks with different workloads, while reducing project schedule and costs.
Our tariffs and arm expanded technical collaboration including early access to next generation of automotive processor IP to ensure customer success, we are well aligned roadmaps Cmos integration and optimize flows with the highest quality of results.
This will in turn enable more efficient creation of ISO 26262 compliance systems with the most rigorous automotive safety integrity levels.
Todays and tomorrows vehicle electronics design challenges.
Lastly, as we recently announced.
We are very excited to have strengthened our management team with the addition of Crystal Moffitt Smith.
Our new executive Vice President of global sales.
Crystal comes to us with an extensive sales leadership background at cadence and Synopsys.
While there are macroeconomic uncertainties, including the latest U S Commerce regulations with respect to China. We believe the <unk> is well positioned to make progress even in challenging economic environments.
Despite potential headwinds our customers are continuing to innovate in areas such as automotive machine learning and <unk> driving the need for increased use of commercial system IP.
With that I'll turn it over to Nick to discuss our financial results in more detail.
Thank you Charlie and good afternoon, everyone.
As a review of our third quarter results today. Please note I'll be referring to non-GAAP metrics.
A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website.
Total revenue from third quarter was $12 6 million, 41% year over year.
At the end of the third quarter, ACB, plus trailing 12 month royalties and other revenue was $53 $2 million.
17% year over year about 3% quarter over quarter.
Remaining performance obligations or <unk> 50.
<unk> $59 3 million.
17% year over year as of September 32022.
We define an IPO as the amount of contracted future revenue.
Gross profit in the quarter was $11 $7 million, representing a gross margin of 93% compared to $8 $1 million or 90% in the prior year period non-GAAP gross profit in the quarter was $11 8 million, representing a gross margin of 94% compared to $8 $1 billion.
Over 90% in the prior year period.
non-GAAP R&D expense for the third quarter was $9 $1 million or 73% of revenue.
Compared to $7 $3 million in the prior year period.
The increase was driven by continued investments in new and improved product offerings, and our five R&D centers across our full portfolio.
non-GAAP sales and marketing expense.
That was $3 $7 million or 29% of revenue.
Compared to $3 2 million in the year ago period.
We intend to continue to invest in sales and marketing as we work.
Right.
Of the benefits of our solutions in the market and.
Im expand out sales in that patient and didn't have any pools.
Marketing efforts to harvest a significant potential opportunity in front of us.
non-GAAP G&A expense with blood culture was $3 2 million or 25% of revenue.
Compared to $1 $6 million in the year ago period.
G&A expense reflects a significant increase in directors and officers liability insurance expense.
And increased head count associated with the transition to being a public company.
Partially offset by a decrease in professional service expenses.
Operating loss for the third quarter was $7 $8 million or 62% of revenue.
Compared to a loss of $4 $5 million from the year ago period.
non-GAAP operating loss was $4 1 million or 33% of revenue compared to a loss of $4 7 million in.
In the year ago period.
Net loss for this quarter was some $7 million.
Diluted net loss per share of 23.
non-GAAP net loss for the quarter was $2 million or.
Diluted net loss per share of <unk>.
Based on approximately $32 8 million weighted average diluted shares outstanding.
Turning now to the balance sheet and cash flow.
We ended the quarter with $68 $2 million in cash cash equivalents and <unk>.
$6 $4 million and short and long term investments.
Cash flow used in operations was approximately $5 $2 million in the quarter, while free cash flow, which includes capital expenditures was negative $5 7 million.
I would now like to turn to outlook for the fourth quarter and full year 2022.
For the fourth quarter, we expect ACB, plus trailing 12 month royalties.
$47 5 million to $51 $5 million.
Revenue of $10 8 million to $11 8 million.
With non-GAAP operating loss margin of 52% to 72%.
non-GAAP free cash flow margin of negative 13, 1%.
The negative 47, 1%.
For the full year.
Revenue of 50.
$251 million.
ACB plus trailing 12 month royalties to exit 2022 at $47 5 million to $51 $5 million.
non-GAAP operating loss margin of 31, 6% to six 1%.
And non-GAAP free cash flow margin.
<unk> 16, 6% to negative $24.
<unk>.
With that I will turn the call to the operator.
Questions operator.
Yeah.
Yeah.
Thank you.
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Your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three one moment. Please for the first question.
Our first question comes from the line of Mark <unk> with Jefferies. LLC. Please proceed with your question.
Mark replaces your line is open. Please proceed with your question.
Okay.
Sorry about that.
Talking to myself there.
Charlie what happens what do you think happens to your business or do you have enough.
