Arteris Q4 2024 Earnings Report

Arteris EPS Results

• Actual EPS: -$0.19
• Consensus EPS: -$0.11
• Beat/Miss: Missed by -$0.08
• One Year Ago EPS: N/A

Arteris Revenue Results

• Actual Revenue: $15.49 million
• Expected Revenue: $15.34 million
• Beat/Miss: Beat by +$150.00 thousand
• YoY Revenue Growth: N/A

Arteris Announcement Details

• Quarter: Q4 2024
• Date: 2/18/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 18, 2025
• Conference Call Time: 4:30PM ET

Arteris (NASDAQ:AIP) provides semiconductor interconnect intellectual property (IP) and System-on-Chip (Soc) Integration Automation software solutions (SIA) in the Americas, the Asia Pacific, Europe, and the Middle East. The company develops, licenses, and supports the on-chip interconnect fabric technology used in Soc designs and Network-on-Chip (NoC) interconnect IP. Its products include FlexNoC and FlexWay silicon-proven interconnect IP products; Ncore, a silicon-proven and cache coherent interconnect IP product that provides scalable, configurable, and area efficient characteristics; and CodaCache, a last-level cache semiconductor IP product. The company also offers SIA products comprising Magillem Connectivity that shortens and streamlines the SoC integration process; and Magillem Registers and CSRCompiler that addresses hardware-software integration challenges for SoCs. The company serves semiconductor manufacturers, original equipment manufacturers, hyperscale system houses, semiconductor design houses, and other producers of electronic systems. Arteris, Inc. was founded in 2003 and is headquartered in Campbell, California.

Arteris Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, everyone, and welcome to the Arteries Fourth Quarter and Full Year twenty twenty four Earnings Call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is sole property and copyright of Arteries Incorporated 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.

[Erica Mannion, Sapphire Investor Relations at Arteris]

Thank you and good afternoon. With me today from Arteris are Charlie Janik, Chief Executive Officer and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the fourth quarter and year ended 12/31/2024. Nick will review the financial results for the fourth quarter followed by the company's outlook for the first quarter and full year of 2025. We will then open the call for questions.

[Erica Mannion, Sapphire Investor Relations at Arteris]

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 materially differ 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 Artearus issued today and in the documents and reports filed by Artearus 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.

[Erica Mannion, Sapphire Investor Relations at Arteris]

GAAP. The non GAAP measures are presented as we believe that 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, Sapphire Investor Relations at Arteris]

A reconciliation of these non GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended 12/31/2024. 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 obligations, please see the press release for the quarter ended 12/31/2024. Listeners who do not have a copy of the press release for the quarter ended 12/31/2024, may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the fourth quarter twenty twenty four 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.

[Charles Janac, Chairman , President & CEO at Arteris]

Thank you, Erica, and thanks to everyone for joining us on our call today. In the fourth quarter of twenty twenty four, we achieved a record annual contract value plus royalties of $65,100,000 as demand for commercial semiconductor system IP products continues to grow. Our success during the quarter was fueled by increased adoption of AI driven enterprise computing and automotive SoCs. We also continue to generate growing momentum in other key verticals including microcontrollers or MCUs. Business in the fourth quarter was driven by a mix of the addition of new customers including several market leaders as well as increased penetration in our current customer base demonstrating the success of our land and expand strategic approach.

[Charles Janac, Chairman , President & CEO at Arteris]

For example, the largest win in the quarter came from a global top five technology company that expanded its use of the Arteris product portfolio, complementing previous NOC IP orders with the addition of Magillum and CSR compiler SoC integration automation software for their high end AI SoCs for enterprise computing applications. Also a major automotive OEM and a top five automotive semiconductor company expanded their use of Arteris products for several additional SoCs given the combination of superior performance, power and area efficiency, as well as functional safety for their mission critical applications. Last quarter, we shared that we are strategically expanding into the microcontroller or MCU space, where designs have grown in complexity in recent years to benefit from low latency, flexible power and area efficient commercial NOC IPs. We are pleased to report the strategic expansion has already started to bear fruit with Infineon, the leading microcontroller manufacturer becoming a new customer standardizing on our Terrace NOx for automotive MCUs, which serves many of the world's top automotive Tier one vendors and OEMs. We believe this strategic MCU win will help to accelerate our growing royalty stream.

