Q1 2024 Arteris Inc Earnings Call
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Operator: Good afternoon, everyone, and welcome to the Arteris First Quarter 2024 Earnings Call. Please note, this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of The Arteris Inc., with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to the <unk> first quarter 2024 earnings call.
Erica Mannion: Please note this call is being recorded and simultaneously webcast.
Erica Mannion: All material contained in the webcast a sole property and copyright of <unk>, Inc. With all rights reserved.
Erica Mannion: Thank you and good afternoon. With me today from Arteris are Charlie Janac, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the first quarter ended March 31, 2024. Nick will review the financial results for the first quarter, followed by the company's outlook for the second quarter and full year of 2024. We will then open the call for questions.
Operator: For opening remarks, and introductions I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.
Speaker Change: Thank you and good afternoon with me today from our tariffs are Charlie <unk>, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer, Charlie will begin with a brief review of the business results for the first quarter ended March 31, 2020 for Nick will review the financial results for the first quarter, followed by the company's outlook for the second quarter.
Nicholas Bryan Hawkins: And full year of 2024.
Erica Mannion: We will then open the call for questions before we begin I would 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.
Erica Mannion: 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 such forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ is included in the press release Arteris issued today and in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission.
Erica Mannion: 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 they provide investors with a means of evaluating and understanding how 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.
Erica Mannion: A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended March 31, 2024. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, confirmed design starts, active customers, and remaining performance obligation, please see the press release for the quarter ended March 31, 2024. Listeners who do not have a copy of the press release for the quarter ended March 31, 2024 may obtain a copy by visiting the investor relations section of the company's website.
Erica Mannion: Reliance on forward looking statements.
Erica Mannion: Additional information regarding these risks uncertainties and factors that could cause results to differ appear in the press release, our tariffs issued today and the documents and reports filed by our tariffs from time to time with the Securities and Exchange Commission.
Erica Mannion: 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.
Erica Mannion: The non-GAAP measures are presented as we believe they provide investors with the means of evaluating and understanding of the company's management evaluates the company's operating performance.
Erica Mannion: 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.
Erica Mannion: A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended March 31 2024.
Erica Mannion: In addition for a definition of certain of the key performance indicators used in this presentation such as annual contract value confirm design starts active customers and remaining performance obligation. Please see the press release for the quarter ended March 31 2024.
Erica Mannion: Listeners, who do not have a copy of the press release for the quarter ended March 31, 2024 may obtain a copy by visiting the Investor Relations section of the company's website.
Erica Mannion: In addition, management will be referring to the Q1 2024 earnings presentation, which can be found in the investor relations section of the company's website under the events and presentations tab. Now, I will turn the call over to Charlie.
Erica Mannion: In addition management will be referring to the Q1 2024 earnings presentation, which can be found in the Investor Relations section of the Companys website under the events and presentations tab.
Erica Mannion: Now I will turn the call over to Charlie.
Charlie Janac: Thank you, Erica, and thanks to everyone for joining us on the call this afternoon. We're excited to report a solid first quarter of 2024 with annual contract value plus royalties of $58.2 million. I'd also like to highlight that we delivered a positive free cash flow quarter, and we're reaffirming our target of achieving positive free cash flow in 2024. This quarter's success was driven by continued robust licensing activity across all of our verticals, led in particular by enterprise computing and automotive deals.
Charlie: Thank you Erica and thanks to everyone for joining us on the call. This afternoon. We're excited to report a solid first quarter of 2024 with annual contract value plus royalties of $68 2 million.
Charlie Janac: I'd also like to highlight that we delivered a positive free cash flow quarter, and we are reaffirming our target of achieving positive free cash flow in 2024.
Charlie Janac: This quarter success was driven by continued robust licensing activity across all of our verticals led in particular by enterprise computing and automotive deals.
Charlie Janac: As with recent quarters, the rise in artificial intelligence is a driving factor for our customers, with approximately half of our first quarter license deals enabling AI and machine learning design starts increasingly supporting generative AI and large language model applications. We continue to expand our foothold with large customers, as five of our significant wins were with top 30 global technology companies. Each of these wins with major system and semiconductor companies increasingly demonstrates the growing demand for commercial system IP vendors such as Arteris.
Charlie Janac: As with recent quarters, Verizon artificial intelligence is a driving factor for our customers with approximately half of our first quarter license deals, enabling AI and machine learning design starts.
Charlie Janac: Increasingly supportive generate AI and large language model applications.
Charlie Janac: We continue to expand our foothold with large customers.
Charlie Janac: Five of our significant wins with top 30 global technology companies.
Charlie Janac: Each of these wins with a major system and semiconductor companies increasingly demonstrates the growing demand for commercial system IP vendors such as our tariffs.
Charlie Janac: We saw continued healthy design activity from our customers, primarily in enterprise computing and automotive, followed by deployments for communications and industrial applications and consumer electronics. One of the enterprise computing wins in the first quarter was one of our largest system IP deals with a top 10 semiconductor company. Specifically, it significantly expands the deployment of Arteris network-on-chip IPs across a growing number of SoC designs. This business relationship continues our trend of securing relationships with major technology companies that can be expanded over time.
Charlie Janac: We saw continued healthy design activity from our customers primarily in enterprise computing and automotive followed by deployments for communications and industrial obligations and consumer electronics.
Charlie Janac: One of the enterprise computing wins in the first quarter was one of our largest system IP deals with top 10 semiconductor company.
Charlie Janac: Specifically it significantly expands the deployment of our tourists network on chip ip's across a growing number of SLC designs.
Charlie Janac: This business relationship continues our trend of securing our relationships with major technology companies that can be expanded over time.
Charlie Janac: As of today, approximately half of the top 30 semiconductor and technology companies are Arteris customers. As mentioned earlier, the growth of AI is fueling the increasing adoption of Arteris products, which we believe are well-suited to tackle the growing design size, complexity, performance, power, and cost requirements of AI chips. As an example of this trend, we announced that Rebellions, a pioneering AI semiconductor startup in Korea, has licensed FlexKnock network-on-chip IP and Magellum SoC automation integration software for its next-generation neural processing unit aimed at generative AI.
Charlie Janac: As of today approximately half of the top 30 semiconductor and technology companies are <unk> customers.
Charlie Janac: As mentioned earlier the growth of AI is fueling the increasing adoption of our <unk> products, which we believe are well suited to tackle the growing design size complexity performance power and cost requirements of AI chips.
Charlie Janac: As an example of this trend we announced good rebellions pie.
Charlie Janac: Pioneering AI semiconductor startup in Korea has license flex knock network on chip IP and Magellan associate automation integration software for it.
Charlie Janac: Next generation neural processing unit aimed at generally of AI.
Charlie Janac: Rebellion chose Arteris Pro RIP and our software, enabling superior performance and design flexibility for their inference chips, while meeting energy efficiency requirements needed to deliver cost-efficient AI hardware computing at scale. On the product front, our FlexNoc5 network-on-chip, launched in the middle of last year, continues to find solid adoption across all our verticals and all of our main geographical markets, from small to large customers.
Charlie Janac: Rebellions chose <unk> for our IP and our software, enabling superior performance and design flexibility for their influence chips, while meeting energy efficiency requirements needed to deliver cost efficient AI hardware computing at scale.