Do you have enough data points to give us a sense of what happens to your business during.
Either a a mild recession or kind of a deeper recession is it.
Do you find it.
Increases in the number of projects because your customers are.
Yeah.
Your your payback becomes very compelling to them and then they want to.
Outsource the interconnect capability to you guys more do you think is that what happens or do you do.
Brian would you expect to see kind of a drop off in the business. If you could give us.
Any kind of data points, our historical context, there I think that would be really helpful.
And then I had a follow up thank you.
Yeah.
So.
Essentially in our experience.
Customers.
Hard to design their way out of recessions right.
So.
One piece of evidence is that our third quarter confirmed design starts have remained steady.
Also we went through the 2008 recession, which was much worse than what we're anticipating here.
The number of designs.
Even though we were a smaller company at the time.
Also remained steady.
So we basically manufacturing budgets get cut R&D engineering budgets much less so.
We also are seeing.
One of the effects of the cost cutting and one of the major semiconductor company or some of the major semiconductor companies is that piece.
People are asking selves, hey, should we be building system IP solutions internally or should we just go to.
Two our tariffs.
And get a commercial solution right, so I think that.
The number of designs.
It is not affected.
Hum.
The only headwind we see from a recession is there.
You may see some lower shipment volumes by our customers.
Particularly in the consumer vertical.
And so you may have a slight decline in.
And the royalties short term.
But the growth of royalties and other verticals, particularly automotive.
And infrastructure and data center.
Industrial or do you think will remain robust so.
We do not feel particularly threatened by the recession.
Yes.
A lot of the.
Future market share wins are done by making the right moves actually doing.
During recessions.
Great Alright.
Yes.
I have one more piece of color that youre, asking some data points.
And it's quite an interesting one.
To Charlie's point people design, the way out of out of recessions.
The third quarter Interestingly was the third highest.
The number of design starts in our history, so certainly not seeing any slowdown in that.
Got you.
Okay. That's a great data point, Nick Thank you.
And then the.
The recent.
Inc increased focus of restrictions on China.
That impacted your pipeline at all or is it is there anything that we should keep in mind.
With regards to that that set of developments and Thats all I had thank you.
Yeah, So mark I mean, obviously, where we're spending a fair amount of time trying to assess the impact for our business potential impact.
So far the analysis says that basically there is an impact on supercomputing applications, which were traditionally were not our strength.
And companies that use foundries in China in advanced sub 16 nanometer 16 nanometer and below process nodes.
So.
That may impact a few companies.
However.
A lot of our current customers and prospective customers use non Chinese foundries, including those in South Korea and Taiwan.
We also see that our automotive consumer and industrial customers in China.
As a non Chinese foundries.
Our Chinese foundries operating at less than advanced nodes should not be impacted.
I should also mention that we have significant part of our revenue stream coming from products that were originally built in France, so they're subject to French export tools, rather than the U S export rules.
So when.
When we kind of look at it and trying to be conservative we believe that the kind of the worst case that all these factors together would reduce our overall growth rate by mid single digit percent, but we.
We kind of continue to look at it in.
<unk>.
Tried to assess the situation as it evolves both from the U S side and the Chinese side.
Hey, Mark it's alright, thank you qualify on that.
Just to reemphasize in case anybody missed the point.
He is talking about.
And the growth rate.
Up to mid single digits percent not reduction in revenue.
Understood.
Yeah.
Yeah.
Our next question comes from the line of Hans Melissa Smith with <unk> Securities. Please proceed with your question.
Yes. Thank you.
Execution congrats.
Can you guys.
Give us a sense of how the quarter progressed in terms of linearity in terms of expectations and also if you can give us a qualitative sense of how.
Your customers have behaved as you look into Q4 and beyond.
Yeah Ali Paul go ahead.
Yes.
Linearity in Q3 was fairly was.
Fairly normal except Europe , it's probably no sense to have a <unk>.
And if I take them in July and August so it was mostly.
September for instance, but not just the.
The European pump.
We have IP deployment software.
As far as I roll into Q4, two great questions.
So and expense impacts the the free cash flow projection for the fourth quarter as well as why bring it up.
The fourth quarter.
There's a big impact on me.
The timing of bookings from core molded or end of quarter loaded.
We're saying much more and co promoting.
Which means that.
Because we have a 45 day payment terms on average studies will tend to be more Q1.
<unk> oriented.
Paul.
Why you're seeing a slight downtick in terms of full year free cash flow.
Reversing next year.
So what youre, saying is that customers.