[Charles Janac, Chairman , President & CEO at Arteris]

Another key customer win was GigaDevice, where our Terrace was selected by the microcontroller business unit as a result of our optimization in interconnect area and power consumption while ensuring functional safety. We're also seeing increased adoption of our Terrace technology for chiplets, particularly for high performance enterprise computing applications, sophisticated autonomous driving and smart edge devices across market leading companies, mid sized players and innovative startups. These customers are increasingly pursuing a multi di strategy to expand compute power with Arteris as the core interconnect IP for each chiplet due to our technology's superior power, performance and area or DPA. One such example was Tensorrent, which expanded the deployment of Arteris Knox for their next generation of chiplet based AI solutions for high performance energy efficient RISC V computing for AI and HPC data centers. Similarly, Menta deployed Arteris for their Edge IP chiplet to ensure better performance and area efficiency for edge AI and IoT computing.

[Charles Janac, Chairman , President & CEO at Arteris]

As we look back on 2024, we witnessed accelerating industry demand for our Teris technology, which we believe was fueled by increased penetration of AI into not only high end data centers and autonomous driving, but a wide range of new products, including edge devices. Complexity has and we believe will continue to impact high end compute and traditional lower end technologies including MCUs driving demand for efficiency that is enabled by our Teris network on chip technology. This has resulted in additional 14 new customers and increased wallet share of our TIRUS products in customers ranging from top five technology companies down to new innovative startups with our technology now being part of nearly eight fifty designs to date. Last year, we also saw increased adoption of the physically aware FlexNOC five, which leverages advanced node and placement information to enable up to 5x faster physical coverage while supporting best in class PPA. We are happy to highlight that in the fourth quarter over 75% of FlexNOC interconnect IP customers chose this more advanced version, which was introduced just a year and a half ago.

[Charles Janac, Chairman , President & CEO at Arteris]

Also noteworthy, last year's addition of tiling and expanding mesh technology in FlexNOC and Encore product lines along with ARM v9 support helped to advance our tariffs as the right partner to support the most innovative chip designs. Moreover, I'm very excited to announce today our FlexGen SmartNOC IP, which has the potential of to revolutionize semiconductor designs by delivering up to 10x engineering productivity and lowering power consumption and improving overall PPA. FlexJEM builds upon the silicon proven and physically aware FlexNOC five IP to automate the creation of high performance network on chip NOC designs. Supported by AI driven automation, FlexGen reduces manual iteration by over 90% providing expert level NOC topologies in hours or days instead of weeks as demonstrated by Dreamchip on their ADAS SoC as well as multiple other designs. FlexGen is now ready for production deployments and has been delivered for evaluations to over 10 companies, some of which have been working with this technology for more than six months.

[Charles Janac, Chairman , President & CEO at Arteris]

FlexGen is the combination of years of groundbreaking innovation and multiple patents with a goal of boosting productivity, while improving quality of results to overcome extreme design challenges semiconductor and system companies face when creating today's chips or chiplets, which often contain five to 20 each. We expect FlexGen to have a positive impact on our customers and on our business going forward. Lastly, our long standing position as a neutral IP provider was illustrated in our continued success with ARM based designs, customers using RISC V and x86 CPU IP architectures. To further support this expanding processor IP ecosystem, last quarter, we announced a partnership with MIPS to provide a pre verified RISC V reference platform to support mutual customers. The goal is to improve interoperability and shortened SoC integration for chip designs for automotive, enterprise computing and edge AI applications using our tariffs as their essential connectivity backbone.

[Charles Janac, Chairman , President & CEO at Arteris]

We believe that the scale and scope of our long term opportunity remain robust and is supported by our current products and strong product pipeline of new system IP technologies, as well as growing relationships with some of the largest and most advanced electronics companies in the world. Our customers continue to innovate in exciting high growth areas such as generative AI and autonomous driving using our Terrace Technologies and global support. With that, I'll turn it over to Nick to discuss our financial results in more detail.

[Nick Hawkins, CFO at Arteris]

Thank you, Charlie, and good afternoon, everyone. As I review our fourth quarter results today, please note I'll be referring to GAAP as well as non GAAP metrics. A reconciliation of GAAP to non GAAP financials is included in today's earnings release, which is available on our website. Also as a reminder, I'll be referring to 4Q twenty twenty four 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 five of the presentation.