Charlie Janac: On the product front, our flex locked five network on chip launched in middle of last year continues to find solid adoption.
Charlie Janac: As adoption spans across all our verticals and all of our main geographical markets from small to large customers.
Charlie Janac: Building upon this momentum, we announce the release and immediate availability of the latest version of our Encore cash coherent network on chip IP. Arteris NCOR supports any processor IT that connects to NCOR-supported protocols, offering multiple protocols, flexible configurations, and ISO 26262 functional safety, and is utilized by Mobileye, a longtime customer who is at the forefront of the autonomous vehicle evolution. The expanded Encore IP also delivers on the previously announced Arm and Arteris automotive partnership, targeting a broad range of automotive designs from microcontrollers to autonomous driving chips.
Charlie Janac: Building upon this momentum we announced the release and immediate availability of the latest version of our Angkor cache coherent network on chip IP.
Charlie Janac: Our tourist Angkor supports any processor IP.
Charlie Janac: Go next to EMCORE supported protocols.
Charlie Janac: Offering multiple protocols flex.
Charlie Janac: Flexible configurations, and ISO 26262 functional safety and is utilized by mobilizing a longtime.
Charlie Janac: Customer who is at the forefront of the autonomous vehicle evolution.
Charlie Janac: The expanded and core IP also delivers on the previously announced arm in our tourist automotive partnership.
Charlie Janac: Targeting a broad range of automotive designs for Microcontrollers to autonomous driving chips.
Charlie Janac: The collaboration results in the pre-validation of Arteris NCOR interconnect IP, integrating with and supporting various ARM v9 based processor IPs for automotive semiconductors. The aim is to enable the next generation of automotive electronics, including advanced driver assistance systems, or ADAS, cockpit and infotainment systems, vision, radar, lidar, body and chassis control, and more. By optimizing and pre-validating Arteris N-Core network on chip to work seamlessly with ARM's latest processor IPs, customers benefit from an accelerated path to high-performance, power-efficient, and safe automotive SoCs.
Charlie Janac: The collaboration results and pre validation of our Terry's EMCORE interconnect IP integrating with and supporting various arm Jeannine based processor Ip's first automotive semiconductors.
Charlie Janac: The aim is to enable next generation of automotive electronics, including advanced driver assistance systems, or Adas cockpit infotainment systems vision radar lidar body and chassis control and more.
Charlie Janac: By optimizing and pre validating our tourist and core network on chip to work seamlessly with arm's latest processor ip's customers benefit from accelerated path to high performance power efficient and safe automotive associates.
Charlie Janac: Speaking of automotive collaboration, at the recent automotive computing conference, Mercedes-Benz presented a vision for the standardization of automotive computing and multi-die chiplets, supported by partners including Arm, Intel Foundry, Synopsys, Renesas, Arteris, and others. We are excited to be partnering in pioneering a reference with Mercedes-Benz for its network-on-chip and last-level cache implementations as part of the ADU platform, Yet another collaboration in the first quarter included expanding our RISC-V ecosystem support to help offer on-chip connectivity for companies deploying the DAMO Zhiyuan-T processor IP in their SoCs.
Charlie Janac: Speaking of automotive collaboration.
Charlie Janac: At the recent automotive computing conference Mercedes Benz presented a vision for standardization of automotive computing and multi die triplets supported by partners, including arm, Intel foundry synopsys or in the SaaS or tariffs and others.
Charlie Janac: We're excited to be partnering in pioneering a reference with Mercedes Benz for its network on chip and last level cash implementations as part of the <unk> platform addressing a full range of autonomous driving applications.
Charlie Janac: Yet another collaboration in the first quarter included expanding our risk five ecosystem support to help offer on ship connectivity for companies deploying the Domino Xeon processor IP and their associates.
Charlie Janac: This collaboration underscores Arteris' capability to support processor choices made by our customers, including the support of both ARM and RISC-V processors on the same SoC. Currently, certain macroeconomic dynamics, including geopolitical uncertainties and the U.S. BIS restrictions concerning China-U.S. trade, continue to impact our business, though we are not seeing further deterioration at this time. While these dynamics do create near-term headwinds, we believe that the scale and scope of our long-term opportunity remains robust, supported by a strong product pipeline of new system IP technologies and solid relationships with some of the largest electronics companies in the world who continue to innovate in exciting areas such as generative AI and autonomous driving using Arteris system IP technology. With that, I'll turn it over to Nick to discuss our financial results in more detail.
Charlie Janac: This collaboration underscores our <unk> capability to support process of choices made by our customers, including the support of both arm at risk client processors on the same association.
Charlie Janac: Currently.
Nick: Certain macroeconomic dynamics.
Nick: Including geopolitical uncertainties and the Uspi's restrictions concerning China U S trade.
Nick: <unk> to impact our business.
Nick: Though we are not seeing further deterioration at this time.
Nick: While these dynamics do create near term headwinds, we believe that the scale and scope of our long term opportunity remains robust supported by a strong product pipeline of new system might be technologies and solid relationships with some of the largest electronics companies in the world.
Nick: Continue to innovate and exciting areas, such as Jerry of AI and autonomous driving.
Nick: Using our turret system IP technologies.
Charlie Janac: With that I'll turn it over to Nick to discuss our financial results in more detail.
Nicholas Bryan Hawkins: Thank you, Charlie, and good afternoon, everyone. As I review our first quarter results today, please note I will be referring to GAAP as well as non-GAAP metrics. A reconciliation of gap to non-gap financials is included in today's earnings release, which is available on our website. As a reminder, I will be referring to the first quarter 2024 earnings presentation, which can be found in the investor relations section of the company's website under the events and presentations tab. Turning to slide four of the presentation,
Nick: Thank you Charlie and good afternoon, everyone.
Nick: As I'll review, our first quarter results today. Please note I'll be referring to GAAP as well as non-GAAP metrics.
Nicholas Bryan Hawkins: A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on.
Nicholas Bryan Hawkins: Website.
Nicholas Bryan Hawkins: The total revenue for the first quarter was $12.9 million, down 2% year over year but up 4% sequentially, and above the midpoint of our guidance range. However, if we take into account the change to ratable revenue treatment in the second quarter of 2023, the year-over-year revenue growth would have been 16%. At the end of the first quarter, annual contract value, or ACV, plus royalties was £58.2 million, also above the midpoint of our guidance range.
Nicholas Bryan Hawkins: As a reminder, I'll be referring to the first quarter 2024 earnings presentation.
Nicholas Bryan Hawkins: Which can be found in the Investor Relations section of the company's website under the events and presentations tab.
Nicholas Bryan Hawkins: Turning to slide four of the presentation.
Nicholas Bryan Hawkins: Total revenue for the first quarter was $12 $9 million down 2% year over year, but up.
Nicholas Bryan Hawkins: 4% sequentially.
Nicholas Bryan Hawkins: And above the midpoint guidance range.
Nicholas Bryan Hawkins: If we take into account the change to ratable revenue treatment in the second quarter of 2023, the year over year revenue growth would have been 16%.