So your customers some of them are choosing to engage with you towards the end of the quarter of a given quarter.
Yes exactly.
And that's really why we put a little bit of.
Prudence around guiding a CPU for the quarter.
Because.
The deal stack up towards the end of the call from Haywood All started in November .
There's with confidence clay will close.
There are as you probably know.
Administrative issue quickly in China, whether it's helped to bolt.
We're available to people to actually execute new licenses.
A drop in the beginning of the next quarter.
So thats the result of the Prudence.
Hum.
And also to.
To an extent that revenue.
That's impacting <unk>.
IPD business, how about the point in time revenue.
Okay, that's helpful and as a.
As my last follow up here I promise.
Just some clarity on the growth rate of your business. The mid single digits high single digits growth rate, that's something that could be.
Potentially but it hasnt hit yet is that the clarification there.
Yes, so actually we saw no impact in Q3, obviously the things are new.
And there is a right now.
It's a rapidly changing macro environment right. So there is some.
Headwinds such as the.
The impact on the growth rate in China.
There is also some tailwind such as.
Increased willingness to.
Two four major semiconductor companies to outsource their system IP development.
I can think of.
Our sense is that these headwinds in televisions are are still balancing.
Balancing out.
So that we should be able to maintain our traditional progress even given the current environment.
Okay. Thank you.
Our next question comes from the line of Matt Ramsey with Cowen <unk> Co. Please proceed with your question.
Yeah, Hey, guys. This is actually Ethan <unk> on for Matt.
I, just I guess I wanted to drill down into the fourth.
<unk> fourth quarter and full year outlook I know you guys mentioned.
Yes.
The impact of timing of deals, but given this is the given the current macro environment on the softness we're seeing I was wondering if you guys could quantitatively kind of go into.
Perhaps where some of the weakness is.
Within the business considering this is kind of the.
Second sequential quarter that the outlook has been narrowed.
<unk>.
Yes.
I'll type.
I'll take that one.
Ethan.
Good catch up with you again.
So yes.
We see value, we do tend to guide prudently, we want to be prudent and not.
<unk> on the outlook.
For the end of the year.
Really it's we're not saying any deals the back rates, but we are seeing.
Some deals closing towards the tail end of the quarter.
If those end up falling into the beginning of the.
Following Q1.
But if that IPD deals.
Yeah.
And revenue so there's a little downtick there.
Half a million.
Timberland or type of guidance, that's about one 1%.
Overall.
ACB is.
Same thing, except it's more exaggerated because.
Does that also then applies to.
Interconnect.
Interconnected digitally.
31st the channel or it's not.
Nothing.
One of them.
And interconnect.
So.
Perhaps we can diagnose all over last week in December .
Then that would negatively impact ACB.
So there's a very slight deep.
Decrease in that but both of those.
Temporary impacts.
There is no actual.
We're not saying any live auction or erosion of business.
Okay understood understood.
And then separately I wanted to kind of ask about the the arm partnership obviously you guys are both.
Partners and competitors on the IP side of things with I guess different core competencies.
But still some overlap on that the Internet interconnect IP.
And given some of the activity in the in the Adas and automotive space, maybe can you discuss.
The announcement in more detail.
Yeah.
Yeah. So we're very excited about this development and basically its Scott.
There are two elements to it right one is.
Yet.
With the significant I'm curious so market share in automotive.
And also a lot of demand for.
Enhancements by the automotive.
Industry in terms of functional safety performance.
Those kinds of things.
Essentially.
Decided to partner with arm on.
In the automotive area, where arm if they truly will recommend the <unk>.
<unk> system IP could be used by arm.
So.
Motive customers right. So.
We anticipate that that will expand.
The revenue opportunity for Ontario, particularly in automotive.
The other element of this is that we've arm in our tourist they've agreed for arm to provide us a stream of.
Automotive processors advanced processors, so that we can emulate and make sure that we test the quality of the integration before it hits the customer base and so.
So that obviously helps us to tailor our.
Interconnect technology too.
The advanced arm processors as they as they come out right. So.
We think that this is an agreement that is beneficial to both companies and it's sort of solidifies our terrorists positioning system automotive system IP and also helps arm in terms of penetrating the automotive market segment, right and I should also mention that.
This partnership is confined to automotive right theres other other segments, where we are sort of still the sort of a friendly.
Co op co op competitors, I guess, you would say.
But in automotive, we decided to do basically partner together.
Can you kind of answered the question.
Yes, perfect. Thank you guys very much.
As a reminder to register for a question press the one four.
Our next question comes from the line of Ambridge Srivastava with BMO. Please proceed with your question.