[Nick Hawkins, CFO at Arteris]

Total revenue for the fourth quarter was $15,500,000 up 24% year over year and above the midpoint of our guidance range. At the end of the fourth quarter annual contract value or ACV plus royalties was $65,100,000 slightly above the midpoint of our guidance range and a record high for the company. Remaining performance obligations or RPO at the end of the fourth quarter were $88,400,000 representing 22% year over year increase and growing to the highest level we have ever reported. Non GAAP gross profit for the quarter was $14,200,000 representing gross margin of 91%. GAAP gross profit for the quarter was $13,900,000 representing gross margin of 90%.

[Nick Hawkins, CFO at Arteris]

For the full year, non GAAP gross profit was $52,700,000 representing a gross margin of 91%. GAAP gross profit was $51,800,000 representing gross margin of 90%. Now moving to Slide six. Non GAAP operating expense in the quarter was $16,900,000 flat sequentially and only 1% higher year over year. This reflects the team's continued focus on prudent management of our operating expense.

[Nick Hawkins, CFO at Arteris]

Total GAAP operating expense for the fourth quarter was $21,000,000 representing 4% year over year increase. For the full year, non GAAP operating expense was $67,600,000 a decline of 2% from prior year. Total GAAP operating expense was $83,400,000 a slight decline from prior year. As we look ahead, we plan to continue to limit spending to strategically critical areas, while investing in profitable revenue growth. Non GAAP operating loss in the quarter was $2,800,000 which came in above the top end of our guidance range.

[Nick Hawkins, CFO at Arteris]

This represents a $2,700,000 improvement compared to the loss of $5,500,000 in the prior year period and a $600,000 improvement sequentially. GAAP operating loss for the fourth quarter was 7,100,000 compared to a loss of $9,200,000 in the prior year period and $7,900,000 in the third quarter. For the full fiscal year, non GAAP operating loss was $14,800,000 representing a $5,000,000 improvement compared to the prior year. GAAP operating loss in the fourth quarter was $31,600,000 representing an improvement of $3,500,000 from the prior year. Non GAAP net loss in the quarter was $3,900,000 or diluted net loss per share of $0.1 based on approximately 40,200,000.0 weighted average diluted shares outstanding.

[Nick Hawkins, CFO at Arteris]

GAAP net loss for the quarter was $8,200,000 or diluted net loss per share of $0.2 For the full fiscal year, non GAAP net loss was $16,900,000 or diluted net loss per share of $0.43 based on approximately 38,900,000.0 weighted average diluted shares outstanding. GAAP net loss for the year was $33,600,000 or diluted net loss per share of $0.86 Moving to Slide seven and turning to the balance sheet and cash flow. We ended the quarter with $52,300,000 in cash, cash equivalents and investments and we have no financial debt. Free cash flow, which includes capital expenditure was negative $2,700,000 in the fourth quarter and negative $1,000,000 for the full year. This was below our guidance due to short term working capital timing changes at the end of the year with some customer payments that were forecasted for the fourth quarter being received shortly after the fourth quarter close.

[Nick Hawkins, CFO at Arteris]

This along with strong order growth resulted in an increase in our accounts receivable balance of $11,900,000 from the prior quarter end. I would now like to turn to our outlook for the first quarter and the full year and refer now to Slide eight. For the first quarter of twenty twenty five, we expect ACV plus royalties of $65,500,000 to $67,500,000 revenue of $15,700,000 to $16,100,000 with non GAAP operating loss of $4,000,000 to $3,000,000 non GAAP free cash flow of negative $2,000,000 to positive $2,000,000 For full year 2025, our guidance is as follows ACV plus royalties to exit 2025 at $73,000,000 to $77,000,000 revenue of $66,000,000 to $70,000,000 non GAAP operating loss of between $12,500,000 to $8,500,000 and non GAAP free cash flow of positive $1,000,000 to positive $7,000,000 We are encouraged by the strong deal flow exiting the year and our effective cost management that resulted in better than expected performance in non GAAP operating income in 2024 and this possessions us for further improvements in our key financial metrics in 2025. With that, I will turn the call over to the operator and open it up for questions. Operator?

[Operator]

Thank Your first question comes from the line of Gus Richard from Northland. Please go ahead.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Yes. Thanks for taking my questions. I guess, Nick, first for you, by my calculation, your bookings were over $30,000,000 in the quarter, and that would kind of help explain the increase in deferred revenue and and balance in accounts receivable. Am I in the right ZIP code?

[Nick Hawkins, CFO at Arteris]

Hi, Gus. Welcome to the call. Nice to speak to you again. So as you know, we don't actually specifically talk about bookings, it's not one of our metrics that we publish. But we have characterized the fourth quarter as a strong deal flow quarter.