Nicholas Bryan Hawkins: At the end of the first quarter annual contract value or ICB, plus royalties was $58 2 million also above the midpoint of guidance range.
Nicholas Bryan Hawkins: Remaining performance obligations, or RPO, at the end of the first quarter were $74.7 million, representing a 30% year-over-year growth, growing to the highest level we have ever reported and reflecting a solid quarter in terms of new license deals. Gap gross profit for the first quarter was $11.5 million, representing a gross margin of 89%; non-GAAP gross profit in the quarter was $11.7 million, representing a gross margin of 91%. Now moving to slide five.
Nicholas Bryan Hawkins: Remaining performance obligations or <unk> at the end of the first quarter were $74 $7 million.
Nicholas Bryan Hawkins: Presenting a 30% year over year growth.
Nicholas Bryan Hawkins: Going to the highest level, we have ever reported.
Nicholas Bryan Hawkins: Solid quarter in terms of license deals.
Nicholas Bryan Hawkins: GAAP gross profit for the first quarter was 11 $5 million, representing a gross margin of 89%.
Nicholas Bryan Hawkins: non-GAAP gross profit in the quarter was $11 $7 million, representing a gross margin of 91%.
Nicholas Bryan Hawkins: Now moving to slide five.
Nicholas Bryan Hawkins: Total gap operating expense for the first quarter was $20.6 million compared to $20.3 million in the fourth quarter. Non-GAAP operating expense in the quarter was $17 million, up 1% sequentially, but 4% lower than the first quarter of 2023, reflecting the team's continued focus on prudent management of our operating expenses. We'll continue to limit spending to strategically critical areas while investing in profitable revenue growth. Gap operating loss for the first quarter was $9.1 million, compared to a loss of $8.8 million in the prior year period. Non-GAAP operating loss was $5.3 million, or 41%, compared to a loss of $5.6 million in the prior year period.
Nicholas Bryan Hawkins: Total GAAP operating expense for the first quarter was $26 million compared to $23 million in the fourth quarter.
Nicholas Bryan Hawkins: non-GAAP operating expense in the quarter was $17 million.
Nicholas Bryan Hawkins: 1% sequentially, 4% lower than the first quarter of 2023.
Nicholas Bryan Hawkins: The team's continued focus on prudent management of our operating expenses.
Nicholas Bryan Hawkins: We will continue to limit spending to strategically critical areas, while investing in profitable revenue growth.
Nicholas Bryan Hawkins: GAAP operating loss for the first quarter was $9 $1 million compared to a loss of $8 $8 million in the prior year period.
Nicholas Bryan Hawkins: non-GAAP operating loss was $5 3 million or <unk>.
Nicholas Bryan Hawkins: 81%.
Nicholas Bryan Hawkins: Impaired to a loss of $5 6 million in the prior year period.
Nicholas Bryan Hawkins: Net loss in the quarter was $9.4 million, or diluted net loss per share of 25 cents. Non-GAAP net loss in the first quarter was $5.6 million, or diluted net loss per share of 15 cents based on approximately 37.7 million weighted average diluted shares outstanding.
Nicholas Bryan Hawkins: Net loss in the quarter was $9 $4 million or diluted net loss per share of 25.
Nicholas Bryan Hawkins: non-GAAP net loss in the first quarter was $5 $6 million or diluted net loss per share of 15.
Nicholas Bryan Hawkins: Based on approximately 37 7 million weighted average diluted shares outstanding.
Nicholas Bryan Hawkins: Okay.
Nicholas Bryan Hawkins: Moving to slide six and turning to the balance sheet and cash flow, we ended the quarter with $53.4 million in cash equivalents and investments. Free cash flow, which includes capital expenditure, was positive $300,000. This was above the midpoint of our guidance range and in line with the company's goal to be free cash flow positive in the current year. I would now like to turn to our outlook for the second quarter and the full year of 2024. Please refer to slide seven.
Nicholas Bryan Hawkins: Moving to slide six and turning to the balance sheet and cash flow.
Nicholas Bryan Hawkins: We ended the quarter with $53 $4 million in cash cash equivalents and investments.
Nicholas Bryan Hawkins: Free cash flow, which includes capital expenditure was positive $300000.
Nicholas Bryan Hawkins: This was above the midpoint of our guidance range and in line with the company's goal to be free cash flow positive in the current year.
Nicholas Bryan Hawkins: Sure.
Nicholas Bryan Hawkins: I would now like to turn to.
Nicholas Bryan Hawkins: Outlook for the second quarter and full year.
Nicholas Bryan Hawkins: 2020 full umbrella now to slide seven.
Nicholas Bryan Hawkins: I would draw your attention to the fact that our guidance methodology has changed to guiding operating loss and free cash flow in terms of dollars instead of percent of revenue. For the second quarter, we expect ACB plus royalties of $58 million to $62 million. Revenue of $13.2 million to $14.2 million, with a non-GAAP operating loss of $6.5 million to $4.5 million, and non-GAAP free cash flow of negative $1.4 million to positive $1.6 million, reflecting strong sales in the first quarter.
Nicholas Bryan Hawkins: I would draw your attention to the fact that our guidance methodology has changed.
Nicholas Bryan Hawkins: Guiding operating loss.
Nicholas Bryan Hawkins: Free cash flow in terms of dollars instead of percent of revenue.
Nicholas Bryan Hawkins: For the second quarter, we expect ACB plus royalties.
Nicholas Bryan Hawkins: Melinda to $62 million.
Nicholas Bryan Hawkins: Revenue of $13 $2 million to $14 $2 million.
Nicholas Bryan Hawkins: With non-GAAP operating loss of $6 5 million to $4 $5 million.
Nicholas Bryan Hawkins: non-GAAP free cash flow of negative one $4 million to positive $1 $6 million, reflecting strong sales in the first quarter.
Nicholas Bryan Hawkins: For Filofolia 2024, our guidance is as follows: ACB plus royalties to exit 2024 at $62 million to $68 million, up 16% year-over-year at the midpoint. Revenue of $54.5 million to $57.5 million, non-GAAP operating loss of between $23.4 million to $19.4 million, and non-GAAP free cash flow of negative $2.4 million to positive $2.6 million. In conclusion, we are encouraged by the strong start to 2024 in our top line and our effective cost management, which has resulted in above-guidance performance in all financial metrics for the first quarter.
Nicholas Bryan Hawkins: For the full year 2024, our guidance is as follows.
Nicholas Bryan Hawkins: ACB plus royalties to exit 2024 at $62 million to $68 million up 16% year over year at the midpoint.
Nicholas Bryan Hawkins: Revenue of $54 5 million to $57 5 million.
Nicholas Bryan Hawkins: non-GAAP operating loss of between $23 4 million.
Nicholas Bryan Hawkins: The $19 $4 million.
Nicholas Bryan Hawkins: non-GAAP free cash flow of negative $2 $4 million to positive $2 $6 million.
Nicholas Bryan Hawkins: In conclusion, we are encouraged by the strong start to 2024.
Nicholas Bryan Hawkins: <unk> line and our effective cost management.
Nicholas Bryan Hawkins: Which has resulted in above guidance performance in all commercial metrics for the first quarter.