Alright, thank you.
Sure.
To come back to the China question that Mark had asked earlier.
And a bit confused I just want to make sure. We're all on the same page.
Even though you see a headwind.
From the <unk>.
U S T efforts.
You don't anticipate the mid to high single digit having any impact on growth rate. If we look at next year.
You're not going to matter.
Next year forecast based on that because you have you feel you have offsetting tailwind. So net net the tailwind to offset the China headwind is that the right way to walk away from those comments.
Yes.
That's our that's our carton sealing yes, I don't know Nick if you want to add some other color.
Yes.
We are still feeling our way through this ambition as everybody in the space is.
And so frankly, we don't 100% no yes, we know that there are.
We don't really have any applications in supercomputers for example, which is one of the prime drivers of that.
Regulation.
We're not in the business of DRAM or NAND flash.
Which is another technology elements of it.
That may be potentially some parts of out of our growth.
In China that could be sub 16 nanometer China foundries.
But we don't know until until we know.
And so so right now we don't see any immediately obvious.
Sort of a headwind, but we wanted to be a little bit prudent in terms of the guide that you guys and so that could be.
Single digit percent.
Headwinds to overall revenue growth.
For the company from those events, but as Charlie said there are some there are some other tailwind events.
Aylwin vectors.
But a very positive.
But I think in the.
Certainly in the interim.
Short to medium term could be.
The offsetting the timing of those two things.
Just don't know.
At the moment, we're not seeing any reduction in China business.
Got it.
No I think that makes sense, that's a pretty balanced assessment I think there's a lot of uncertainty.
Another thing for you Tony.
Something you highlighted the direct auto OEM engagement can you just give us some sense of what this.
Was this a year ago in terms of how many customers you're engaged.
Directly in the auto space.
Go versus now and then more importantly.
How is the business trending in <unk>.
Terms of your engagement directly with.
These customers is obviously the whole auto industry has gone through efficient turmoil with all of the shortages.
So any perspective would be very helpful. Thank you.
Yeah. So it used to be that we could not even get a meeting with an automotive Oems right.
We tried that was the question.
Why are we talking to interconnect or a system supplier.
That has changed dramatically.
Because basically the Oems have realized that they need to gain control of their electronic architectures.
And.
They can have 200.
200, little Mcu's in their cars coming from from the tier ones.
And except expect to compete against the likes of Tesla. So they have started designing chips some of them have gone quite deep into this.
I think the mainstream model is that they define the architecture that is needed by their software and then they work with partners.
To develop those chips with the partners and being able to sell those chips.
On the open market.
And so we wind up engaging with with some of these Oems now directly.
We closed typically so far this year.
We closed one quarter basically one direct OEM relationships.
Quarter.
At the moment, though this is accelerating and so.
Theres nothing to announce but we're engaged with several of his time right now.
So we anticipate that the.
That essentially every viable automotive OEM is going to have some kind of.
In Soc development program.
Within within their 2023 24 budgets. So we anticipate that the interaction between our tourist IP and the Oems and the ridesharing companies as well is going to accelerate going forward. That's one of the.
I would say one of the tailwind of our business.
This should result in the Tam being potentially being larger than what.
You were thinking when you went public.
Yes.
One is the Tam becomes somewhat bigger Tam was already pretty big but.
It does certainly expand the Sam the served available market.
But what it also does is if the Oems essentially standardize on our terrace there.
Drive additional business in there is in the supply base of those Oems right.
So.
It's very much what happened with arm and the <unk>.
And the phone makers when <unk> started engaging directly with the companies that actually make the phones rather than just people who made the film.
Semiconductors right. So it's a very similar strategy that.
That we have and scale.
There is I would say substantial evidence that it's working and it's successful and that the Oems are are happy with us.
This particular case.
Initially this this OEM essentially use our tourist interconnect to our partner and on a subsequent project decided to do a direct license with us.
Got it sounds good. Thank you very much good luck.
Our next question comes from the line of Richard with Northland. Please proceed with your question.
Yes, thanks for taking the question.
Charlie I just hold on.
See if I can frame this up.
And to one question.
Are the auto guys moving more towards it.
<unk>.
Beyond what they used to do and how is that impacting new and existing boundaries in terms of IP reuse and <unk>.
How do you see this whole playing out and.
Where are you positioning vis vis these moving pieces.
Yes, I mean.
The automotive business is going through just the biggest disruption.
This World War, two because basically.
It's no longer the card business.
It's the Internet of card business right. So you now have.
Connections to the data center.