[Nick Hawkins, CFO at Arteris]

Fourth quarter is always our strongest deal flow quarter of the year and this was no exception.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Okay. And Charlie, if you just could you talk a little bit more about FlexGen and a 10x increase in productivity is a lot. Is that place some route or is it just doing the NOx? And just can you talk a little bit more about how the product works and how it's different from prior versions? You still there?

[Nick Hawkins, CFO at Arteris]

I wonder whether Charlie might be on mute. Let me just say

[Charles Janac, Chairman , President & CEO at Arteris]

Sorry, I apologize. I was on mute. Yes. So FlexGen is based on FlexMind five. So you have all of the manual editing capability that you had before.

[Charles Janac, Chairman , President & CEO at Arteris]

But what FlexGen does is you basically beat it a connectivity map, a list of all the connections, locations of all the IP block exit ports and a floor plan and it gives you basically a knock topology in minutes of hours to minutes versus days. And this has been validated by a large number of benchmarks. So the productivity increase is huge, but it's not enough. So we also have been able to achieve superior wire length. So sometimes depending on the benchmark, it can be from relatively modest for something like a small microcontroller all the way to to 30% or for up to 30% for very complex large SoCs.

[Charles Janac, Chairman , President & CEO at Arteris]

And that gives you improvements in latency and gives you improvements in power. So we think that, the three years of work that we have put into this is generating some very good results. And as we had in the script, we've basically shipped this to about 10 companies. And I think three more in the last month and a half as well. So I think we're up to 13 or so.

[Charles Janac, Chairman , President & CEO at Arteris]

And the take up of the product has been very strong.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

And then the last one for me, if I recall the uplift on this product is about a 30% increase in ASP. Is that right?

[Charles Janac, Chairman , President & CEO at Arteris]

That's right.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Okay. Let me jump back in the queue and let somebody else ask questions.

[Operator]

Your next question comes from the line of Kevin Garrigan from Rosenblatt Securities. Please go ahead.

[Kevin Garrigan, Research Analyst at Rosenblatt Securities]

Yes. Hey, Charlie and Nick, congrats on the solid results and solid 2024. Hey, Hey, Charlie, just kind of going off of Gus' last question. Can you just kind of talk about ASP trends per project? I think previously you were looking to hit kind of 1,000,000 in 2026.

[Kevin Garrigan, Research Analyst at Rosenblatt Securities]

So where did they kind of finish that for 2024? And is that $1,000,000 ASP still kind of on track?

[Charles Janac, Chairman , President & CEO at Arteris]

Yes, it is. But you asked a good question on the third quarter earnings call is, we've announced that we're going to enter the microcontroller business and we've been able to demonstrate success with two customers Infineon and Giga. And the you asked a good question is what's the ASP on the microcontrollers and the answer is that while we're going after entire product lines of microcontrollers on an individual basis, the ASP there is going to be lower because those do not really need FlexGen. They may or may not need physical awareness and the interconnects while getting much more complex a little bit simpler. But for the complex SoCs, we're definitely on track for 1,000,000 ASPs on the average.

[Charles Janac, Chairman , President & CEO at Arteris]

And we know this because we're getting $1,000,000 per project deals now, it's just not necessarily the average. And if you were to buy everything from us right now, you'd be looking at kind of a reasonable industry discount about $1,500,000 if you were to buy everything from us. So as we deliver these new products and as the amount of system IP is being used increases per project, we're on track for that $1,600,000 I'm sorry, dollars 1,000,000 ASP, but the caveat is that you have to exclude the microcontrollers.

[Kevin Garrigan, Research Analyst at Rosenblatt Securities]

Okay, got it. That makes sense. So that actually leads me into my next question. And you're looking at complex designs in the MCU market, but maybe not as complex as those in enterprise computing or AI machine learning. So now that you kind of have Infineon and Giga under the belt, is the time between design starts production, is it similar to your typical average or is it kind of maybe accelerated because they're not they may not need as much?

[Charles Janac, Chairman , President & CEO at Arteris]

So our target is to essentially establish relationships with the large microcontroller vendors and they typically build generations of microcontrollers every three years. So from that perspective, the design start windows are longer. However, once they start designing a generation of microcontrollers, they may design six to 10 maybe even more, maybe up to 15 microcontrollers per generation. And so the time between those design starts is actually very, very short, right. So what you have to do is you have to hit the time where the customer is doing a new generation of microcontrollers and then the design start window gets relatively short of that particular generation of microcontrollers.