Nicholas Bryan Hawkins: I'm particularly encouraged by the positive free cash flow generated in the quarter. We aim to maintain this momentum for the remainder of the year. With that, I will turn the call over to the operator to open it up for questions. Thank you.
Nicholas Bryan Hawkins: I'm, particularly encouraged by the positive free cash flow generated in the quarter.
Nicholas Bryan Hawkins: We aim to maintain this momentum through the remainder of the year.
Nicholas Bryan Hawkins: With that I will turn the call over to the operator to open it up for questions.
Speaker Change: Thank you.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star 2. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Matt Ramsey from TD Cowen. Your line is now open.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
Matthew D. Ramsay: He was here at the rebound acknowledging your request.
Operator: If you would like to cancel your request please press star two.
Operator: Please ensure you lift the handset if you're using a speaker phone before betting any keys.
Matthew D. Ramsay: One moment. Please for your first question.
Matthew D. Ramsay: Your first question comes from the line of Matt Ramsay from Cowen. Your line is now open.
Matthew D. Ramsay: Thank you very much, everybody. Good afternoon.
Matthew D. Ramsay: Thank you very much everybody good afternoon.
Nicholas Bryan Hawkins: First of all, Nick, congrats on Cashflow. I wanted to ask... Just a general question around the RPO, almost $75 million and looks like it's up 30%, year over year. And just given some of the accounting changes and different things like that, I just wanted to revisit RPO and how deals are flowing into RPO, and what that 30% growth is that sort of sustainable level that you guys think can be reflective of the business going forward, and just kind of remind us how that should sort of peanut butter its way into revenue over time and give sort of confidence in what those free cash flow numbers are on a directional basis.
Matthew D. Ramsay: First of all congrats on the free cash flow.
Matthew D. Ramsay: I wanted to ask.
Nicholas Bryan Hawkins: Just a general question around <unk>.
Nicholas Bryan Hawkins: Almost $75 million and it looks like up 30%.
Nicholas Bryan Hawkins: Year over year, and just given some of the accounting changes and different things like that I just wanted to revisit <unk>.
Nicholas Bryan Hawkins: And how deals are flowing into <unk> and what that 30% growth is that sort of a sustainable level.
Nicholas Bryan Hawkins: You guys think can be reflective of the business going forward and just kind of remind us how that should sort of peanut butter its way into revenue over time, and you sort of confidence in what those free cash flow numbers are on a directional basis. Thanks.
Nicholas Bryan Hawkins: Yeah, I'm Matt. Happy Earnings Day. As always, a great question. The way that, just a reminder, the way that RPO works is as deals flow in, they flow into RPO, as they get recognized as revenue, RPO amortises, and so generally, if deals are coming in faster than revenues are recognized, then RPO increases. We have had a sort of a special tailwind by the shift to grassroots revenue treatment because that throttled back the speed at which RPO is being recognized as GAAP revenue.
Nicholas Bryan Hawkins: Yes.
Nicholas Bryan Hawkins: Matt.
Nicholas Bryan Hawkins: Happy earnings day.
Speaker Change: As always a great question.
Nicholas Bryan Hawkins: The way that just remind the way the <unk> works is as deals flow in.
Nicholas Bryan Hawkins: They flow into OPO.
Nicholas Bryan Hawkins: As they get recognized into revenue OPO amortize and so generally it feels.
Nicholas Bryan Hawkins: Coming in faster than revenue is being recognized in RVO increases.
Nicholas Bryan Hawkins: We have had a.
Nicholas Bryan Hawkins: That's sort of a special tailwind.
Nicholas Bryan Hawkins: By the shift to perhaps more of a.
Nicholas Bryan Hawkins: Revenue treatments.
Nicholas Bryan Hawkins: Because that Thats throttled back the speed at which.
Nicholas Bryan Hawkins: <unk> is being recognized into revenue.
Nicholas Bryan Hawkins: Nevertheless, all of that 74.7 million in RPO will flow into revenue at some point, so it gives you some sort of understanding of the strength of the future revenue pipeline if there is such a thing. And that represents somewhere close to a year and a half's worth of revenue, which is essentially in backlog, for want of a better word. So yeah, we're pretty encouraged by that. To answer your question of whether you can expect that rate of increase to go on ad infinitum, the answer is logically not really.
Nicholas Bryan Hawkins: Nevertheless, though.
Nicholas Bryan Hawkins: All of that $74 7 million.
Nicholas Bryan Hawkins: Of IPO will flow into revenue.
Nicholas Bryan Hawkins: At some point so it gives you some sort of.
Nicholas Bryan Hawkins: Understanding of the strength of the future revenue pipeline. If there is such a thing.
Nicholas Bryan Hawkins: And that represents.
Nicholas Bryan Hawkins: Somewhere close to a year and a hawksworth of run rate revenue.
Nicholas Bryan Hawkins: Is essentially in backlog if you want for want of a better word.
Nicholas Bryan Hawkins: Yes, we've put encouraged by that.
Nicholas Bryan Hawkins: To answer your question of can you expect that rate of increase.
Nicholas Bryan Hawkins: Go on AD infinitum.
Nicholas Bryan Hawkins: Logically not really it it will continue to increase because of the deal flow is still very strong.
Nicholas Bryan Hawkins: It will continue to increase because the deal flow is still very strong. But the 30% is in part because of the shift to ratability, but don't expect it to suddenly die and stop growing; it will continue to grow. I could go on quite strongly.
Nicholas Bryan Hawkins: But the 30% is in part because of the shift to <unk>.
Nicholas Bryan Hawkins: <unk> ability.
Nicholas Bryan Hawkins: But don't expect to suddenly die and stopped growing it will continue to grow.
Speaker Change: Got it.
Nicholas Bryan Hawkins: <unk> quite strongly.
Nicholas Bryan Hawkins: That's helpful Nick, just remind me really quickly when and which quarter you guys will report where the RPO number year over year will be sort of an apple to apple comparison.
Speaker Change: That's helpful and I guess, just remind me really quickly win.
Nicholas Bryan Hawkins: Which quarter will you guys report, where the RPI number year over year will be sort of an apples to apples.
Nicholas Bryan Hawkins: So there's another very good question. So, the second quarter of 23 was when we shifted completely. We did have a couple of vestigial deals in the third quarter and a little bit in the fourth quarter of 23 that where we hadn't quite managed to stem the non-ratable deals, but now that they have gone completely, so, to all intents and purposes, we will be apples to apples, lapping right, right size numbers by the end of Q2, end of this quarter, essentially.
Nicholas Bryan Hawkins: So another part of your question. So the second quarter of 'twenty three was when we shifted completely we did have a couple of vestigial deals in the third quarter and a little bit in the fourth quarter of 'twenty three the way, we haven't quite managed to stem the.
Nicholas Bryan Hawkins: Sure.
Nicholas Bryan Hawkins: The non ratable deals, but now now that have gone completely.
Nicholas Bryan Hawkins: But for all intents and purposes.
Nicholas Bryan Hawkins: We will be apples to apples lapping right right sized numbers by Q end of Q2 end of this quarter essentially so go into third quarter, we will be.
