Arteris, Inc. (AIP) Earnings

Management highlights

- Overall Q2 2026 Results * Delivered multiple record-breaking results, with exit ACV plus royalties reaching $99.5 million, a 44% year-on-year increase. * Record revenue, royalties, and RPO backlog achieved, with strong large deal flow from both new and existing customers across all key verticals. * Customer design activity remained healthy, with 21% year-over-year growth in trailing 12-month design starts as of June 30, 2026; a majority of current design starts support AI or high-performance computing (HPC) use cases. - Key Vertical Wins * Enterprise computing/data center: A top global hyperscale cloud company standardized Arteris for its infrastructure silicon system IP; a large U.S. semiconductor design house building custom ASICs for hyperscalers selected Arteris FlexGen Smart Knock IP for AI compute chiplet designs; SpeedData deployed Arteris in its Callisto analytics processing unit for data center applications. * Automotive/Physical AI: China EV leader Li Auto has deployed Arteris-designed autonomous driving chips in its new SUV model, with initial royalty revenue already beginning to flow; automotive chip provider CyEngine selected Arteris for its next-generation ADAS and intelligent cockpit SOC platforms. - Product, Partnership and Strategy Updates * Expanded partnership with Arm following the early 2026 acquisition of Cycuity (semiconductor cybersecurity assurance): Arm is expanding adoption of Cycuity's technology across next-generation CPU designs to identify and mitigate security vulnerabilities, opening new cybersecurity assurance opportunities across the industry amid growing regulatory and market demand for silicon security. * FlexGen Smart Knock NOC IP adoption continues to grow, with multiple seven-figure deals closed in H1 2026 with major semiconductor customers. * Announced a new ecosystem collaboration with IC-Link by IMEC to deploy Arteris technology in development of next-generation HPC chiplets and ASICs. * Completed an at-the-market (ATM) equity program that raised $72 million in net proceeds to fund product development, global customer support, and additional tuck-in acquisitions. * CFO transition announced: Incumbent CFO Nick Hawkins will retire after leading the company through its IPO and achieving positive free cash flow, and Saurabh Sinha will join as new CFO on September 8, 2026, with a smooth transition expected. - Operating Model * Long-term strategy targets operating expense growth at approximately half of revenue growth to deliver operating leverage, with continued investments in R&D and customer success to drive future top-line growth.

Guidance

- Third Quarter 2026 Guidance: Expects ACV plus royalties of $99 to $103 million, revenue of $24 to $25 million, and non-GAAP operating loss of $1 million to $3 million; quarterly free cash flow guidance is discontinued. - Full Year 2026 Guidance: Management raised full-year revenue guidance by $3.5 million to a range of $95 to $98 million, representing 37% year-over-year revenue growth, driven by continued market strength and an upward industry cycle. Exit ACV plus royalties guidance is $102 to $106 million, non-GAAP operating loss guidance is $7 million to $10 million, and non-GAAP free cash flow guidance remains unchanged at positive $5 million to positive $9 million. - Long-Term Profitability: Management reaffirmed Arteris is on track to achieve non-GAAP operating profitability as early as Q4 2026. - Long-Term Royalty Growth: Maintains long-term annual royalty CAGR guidance of 38% to 42% (high 30s to low 40%), even though current 12-month royalty growth is 67% above prior year levels.

Segment performance

Arteris does not break out performance into formal product/geographic segments in this call, but provides vertical contribution data: Over the past four quarters, enterprise computing (driven by AI infrastructure) averaged 29% of annual contract value (ACV) plus royalties. No single customer made up more than 10% of total revenue in H1 2026, reflecting diversified exposure across enterprise computing, automotive, aerospace and defense, communications, consumer electronics, and industrial markets. Total company Q2 2026 revenue was $24.1 million, up 46% year-over-year. Trailing 12-month royalties hit a record $8.6 million, up 65% year-over-year. Ending remaining performance obligations (RPO, contracted future revenue) hit an all-time high of $135 million, with just over half expected to be recognized as revenue in the 12 months starting July 1, 2026. Non-GAAP gross profit was $21 million (87% margin), while GAAP gross profit was $20.5 million (85% margin). Non-GAAP operating loss was $4.6 million, and GAAP operating loss was $13.9 million. Ending cash, cash equivalents, and investments totaled $123 million with no debt, and Q2 2026 free cash flow was positive $8.6 million, bringing 12-month free cash flow to positive $6.8 million.