[Charles Janac, Chairman , President & CEO at Arteris]

It's a pretty different dynamic than you see in the automotive or AI SoC space.

[Kevin Garrigan, Research Analyst at Rosenblatt Securities]

Got it, got it. Okay. That makes sense. I appreciate that color. Okay, that's all for me.

[Kevin Garrigan, Research Analyst at Rosenblatt Securities]

Thanks guys and congrats on the results.

[Operator]

Your next question comes from the line of Ethan Potasnik from TD Cowen. Please go ahead.

[Ethan Potasnick, VP - Equity Research at TD Cowen]

Yes. Hi, guys. Congrats on the great results. I wanted to kind of dig into licensing and royalty results, kind of considering the broader macro backdrop and particularly what's occurring in the automotive space. So maybe to get some expanded thoughts there would be helpful.

[Charles Janac, Chairman , President & CEO at Arteris]

Is it for you? Yes. You take this one. You're the royalty king.

[Nick Hawkins, CFO at Arteris]

Yes. So the astute observers among you will have spotted that the royalties and other line was slightly lower year over year. There's two real causes for that. One is that as you'll recall from previous calls, we had some one time benefits, particularly around royalty audits, fairly substantial in 2023 and those were lighter in 2024. So we tend to look at variable royalties as a better sort of trend guide.

[Nick Hawkins, CFO at Arteris]

And variable royalties, which is the still the bulk of that total income line, were 20% up year over year. Remember also that Mobileye had a sort of fairly major inventory correction at the beginning of 2024, as I'm sure you'll remember. And so if you exclude Mobileye from that trend, which is quite a big royalty contributor, the overall variable royalty growth year over year was in excess of 30%. So we are seeing some if you look at the concentration of royalties in 2024 versus 2023, the proportion of total variable royalties that came from automotive was of course a little lower than it was in previous years because of the mobile impact. But it's still around half of the total.

[Ethan Potasnick, VP - Equity Research at TD Cowen]

Okay, got it. Understood. And then to kind of piggyback on a prior question about pricing and the incorporation, I guess, of new products and the foray into MCUs, you know, with Flexbox five carrying a higher ASP, which is great to see. But how should we think about kind of the profitability trajectory for this year and perhaps the free cash flow positive target this year kind of exiting 2025? How are things going there?

[Nick Hawkins, CFO at Arteris]

So let me take that one real quick. So

[Nick Hawkins, CFO at Arteris]

the

[Nick Hawkins, CFO at Arteris]

just first to count on free cash flow, we're right at that point where we're flipping from negative to positive. So we mentioned in the call that we had a small number of customers who just missed the cutoff at the end of the year, relatively minor impact, but it turned the plus sign into a slightly minor sign, very small either side. The reason we're so confident about the full year is that we're growing the top line, as you know, in the high teens, low 20s percent, and that's basically our cash inflow. And we're constraining the OpEx and cost of revenue growth, which is essentially our cost base at half of that. So we naturally grow cash flow just automatically by our control of that metric, the OpEx being 50% of the top line growth.

[Nick Hawkins, CFO at Arteris]

And the top line is growing at high teens low 20%. And now one additional piece of color for you on that, Ethan, is that the free cash flow is always weighted towards the second half or generally speaking. Last quarter, the fourth quarter was a bit of an anomaly because of this small working capital shift. But generally speaking, we received most of our cash inflow in the second half. And we have some reasonably substantial sort of nonlinear cash outflows, particularly around management bonuses, for example, and around the high commissions and the annual accelerators all happened in the first quarter.

[Nick Hawkins, CFO at Arteris]

So there is a little bit of seasonality around it, which basically pushes most of the cash generation into the second half and that's traditionally what we've seen year over year.

[Nick Hawkins, CFO at Arteris]

Does that give you a good feel?

[Ethan Potasnick, VP - Equity Research at TD Cowen]

Yes. Thank you so much.

[Nick Hawkins, CFO at Arteris]

You're welcome.

[Operator]

Your last question comes from the line of Gus Richard from Northland. Please go ahead.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Yes. Thanks for letting me ask more questions. I appreciate it and great results guys. Just, Charles, you mentioned your architecture agnostic risk arm x86 and I'm kind of surprised to hear you list x86 in are there can you talk about the reasons you might be involved with that particular architecture?