Nicholas Bryan Hawkins: So going into the third quarter, we will be like-for-like comparable, and there won't be this confusion anymore of, well, if it hadn't have been for the shift in ratability, growth would have been X. Right now, if we didn't point that out, I think it would be misleading.
Nicholas Bryan Hawkins: Like for like comparable.
Nicholas Bryan Hawkins: And that won't be this confusion.
Nicholas Bryan Hawkins: <unk>.
Nicholas Bryan Hawkins: Well, if it hadn't been for the shift to profitability growth would've been ex.
Nicholas Bryan Hawkins: Right now if we didn't point that out I think it would be misleading.
Charlie Janac: So when we're reporting for the third quarter, essentially, you'll see true lifelike. My second question, Charlie, obviously what's happening in A.I. across, starting in the data center but then, I think, gradually getting into client-side devices. Automotive, The Edge, Networking, and all the other markets will come later. The AI leader in the industry seems to be speeding up its roadmap and innovation, moving at a quicker and quicker pace. I'm wondering if you're seeing that reflected in the interactions that you guys are having with the customer base in terms of the faster things move, it would seem the more likely and the more value it would be for folks to use third-party IP for some of these very complicated systems that were stressing internal teams as it was. Are you seeing that, I don't know, speeding up of the treadmill affecting any of your business conversations, especially as you roll
Speaker Change: Got it.
Nicholas Bryan Hawkins: So when we're reporting we're reporting third quarter essentially youll see.
Charlie Janac: True lifeline.
Speaker Change: Got it.
Charlie Janac: My second question.
Charlie Janac: Charlie.
Charlie Janac: Obviously, what's happening.
Charlie Janac: AI.
Charlie Janac: Croft starting in the data center, but then in a gradually getting into client side devices.
Charlie Janac: Automotive the edge networking all the other markets over time.
Charlie Janac: The leader in the industry needs to be speeding up its roadmap and innovation keeps moving at a quicker and quicker pace.
Charlie Janac: I'm wondering if you're seeing that reflected in the interactions that you guys are having with the customer base in terms of the faster things move it would seem.
Charlie Janac: The more likely or more value it would be for folks to use third party IP for some of these very complicated systems, where it is.
Charlie Janac: Been stressing internal teams either wise.
Charlie Janac: Are you seeing that I don't know speeding up of the treadmill affecting any of your business conversations, especially as you rollout new products to license.
Charlie Janac: Yeah, I mean, one of the things that we're learning as we talk to customers is that, you know, we talked about cars being kind of slow, which is both an advantage and a disadvantage in a certain sense. Generative AI, on the other hand, is just the opposite.
Charlie Janac: Yes, I mean, one of the.
Charlie Janac: The thing that we're learning as we talk to customers is that.
Charlie Janac: We talked about.
Charlie Janac: Automotive being kind of slow right.
Charlie Janac: Both are an advantage and a disadvantage in certain says.
Charlie Janac: Generally the AI on the other is just the opposite it's extremely quickly moving because the large language model.
Charlie Janac: It's moving extremely quickly because the large language model evaluations and the algorithms are changing very, very quickly. So, the silicon has to be done really, really fast in order to make sense for the customers. And then, of course, the lifetime of those designs may be relatively short compared to the automotive industry as well. So, the answer is yes, things are moving.
Charlie Janac: <unk> and the algorithms are changing very very quickly. So the silicon has to be done really really fast in order to make sense for the customers.
Charlie Janac: And then of course the <unk>.
Charlie Janac: Lifetime of those of those designs may be relatively short compared to automotive as well so.
Charlie Janac: So the answer is yes things are moving there is a lot of different approaches there's lots of innovations and there is.
Charlie Janac: There are a lot of different approaches. There are lots of innovations. And, you know, I think we've said that half the design starts that we saw in a quarter were basically machine learning designs. And, you know, people are trying to get to very, very fast design cycles, which essentially puts a premium on automation and productivity of system IP generation. So it's an opportunity, for sure.
Charlie Janac: I think we've said that.
Charlie Janac: Has the the design starts that we saw in the quarter or basically machine learning designs and.
Charlie Janac: People are trying to get do very very fast design cycles, which essentially puts a premium on automation and productivity of system IP generation.
Charlie Janac: So it's an opportunity for sure.
Charlie Janac: That totally makes sense. I guess my last question, and I thought it was... very clear in your script, Charlie, that there are still some headwinds in China, but things have certainly stabilized, and there's not any additional things. I guess my question is, Do you feel like where we are right now in China for you guys is a permanent steady state, or if there were catalysts to, I don't know, unlock the roadblock there and have things return to a little bit more normal? What would those be, and are they even remotely on the table, or similar?
Speaker Change: No that totally makes sense I guess my my last question and I thought it was.
Charlie Janac: Very clear in your script, Charlie that there are still some headwinds in China, but I think you said.
Charlie Janac: Certainly stabilize and Theres not any additional things my I guess my question is.
Charlie Janac: Is that do you feel like where we are right now in China for you guys as the quarter of <unk>.
Charlie Janac: Permanent steady state or is.
Charlie Janac: There were a catalyst to I don't know.
Charlie Janac: Unlock the roadblock, there and have things returned a little bit more normal.
Charlie Janac: Would those be and are they even remotely on the table are likely.
Charlie Janac: Yeah, I mean, obviously, as a management team, we consider a number of scenarios, right? There's the scenario where there's some unpleasantness around Taiwan, which will make things worse. But there's also a scenario that the U.S. and China will come to some kind of accommodation where things could get better. On those sorts of scenarios, the one that we're banking on is that things stay the same, that basically business is going to continue at the current level.
Charlie Janac: Yes, I mean, obviously as a management team, we considered a number of scenarios right.
Charlie Janac: There is the <unk>.
Charlie Janac: Scenario, where theres, some unpleasant unnecessarily, Taiwan, which will make things worse.
Charlie Janac: But there is also a scenario that U S and China will come to some kind of an accommodation.
Charlie Janac: Where.
Charlie Janac: Where things could get better.
Charlie Janac: Our.
Charlie Janac: Sort of scenario is the one that we're banking on is that things stays the same.
Charlie Janac: Acyclic.
Charlie Janac: The business is going to continue at the current level, we're going to keep getting new customers in China and new design wins.
Charlie Janac: We're going to keep getting new customers in China, new design wins, but it's not going to go to the, I would say, previous bonanza before the headwinds sort of started between China and the U.S. We're planning for things to stay the same. We're planning for the status quo in terms of our Chinese business.
Charlie Janac: But that it's not going to go to the I would say the previous Bonanza before the.
Charlie Janac: For the the headwinds sort of started between between China and the U S. So we're we're planning.
Charlie Janac: For things to stay the same we're planning for status quo in terms of our Chinese business.
Matthew D. Ramsay: No. Perfectly clear. Thank you for that. Congratulations, guys, on the progress. I'll jump back in the queue.
Speaker Change: Perfectly clear. Thank you for that congrats guys on the progress I will jump back in the queue.
Operator: Your next question comes from the line of Hans Mosesmann from Rosenblatt. Your line is now open.
Speaker Change: Your next question comes from the line of hence most Eastman from Rosenblatt. Your line is now open.
