Arteris signals 24% ACV plus royalties growth and raises 2025 revenue target amid AI-driven demand

Earnings Call Insights: Arteris, Inc. (AIP) Q3 2025

MANAGEMENT VIEW

* CEO Karel Janac reported "record annual contract value plus royalties of $74.9 million, resulting in 24% year-over-year growth." He highlighted increased product adoption in chiplets and SoCs across multiple markets, with "AI applications accounted for over half of our licensing dollars in the third quarter." Janac referenced new and expanded partnerships, noting "Altera... selected Arteris technology portfolio to streamline design workflows, optimize data movement and enable intelligent computing" across a range of sectors, and emphasized that "AMD has ordered additional incremental licenses" for FlexGen Smart NoC IP. Four additional FlexGen customer wins were secured, including deployments at Dream Chip and a leading automotive OEM for next-generation EVs. The company also joined the Ultra Accelerator Link Consortium with major technology companies to support AI data center infrastructure needs. Janac stated, "We believe the scale and scope of our opportunity remain robust, supported by our current products, and strong pipeline of new data movement system IP technologies."
* CFO Nicholas Hawkins stated, "We had a strong third quarter meeting or beating our guidance on all financial measures." Hawkins highlighted "total revenue for the third quarter was $17.4 million, up 5% sequentially and 18% year-over-year and above the top end of our guidance range," and noted "remaining performance obligations... was $104.7 million, representing a 34% year-over-year increase, a new high and exceeding the $100 million milestone for the first time." He added, "Non-GAAP gross profit for the quarter was $15.9 million, representing a gross margin of 91%."

OUTLOOK

* For Q4 2025, Hawkins provided guidance of "ACV plus royalties of $74 million to $78 million, revenue of $18.4 million to $18.8 million with non-GAAP operating loss of $2.3 million to $3.3 million and non-GAAP free cash flow of $0.2 million to $3.2 million."
* Full-year 2025 guidance was raised to "revenue of $68.8 million to $69.2 million, also an increase of $1 million compared to our prior guidance." Hawkins said, "We remain encouraged by our strong deal execution witnessed by the 34% year-over-year growth in RPO at the end of the third quarter."
* Compared to the previous quarter, both ACV plus royalties and revenue guidance for the full year have increased by $1 million.

FINANCIAL RESULTS

* The company reported "total revenue for the third quarter was $17.4 million," and "annual contract value plus royalties was $74.9 million." Non-GAAP gross profit was $15.9 million with a gross margin of 91%. Non-GAAP operating loss was $3.5 million. Non-GAAP net loss for the quarter was $3.8 million or diluted net loss per share of $0.09. Free cash flow was positive $2.5 million for the third quarter. Cash, cash equivalents and investments stood at $56.2 million at quarter end. Hawkins noted, "We have no financial debt."

Q&A

* Kevin Garrigan, Jefferies: Asked about further opportunities with Altera and expansion within AMD. Janac responded, "there's more opportunities... Altera business is going to continue to evolve and grow and we believe that there's future opportunities." Regarding AMD, Janac indicated multiple groups within AMD could adopt Arteris solutions.
* Garrigan: Questioned the importance of reliability and safety. Janac stated, "all the important data goes through our network on chips... So customers are very risk averse in choosing system IP solutions because any problems there can cause major delays."
* Kevin Cassidy, Rosenblatt Securities: Inquired about timing for UALink consortium licenses. Janac explained, "the objective of the UALink consortium is to essentially scale up data center solutions... we're already involved in some of those designs."
* Auguste Richard, Northland: Asked about acceleration of royalties and penetration in top tech companies. Hawkins said, "the growth year-over-year for the variable royalties in the trailing 12 months... was up 36%." Janac noted, "we have, I would say, more than 50% of those companies as customers but not all of them are huge customers."
* Joshua Buchalter, TD Cowen: Queried on AI opportunity split between data center and edge. Janac stated, "over time, I think data center will be somewhere between 25% to 30%, maybe 35% of our business. But right now, AI is -- represents about 50% of all the design starts."
* Buchalter: Asked about FlexGen impact on royalties. Hawkins responded, "FlexGen is accretive to both ASP and therefore, license, but it's also accretive to royalties... the biggest royalty area for us... is actually from the automotive market."

SENTIMENT ANALYSIS

* Analysts maintained a positive to slightly bullish tone, repeatedly congratulating management on results and pressing for details on high-profile customer wins and royalty growth. There was sustained interest in the pace of adoption and potential for further expansion with marquee clients.
* Management's tone remained confident and occasionally emphatic, with Janac stating, "Absolutely... we are very much focused on reliability. We're very much focused on quality because if the system IP doesn't work, the chip doesn't work." Hawkins spoke to financial discipline and growth: "this has resulted in a 15% improvement of non-GAAP operating expense as a percentage of revenue for the year-to-date."
* Compared to the previous quarter, both analysts and management displayed heightened confidence, with more emphasis on concrete new deals and rising financial targets.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for both full-year ACV plus royalties and revenue increased by $1 million versus the previous quarter. Remaining performance obligations rose from $99.3 million to $104.7 million. There was a stronger focus on AI, with AI applications accounting for over half of licensing dollars in Q3, compared to broader reference to AI and automotive in Q2.
* Analysts continued to focus on customer expansion, royalty acceleration, and product penetration among top tech companies. Management's confidence appeared higher, supported by new partnerships and record key performance indicators.
* Strategic priorities shifted more visibly toward AI and data center opportunities, while previous discussions also highlighted automotive and software automation.

RISKS AND CONCERNS

* Management acknowledged the risk aversion of customers in adopting system IP due to the potential for design delays and field problems, highlighting the importance of reliability and quality in their products.
* No new risks such as deal cancellations or delays were cited for Q3. Hawkins referenced ongoing investment in technology and sales, balanced by "delivering operating leverage by controlling G&A spending."
* Analysts showed concern for the timing and scale of royalty inflections, customer concentration, and the competitive landscape in AI infrastructure.

FINAL TAKEAWAY

Arteris management emphasized record annual contract value plus royalties, robust revenue growth, and expanding relationships with major technology companies, especially in AI, automotive, and data center markets. With increased revenue and ACV plus royalties guidance for 2025, a strengthened customer base, and continued operational discipline, Arteris highlighted growing demand for its system IP and strategic positioning in high-growth verticals, underscoring confidence in sustaining future growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/aip/earnings/transcripts]

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