[Charles Janac, Chairman , President & CEO at Arteris]

PC

[Charles Janac, Chairman , President & CEO at Arteris]

chipsets.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

I'm sorry, say again?

[Charles Janac, Chairman , President & CEO at Arteris]

PC chipsets.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Okay.

[Charles Janac, Chairman , President & CEO at Arteris]

So we are in some PC chipset designs.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. And then, you also mentioned multiple NOx per design. Do all of the fabric or the network on a chip have to be from the same vendor or can you mix and match NOx? For example, some of the x86 guys have their own fabrics.

[Charles Janac, Chairman , President & CEO at Arteris]

Absolutely. That's a great question. So, our products are designed for mix and match. I would say there are some designs where our tariffs is 100% of all the interconnects, but I would say majority of them have some other types of interconnect in them, either because of legacy reasons or other reasons, right? So for example, one common recently common configuration would be the ARM CMN, cash coherent interconnect with Flexdoc, the non coherent one.

[Charles Janac, Chairman , President & CEO at Arteris]

So that would be fairly common. Another one would be an internal fabric with Encore or FlexNOC. So we are designed for mix and match and this is where frequently this is frequently what occurs. But of course over time, we would like our tariffs to be more and more 100% of all the interconnects, but we're designed for mix and match.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. And then the last one for me, again, you mentioned a number of chiplet designs. And I'm just wondering if you could talk a little bit about as people chop up chips and use chiplets, how does your opportunity change and how does that change the competitive landscape for you all?

[Charles Janac, Chairman , President & CEO at Arteris]

So it makes the interconnect a lot more complex, right? Because now you're not just in a die, but you're sending data back and forth between different pieces of silicon. So that raises the ASP. We're also finding out that in these chiplet projects, multiple there are multiple companies involved, so that involves multiple licenses. And of course, we treat each die as a separate project.

[Charles Janac, Chairman , President & CEO at Arteris]

So when there were questions about the $1,000,000 ASP, I think Kevin asked that, The chiplets are going and I said the microcontrollers may lower the ASP, but the chiplets of projects will increase it because there's multiple dies and even multiple companies involved in those projects. So that increases the revenue opportunity for our tariffs significantly.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. And then there's alphabet of standards connecting triplets together. Does that have any do you ride on top of those or do they ride on top of you? How do those different protocols impact your opportunity? Does it make it more again, add to complexity or and again, sort of if you can help explain what layer you live in and what layers those live in and sort of how they play together?

[Charles Janac, Chairman , President & CEO at Arteris]

So there's multiple layers, but the layer that we're involved with is a data transport layer. And so we basically interface to physical layer IPs such as those made by Synopsys. And so we're kind of in a digital domain and we ride on top of the physical layers, which are heavily analog.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. Very good.

[Charles Janac, Chairman , President & CEO at Arteris]

As far as the different protocols, it's a trade off, right? We try to conform to protocols that are used by our major customers, but standards are beneficial to the industry. And so we're and one of those somebody said that the good thing about standard, there's so many to choose from. What we're trying to do working with our partners and the ecosystem to kind of create major standards that the industry can rally around and lower costs. And then in the shiplap guidance, that will be UCIE, it would be CHIUCIE, those kinds of things.

[Charles Janac, Chairman , President & CEO at Arteris]

So it's kind of a trade off and the more standards you have, the higher your costs, right, because you have to do fairly expensive developments to conform to a large variety of standards.

[Gus Richard, MD & Senior Research Analyst at Northland Capital Markets]

Got it. Super helpful. I'll jump out of the queue.

[Operator]

There are no further questions at this time. I'd like to turn the call over to Charlie Zanuck for closing remarks. Sir, please go ahead.

[Charles Janac, Chairman , President & CEO at Arteris]

Yes. Thank you for your time and interest in Artarus. I think it was a quite a positive quarter and a year. And we look forward to meeting with you at the upcoming investor conferences we're participating in during the next couple of months. And we look forward to updating you on all our business progress in the quarters to come.

[Charles Janac, Chairman , President & CEO at Arteris]

Thank you for your support.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Participants

Executives

• Erica Mannion, Sapphire Investor Relations
• Charles Janac, Chairman , President & CEO
• Nick Hawkins, CFO

Analysts

• Gus Richard, MD & Senior Research Analyst at Northland Capital Markets
• Kevin Garrigan, Research Analyst at Rosenblatt Securities
• Ethan Potasnick, VP - Equity Research at TD Cowen