Hans Carl Mosesmann: Yeah, thanks. Hey, congrats guys on the free cash flow. Hey, Charlie, can you give us a sense on, you know, ASP trends over the past quarter, licensing, royalties, how's that trend or how's it looking as the year progresses?
Operator: Yes.
Hans Carl Mosesmann: Congrats guys on the free cash flow.
Hans Carl Mosesmann: Hey, Charlie can you give us a sense on ASP trends.
Hans Carl Mosesmann: Over the past quarter.
Hans Carl Mosesmann: Quarter licensing royalties, how does that trend or how is it looking as the year progresses.
Charlie Janac: So the ASPs have been growing nicely. We're pretty much on track, discuss, you know, with the ASP trends that we discussed in the IPO a couple of years ago, where, you know, as we get more products into the market with higher ASPs and as the chips get more complex and use more system IP, the ASP is growing very nicely. And I think, you know, our financials show that, right? So that trend continues. And what we said is that we're going to be at a million dollar average by 2026 ASP. And I think that can very easily happen.
Hans Carl Mosesmann: So.
Charlie Janac: The asps have been growing nicely.
Charlie Janac: It's we're pretty much on track.
Charlie Janac: Discuss with the ASP trends that we discussed on the IPO a couple of years ago.
Charlie Janac: Where.
Charlie Janac: As we get more products into the market.
Charlie Janac: With with higher Asps and as the chips get more complex and use more system IP.
Charlie Janac: The Asps is growing.
Charlie Janac: Going very nicely and.
Charlie Janac: I think.
Charlie Janac: Our financial show that right. So so that that trend continues and what we said is that we're going to be at $1 billion average by by 2026 Asps.
Charlie Janac: I think that can very easily happen.
Charlie Janac: And right now, they're around half of that.
Charlie Janac: And right now theyre around half of that.
Charlie Janac: Yeah, so right now, I would say it's a little bit, you know. I think last year we were somewhere around $460,000. Now we're probably over $500,000, probably $550,000, something like this. But the reason that we know we're on track is that a number of the deals are over a million. And so, you know, it's definitely not, you know, it's actually probable that, eventually, the ASPs are going well.
Speaker Change: Yes, so right now I would say, it's a little bit.
Charlie Janac: Yes, I think last year, we were somewhere around 460000, now we're probably over 500000, probably $550 something like this.
Charlie Janac: But the reason that we know we're on track is that a number of the deals are over $1 million.
Charlie Janac: And so.
Charlie Janac: It's definitely not.
Charlie Janac: It's actually a probable that eventually the average deal will be over $1 billion.
Charlie Janac: So the asps are going well.
Nicholas Bryan Hawkins: Hey Hans, this is Nick, nice to catch up again. One other piece of colour, in addition to Charlie's commentary there, is when you look at royalties, and we've had this conversation before, royalties, the ASP in royalties is also in the ascendancy as we have transitioned away from several years ago into being dominated by the mobility market, the cell phone, smart phone market, with very small royalty rates now to more dominated by automotive, which has probably three times the royalty rate of mobile, of smartphones and similar devices, and some are much higher than that, as Charlie likes to point out, the space type application has substantially higher airspeed, so that's another drag factor to the upside.
Charlie Janac: Hey, guys. This is Nick less to catch up again.
Nicholas Bryan Hawkins: One of the piece of.
Nicholas Bryan Hawkins: Color and dish.
Nicholas Bryan Hawkins: To Charlie's coming through there is when you look at royalties and we've had this conversation before.
Nicholas Bryan Hawkins: Royalties.
Nicholas Bryan Hawkins: The ASP and royalties is also in the ascendancy.
Nicholas Bryan Hawkins: As we have transitioned away from.
Nicholas Bryan Hawkins: Several years ago to being dominated by the mobility market the cellphone smartphone market.
Nicholas Bryan Hawkins: First of all royalty rates now it's more dominated dominated.
Nicholas Bryan Hawkins: Dominated by automotive, which has probably three times the royalty rates.
Nicholas Bryan Hawkins: Smartphones and <unk>.
Nicholas Bryan Hawkins: Similar to devices.
Nicholas Bryan Hawkins: So.
Nicholas Bryan Hawkins: And some are much higher than that as <unk> pointed out in this space.
Nicholas Bryan Hawkins: Type application has substantially.
Nicholas Bryan Hawkins: So that's another driving factor to the upside.
Hans Carl Mosesmann: Okay, that's helpful. And just a question back in the IPO, you guys, and since then, I guess, you've been saying that in automotive platforms, you could see as many SOCs per car, north of 20, or maybe between 20 and 25 from what it was a few years ago, you know, maybe three or four. Is that still expected to happen over the next few years?
Speaker Change: Okay. That's helpful.
Nicholas Bryan Hawkins: And just.
Nicholas Bryan Hawkins: A question back in the IPO you guys.
Hans Carl Mosesmann: Since then I guess, you've been saying it in automotive by platform as you could see as many <unk>.
Hans Carl Mosesmann: <unk> per car.
Hans Carl Mosesmann: North of 20, or maybe between 20% 25%.
Hans Carl Mosesmann: But it was a few years ago.
Hans Carl Mosesmann: Maybe three or four is that still.
Hans Carl Mosesmann: Sure.
Hans Carl Mosesmann: Seem to happen over the next several years.
Speaker Change: Yes, absolutely.
Charlie Janac: And I think we're pretty much on track. I think we're pretty much on track to where that was originally conceived in terms of the timeline. I mean, we're being just dramatic.
Speaker Change: And I think on that.
Hans Carl Mosesmann: I think we're pretty much on track to where that was originally conceived in terms of the timeline.
Charlie Janac: Okay.
Charlie Janac: Okay.
Charlie Janac: And it can be more. I mean, we had a discussion with a customer, and they were telling us that they need 46 cameras for level four driving, right? So that would imply SOC consumption way in advance of basically having four camera SOCs, right? So yeah, we feel pretty comfortable with that projection.
Speaker Change: And it can be more I mean, we had a discussion with the customer.
Charlie Janac: They were telling us that they need.
Charlie Janac: <unk> 46 cameras for level four driving right. So that would imply soc consumption way in advance of basically having four camera Soc right. So yes.
Charlie Janac: Yes.
Charlie Janac: Yes, we feel pretty comfortable with that projection.
Charlie Janac: Okay, then the last question, and I'll let, I'll go back in the queue. The time from licensing to tape out, or from time to license to production for your customer engagements, has that changed over the past couple of years?
Speaker Change: Okay, and then last question and I'll, let I'll go back in the queue.
Charlie Janac: <unk>.
Charlie Janac: The time from licensing to tape out or timing the license to production for your customer engagements.
Charlie Janac: Has that changed over the past couple of years.
Charlie Janac: So it has, I mean, in a particular vertical, it has not, right? So the automotive designs still take two and a half, three years. What has changed is that as people do more generative AI designs, and those designs, the large language models, and the algorithmic technologies that are being employed have an impact on the underlying silicon. And so that segment is moving very, very fast, much faster than any other segment that we've seen. People are looking for nine-month design cycles or less and product life cycles of probably only one or two years.
Speaker Change: So it has in a particular.
Speaker Change: A couple of vertical it has not right. So.
Charlie Janac: The automotive designs still take two and a half.