Soon connections to the road infrastructure.
Eventually the cars will be talking to each other right.
So the car becomes a.
And endpoint in basically a giant transportation network.
So the car companies are seeing this and so they are starting to design chips.
But.
With a few exceptions, they really don't have the volume or the skill set and so they are calling in semiconductor partners to essentially help them.
But they are defining the architecture because.
The biggest investment in all of this is the software and so basically instead of in the old days, where.
Intel will put out a chip and people would program for it.
Now people will make a very large investment in software and they are building <unk> to run that software the most efficiently.
Possible with the highest performance and.
The lowest power.
Because of the constraints that are in the car right. So it's a completely different paradigm.
And so.
These companies are not interested in building their own network on chip or or even processors right. They're interested in getting their soc that drives their software.
And so this is a fairly substantial opportunity for commercial.
There are four commercial IP to be utilized in these in these designs and it does expand the served available market for companies such as our terrorism here. We're fortunate enough that we have a very very strong position in automotive and we're very committed to even expanding that position and working very hard with our <unk>.
Customers and our partners to provide the technologies and the features that these people need to get the best <unk> available to run their very sophisticated software.
Okay got it.
Thanks, and then just.
Typically you guys introduced some new products around the end of the year.
I think the next one is gonna be based or around loosely.
Exactly I was just wondering if you could give us an update on.
Sort of the new product momentum here.
So we're very excited about our product pipeline.
We're not ready to make any announcements or even to say what it is.
But but we would.
We will probably make some announcements some early access deliveries.
Probably some time in the quarter.
And make announcements late.
Later on so where we are on track to meeting the one product per year.
<unk>.
Got it and of course, the revenue impact will be in 2023.
Got it that's it for me thanks.
Yeah.
And.
And we have a follow up question from Mark <unk> with Jefferies. LLC. Please proceed with your question.
Great. Thanks for taking the follow up.
Charles could you talk a little bit about the <unk>.
<unk> chip.
Announcements from.
I think it was five days ago.
It looks like this is for flex knock.
And I'm wondering.
A couple of things whats the opportunity here to expand into other IP that you're offering above and beyond flex knock and in.
In the press release, it looks like you.
Thank you.
Looking forward to working with additional design teams and I Wonder if you can share.
Is there any other.
What should we take away from that comment are you already starting that that engagement process is there anything that we should think about like going forward. Thank you.
Yes, so we're not not authorized to say what the initial application is but.
But the micro chip relationship is pretty much similar to others, where we sort of break in on the most complex most difficult designs.
And then over time, we expand into other teams doing perhaps less less sophisticated.
Less sophisticated type designs.
So where we're.
We're working to make that happen and microchip as well as other companies.
So yes.
It's a major relationship that has.
Start at a relatively focused application.
And then we hope to expand from there.
Gotcha, and then is this something that.
I mean the announcement just came out is this something that you had been working for for a while.
And you've got the okay to.
To enel.
Announced the customer or.
Is this something that just.
It just happened and you that you can make the announcement right away.
Yes. This one happened to have a relatively short.
Designing cycle right. So it's I would say, it's an example of.
I would say.
<unk> debt.
The design win cycles are somewhat shortening compared to where they were a couple of years ago.
That's the sort of the reputation of the of the company expands and because of the IPO and others.
We sort of wind up in some sense. Our goal is ultimately to be a standard.
For for the system IP solutions.
Yes.
Right.
Got you Alright, that's clear thank you very much.
Yeah.
Let me have a follow up question from the line of Hans Morris Mcmahon with the closing bulk Securities. Please proceed with your question.
Yes, thanks for taking the question.
Hey, Nick on gross margins the implied gross margin guidance over 92% and Thats something that you should assume it.
Annabelle into the following year.
Hey, Hans Yeah, So quick.
Quick question.
We've always said that we would have gross margins in the region of 9% to 95%. So this is.
Right down the middle of the fairway.
The main.
Cost of revenue element.
I used to build up that you mentioned is.
And that can fluctuate up and down a little bit.
Depending on.
Exactly how we account for it.
So.
The 92, and a half kind of a midpoint of 90 to 95 is still what I would call a good long term planning.
<unk>.
That's pretty much where the quarter came in.
Got it okay. Thank you that's all I have.
Yeah.
There are no further questions at this time I will now turn the call over to Charlie Jonnock with for closing remarks.
Well. Thank you. So thank you. We appreciate thank you for joining US today, we appreciate the great questions and we look forward to.
To keep you up to date on <unk>.
Future progress of our <unk>. Thank.
Thank you very much.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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