Risks & headwinds

- Forward-looking statements are inherently uncertain, and actual results may differ materially from expectations due to material risks and uncertainties, details of which are available in SEC filings. - The unexpected $1.7 million Q2 2026 increase in French employer payroll taxes on RSU vesting was driven by a sharp rise in Arteris' stock price, an exogenous factor outside management control that increased operating losses. - Royalty revenue can experience short-term volatility due to customer supply chain issues, inventory adjustments, and end-market demand fluctuations, even as it maintains strong long-term growth. - Lower gross margin government-related security work is a larger component of recent revenue growth than initially guided, putting some upward pressure on expected operating losses.

Analyst Q&A

• Q: Jefferies analyst Kevin Gerrigan asks about the nature of the expanded Arm/Cycuity partnership: is it a licensing deal with future royalties, was it a greenfield opportunity or a displacement of an existing competitor, and can Cycuity enable higher royalty rates for Arteris? /

  A: CEO Charlie Janic confirms this is a greenfield opportunity, as there are very few existing commercial solutions for Cycuity's hardware security assurance work. Arm is adopting the technology to identify security weaknesses in their CPU designs, and the partnership is open to further expansion, with Arteris expecting other processor companies to follow Arm's lead. Currently, Cycuity operates under a non-royalty software EDA-like business model, so it does not change Arteris' existing royalty rate structure.

• Q: TD Cowen analyst Josh Buchalter asks for details on the large U.S. ASIC design house win for hyperscale chiplets: is it a new customer, what are the applications, and when will it contribute meaningful revenue? He also asks to size the Li Auto opportunity and China automotive's weight in Arteris' royalty portfolio. /

  A: This is not a new customer, but it was a very small customer prior to this large win; the design is for data center hyperscale AI applications, as the customer builds custom chips to specification for major hyperscalers. For Li Auto, CFO Nick Hawkins notes Li Auto is a growing mid-sized Chinese EV maker, and royalty revenue has already started flowing faster than many similar automotive programs. Royalties will ramp over the first three years of production, but the final size of the opportunity depends on future vehicle sales volumes.

• Q: Oppenheimer analyst Martin Yang asks what drove the change to full-year non-GAAP operating income guidance, and asks for an outlook on royalty growth trends after a slight sequential dip in Q2. /

  A: Hawkins confirms the majority of the $2 million downward revision to operating income guidance is driven by the unexpected exogenous French RSU payroll tax spike from Q2's higher stock price. Additional factors include higher sales commissions from stronger-than-expected deal flow, and lower gross margins from the growing share of government-related security work. On royalties, the sequential dip is a minor slowdown caused by one customer's temporary supply chain issues that have now been resolved. The 12-month trailing royalty growth is still 67% year-over-year, well above the long-term target, which management maintains at 38% to 42% annual CAGR for the foreseeable future.

• Q: Roth Capital analyst Suji De Silva asks about growth areas outside core AI/data center and automotive, and asks what drove the large hyperscale ASIC customer to switch to Arteris from their previous solution. /

  A: Management confirms growth is broadly distributed across verticals including microcontrollers, embedded FPGAs, and aerospace/space. Two standout growing areas are Cycuity (which had a strong quarter, leading to a $2.2 million GAAP earn-out adjustment in Q2 OPEX) and memory chip players, which have had strong recent deal flow. For hyperscale customers, they use a mix of commercial off-the-shelf chips, in-house designed accelerators, and custom chips built by third-party design partners. The large win in Q2 came after extensive evaluation of Arteris' technology for the custom hyperscale designs, and hyperscalers will continue to maintain a mix of development approaches rather than moving fully to one model.