Charlie Janac: Three years.
Charlie Janac: What has changed is that as people do more generative AI designs and those designs.
Charlie Janac: Large language models and the.
Charlie Janac: And the algorithmic.
Charlie Janac: Technologies that are being employed.
Charlie Janac: You'll have impact on the underlying silicon and and so that segment is moving very very fast much faster than any other segment that we've seen people are looking for nine months design cycles are less.
Charlie Janac: And so that segment is moving very, very fast. And that would, on the average, lower the design term. But within each individual segment, we're not seeing much change because people... We enable people to go faster, but the chips are more complex, right? So there's a constant fight between automation and productivity and complexity within each segment. Right, right.
Charlie Janac: And.
Charlie Janac: And product lifecycle is probably of a one or two years only.
Charlie Janac: So that segment is moving very very fast and that would on the average lowered the design term, but within each individual segment.
Charlie Janac: We're not seeing we're not seeing much much change because.
Charlie Janac: We enable people to go faster, but the chips are more complex right. So there is a constant fight.
Charlie Janac: Automation and productivity in complexity.
Charlie Janac: Within each segment.
Speaker Change: Right right that makes sense.
Hans Carl Mosesmann: Right, right. I know what that means. All right, guys, I'll go back to the queue. Thanks.
Speaker Change: Alright, guys I will go back into the queue. Thanks.
Operator: As a reminder, should you have a question, please press star followed by the number 1 on your touchtone phone. Your next question comes from the line of Kevin Garrigan from West Park Capital. Your line is now open.
Speaker Change: As a reminder, so do you have a question. Please press star followed by the number one on your Touchtone phone.
Operator: Your next question comes from the line of Kevin Garrigan from West Park Capital. Your line is now open.
Operator: Okay.
Kevin Garrigan: Yeah, hey, Charlie and Nick, good afternoon. Let me, let me echo my congratulations on the progress.
Kevin Garrigan: Yeah, Hey, Charlie and Nick Good afternoon, Let me, Mike Let me Echo my congrats on the progress.
Charlie Janac: Going off of Hans' question regarding SOCs and cars, I know you gave an example of a customer looking for, you know, multiple vision cameras. You know, you're seeing a lot more automotive OEMs kind of introduce, I would say, infotainment features right now, while ADAS may be taking a little bit longer than kind of expected. So is there kind of one category that you're seeing more designs for currently than others, like maybe infotainment, or is the design starting to, you know, kind of focusing on all functions across the board?
Kevin Garrigan: Going off of <unk> question regarding kind of Soc season cars. I know you gave an example of a customer looking for.
Charlie Janac: Multiple vision cameras.
Charlie Janac: Youre seeing a lot more automotive Oems kind of introduce I would say infotainment features right now while eight us maybe taking a little bit longer than than kind of expected. So is there kind of one category that you are seeing more designs for currently than others like maybe infotainment or the design starts.
Charlie Janac: Kind of.
Charlie Janac: Focusing on all functions across the board.
Charlie Janac: So we're seeing, I mean, the automotive progress continues, right? So we're seeing some more Tier Ones starting to build chips; we're starting to see some more OEMs build chips.
Charlie Janac: So.
Charlie Janac: We're seeing.
Charlie Janac: The automotive progress continues right. So we're seeing some more.
Charlie Janac: More tier ones starting to build chips.
Charlie Janac: We're starting to see some more Oems build chips alright.
Charlie Janac: In terms of categories, there's a lot of noise and publicity about automated driving, but we don't see the design activity really changing a whole lot because those electronic decisions are made seven to eight years before deployment. So on the design side, we're not seeing any slowdown in the automotive driving direction. It's just that people are realizing, and I've been feeling this all along, that automated driving in a city environment is going to be exceedingly difficult without changing the cities, and therefore it will take a lot longer. But on highways and secondary highways, primary highways and secondary highways, automated driving is highly useful and very practical and very valuable.
Charlie Janac: In terms of categories.
Charlie Janac: Yes.
Charlie Janac: There's a lot of noise and publicity about automated driving but.
Charlie Janac: We don't see the design activity really changing a whole lot right because.
Charlie Janac: Those electronic decisions are made seven to eight years before deployment.
Charlie Janac: So on the design side, we're not seeing any slowdown in the.
Charlie Janac: In the automotive driving direction.
Charlie Janac: Just that people are realizing and we've been saying I've been feeling this all along is that the automated driving in a city environment is going to be exceedingly difficult without changing the cities and therefore, we will take a lot longer but.
Charlie Janac: On highways and secondary driver highways.
Charlie Janac: Primary highways and secondary highways automated driving is highly useful and very practical and very valuable.
Charlie Janac: And that will continue.
Charlie Janac: Okay, perfect. Thanks, Charlie. I appreciate that color. And just as a follow-up, you noted that there are several more evaluations and prospective customers in the pipeline for FlexNox 5. Do you expect many of these customers to kind of decide sooner rather than later whether to use Arteris, or is it more of maybe an end of year phenomenon?
Speaker Change: Okay perfect. Thanks, Charlie I appreciate that color and just as a.
Charlie Janac: A follow up so you had.
Charlie Janac: Noted that there are several more evaluations and progressed prospective customers in the pipeline for flex not five do you expect many of these customers to kind of decide sooner rather than later, whether you use are terrorists or is it more kind of maybe an end of year phenomenon.
Charlie Janac: No, I mean, FlexKnock5 has been doing very well, right? So the penetration is meeting expectations. The second-generation physical awareness provides a very valuable capability to customers below 60 nanometers, and so FlexKnock5 has a 30 percent pricing uptick, and so that's a combination of value and ASP increase that really helps the business. And what we're looking forward to is, you know, sometime this year, to announce some further innovation that will, you know, further provide additional value.
Charlie Janac: No I mean, <unk> has been doing very well right. So.
Charlie Janac: The penetration is meeting expectations.
Charlie Janac: The second generation physical awareness provides very valuable capability to customers below 16 nanometer.
Charlie Janac: And so.
Charlie Janac: And flex knock five has a.
Charlie Janac: 30% pricing uptick and so.
Charlie Janac: So that's a combination of value and ASP increase that that really helps helps the business.
Charlie Janac: And what we're looking forward to is sometime.
Charlie Janac: Sometime this year to announce some further innovation.
Charlie Janac: That will further provide additional value.
Kevin Garrigan: Okay, perfect. Thanks, guys.
Speaker Change: Okay perfect. Thanks, guys.
Charlie Janac: Thanks, Kevin Thanks, Kevin.
Operator: Your next question comes from the line of Auguste Richard from Northland. Your line is now open.
Kevin Garrigan: Your next question comes from the line of Gus Richard from Northland. Your line is now open.
Auguste Philip Richard: Yes, thanks for letting me ask a few questions and congratulations on entering the Promised Land of positive free cash flow.
Auguste Philip Richard: Yes, Thanks for letting me ask a few questions and congratulations on entering the promised land free positive free cash flow.
Nicholas Bryan Hawkins: Oh yes, yes, we've promised it, and we're doing our absolute best to make it happen.
Auguste Philip Richard: Yes, yes.
Auguste Philip Richard: We promise it and we're doing our absolute best to make it happen.
Nicholas Bryan Hawkins: You delivered. In the press release, you mentioned your five deals with 30 of the top global technology companies, and I was just wondering if you could explain exactly what you meant by the top 30 global tech companies. Is it semis? Is it hyperscalers? Is it by market cap? Is it by revenue? You know, just a little bit more color on that statement.
Nicholas Bryan Hawkins: You delivered.
Auguste Philip Richard: In the press release, you mentioned five deals with <unk>.
Nicholas Bryan Hawkins: Global technology companies.
Nicholas Bryan Hawkins: Wondering if you could explain exactly what you mean by top 30 global Tech companies.
Nicholas Bryan Hawkins: <unk> is at Hyperscale or is it by market cap is it by revenue.
Nicholas Bryan Hawkins: A little bit more color on that statement.
Charlie Janac: Yeah, so in order to have a sort of unified methodology, we're going by market cap. And so it's basically the top 20 semiconductor companies by market cap, and then the top 10 system houses by market cap. And together they make up what we call the top 30, it's the Arteris top 30 technology index.
Speaker Change: Yeah. So in order to have a sort of a unified methodology.
Charlie Janac: By market cap and so.
Charlie Janac: It's basically top 20 semiconductor companies by market cap and then top 10.
Charlie Janac: System houses by market cap and together they make up the we call. The top 30, it's the Ontario stopped 30 technology index.
Speaker Change: Got it and then which which buckets where those five companies in the semi companies or the system houses.
Charlie Janac: Both both sides.
Charlie Janac: The reason we didn't want to do revenue...
Charlie Janac: Okay.
Speaker Change: Yes. So the reason the reason is the reason that we didn't want to do revenue. We go by revenue is because the revenue from the public semiconductor companies is available, but you don't know what the system House chip revenue really is right. So.
Charlie Janac: Hi.
Charlie Janac: It just made market cap just made sense from a sort of a unified methodology perspective.
Auguste Philip Richard: And then just looking at the numbers and, you know, sort of realizing, you know, how your cash works. Is it reasonable to assume that the bookings in the quarter are on the order of $6 million?
Speaker Change: Got it and then just.
Charlie Janac: Looking at the numbers and.
Charlie Janac: Sort of.
Auguste Philip Richard: Realizing how cash works.
Auguste Philip Richard: Is it reasonable to assume that the bookings in the quarter on the order of $6 million.
Nicholas Bryan Hawkins: So I'll ask that question again, Gus, so I don't get the tail end of it.
Speaker Change: Ask that question again, I didn't get the tail end of it.
Auguste Philip Richard: Oh, sure. You know, just looking at your accounting and making some back-of-the-envelope calculations, is it reasonable to assume that bookings were on the order of $6 million in the quarter?
Speaker Change: Oh sure.
Nicholas Bryan Hawkins: Just looking at it.
Nicholas Bryan Hawkins: Severe counting and making some back of the envelope calculations is it reasonable to assume that bookings were on the order of $6 million in the quarter.
Nicholas Bryan Hawkins: No, hopefully, a lot more than that. Yeah, a lot more than that. Because, I mean, our OPEX runs at sort of the high 70s.
Gus: Hopefully a lot more on that yes, a lot more than that.
Nicholas Bryan Hawkins: [inaudible]
Auguste Philip Richard: Our our Opex runs that's sort.
Nicholas Bryan Hawkins: Hi.
Speaker Change: Hi, <unk>.
Nicholas Bryan Hawkins: <unk>.
Nicholas Bryan Hawkins: So no high 700 Seventeens.
Nicholas Bryan Hawkins: In the quarter so basically.
Nicholas Bryan Hawkins: Basically <unk> of bookings total contract value.
Nicholas Bryan Hawkins: <unk>.
Nicholas Bryan Hawkins: In terms of collections in excess of that to be cash flow positive in the quarter and.
Nicholas Bryan Hawkins: And then you've got plus a modest working capital shifts at the end of the quarter and the beginning of the growth.
Nicholas Bryan Hawkins: Yeah.
Nicholas Bryan Hawkins: Mess things up a little bit.
Nicholas Bryan Hawkins: That's the basic the basic sales bookings, which is what we would call <unk> plus and royalties we would try it.
Nicholas Bryan Hawkins: So as everything together.
Nicholas Bryan Hawkins: Have to be north of.
Nicholas Bryan Hawkins: The Opex number.
Auguste Philip Richard: The non-GAAP OPEX, and it has to be the non-GAAP OPEX because the SBC is not a cash expense, if that makes any sense. Does that make sense, Phil? Yeah, absolutely. Yeah, that does indeed happen. And then, you know, typically, you guys announce a new product every year. And I'm just wondering, are there any thoughts on, you know, sort of when and what the new product might be this year?
Speaker Change: Okay got it.
Nicholas Bryan Hawkins: non-GAAP, opex, because and as with non-GAAP opex because.
Auguste Philip Richard: Obviously the SBC.
Auguste Philip Richard: SPC is is not a cash expense.
Phil: If that makes any sense that makes sense.
Phil: Yes, absolutely.
Auguste Philip Richard: Yes.
Phil: It does indeed.
Auguste Philip Richard: Then.
Auguste Philip Richard: Typically you guys announced a new product every year and I'm. Just wondering are there any thoughts on sort of when and what new product might be this year.
Charlie Janac: I'm not ready to announce, but what we said is that we expect there to be an impact on revenue in the second half of the year. And that hasn't changed from the fourth quarter to this quarter. We've been working very hard, we've been making progress, and we still feel that we're going to make progress.
Speaker Change: Not ready to announce.
Auguste Philip Richard: But what we said is that we expect there to be impact on revenue in the second half.
Charlie Janac: And that said.
Charlie Janac: <unk> from the fourth quarter to this quarter.
Charlie Janac: We've been working very hard we've been making progress and we still feel that that.
Charlie Janac: That we're going to make a good on that statement.
Speaker Change: Got it.
Charlie Janac: Got it. And we're very excited about it, too. Yeah, that's it for me. Thanks so much.
Charlie Janac: And we're very excited about it.
Charlie Janac: Yeah.
Speaker Change: That's it for me thanks, so much.
Speaker Change: Thanks, guys. Thank.
Speaker Change: Thank you guys.
Charlie Janac: There are no further questions at this time. I will now turn the call over to Charlie Janac for a closing comment.
Charlie Janac: There are no further questions at this time I will now turn the call over to Charlie <unk> for closing comments.
Charlie Janac: Thank you, everyone, for the good questions and being on the call, and we look forward to seeing most of you at the upcoming conferences that we're participating in, and we look forward to updating you on the progress of the company. Thank you very much.
Charlie Janac: Well, thank you everyone for.
Charlie Janac: The good questions and being on the call and we look forward to seeing most of you at the upcoming conferences that were.
Charlie Janac: <unk>.
Charlie Janac: And we look forward to updating you on the progress of the company.
Charlie Janac: Thank you very much.
Operator: That concludes our question and answer session. Have a great call, and you may now disconnect.
Speaker Change: That concludes our question and answer session.
Speaker Change: Have a great call and you may now disconnect.
Operator: Okay.
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