Arteris, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing does not provide a clear standalone Q4 financial-results breakdown.
Business context
Arteris licenses semiconductor System IP, including Network-on-Chip interconnect technology and IP deployment software, used to connect and integrate components in system-on-chip designs. Its end markets include automotive, enterprise computing, communications, consumer electronics and industrial. Revenue is primarily licensing, support and maintenance, with additional royalties.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $50.4 million | $37.9 million |
| Gross profit | $46.1 million | $34.1 million |
| Gross margin | 91.5% | 90.2% |
| Operating expenses | $75.0 million | $55.9 million |
| Operating loss | $(28.9) million | $(21.8) million |
| Net loss | $(27.4) million | $(23.4) million |
| Net loss per share, basic and diluted | $(0.84) | $(1.06) |
| Cash used in operating activities | $6.8 million | $0.8 million |
Revenue increased 33%, led by licensing, support and maintenance revenue, up 32% to $46.0 million. Variable royalties rose 19% to $3.1 million. R&D expense increased 34% to $41.2 million (82% of revenue); sales and marketing rose 49% to $17.4 million. Stock-based compensation was $11.7 million, versus $5.5 million in 2021.
At December 31, 2022, cash and cash equivalents were $37.4 million, short-term investments $30.7 million and long-term investments $4.4 million—$72.6 million combined. Current assets were $81.1 million and current liabilities $43.7 million. Vendor financing totaled $1.7 million; operating lease liabilities totaled $1.9 million. The prior term loan had been fully repaid in 2021. Total liabilities were $78.0 million, including substantial deferred revenue and deferred income. Investing cash outflow of $37.5 million largely reflected purchases of available-for-sale securities, rather than operating expenditure alone.
Changes and operating indicators
- Revenue grew $12.5 million year over year, while net loss widened by $4.0 million and operating cash use increased by $6.0 million.
- Annual Contract Value (ACV) was $49.2 million, up from $47.4 million; ACV plus trailing-twelve-month royalties and other revenue was $52.4 million, versus $50.0 million.
- Remaining performance obligations were $57.7 million, down from $60.5 million; $30.9 million was expected to be recognized within 12 months.
- Customers confirmed 82 design starts, compared with 86 in 2021. Arteris added 38 net new active customers, versus 29, and reported a 98% annual average customer retention rate.
- Intel accounted for 24% of 2022 revenue. China-based customers generated 28.8% of revenue; Asia Pacific as a whole generated 45.9%.
Outlook, risks and unusual items
- Management expects further net losses in the short term while investing in the business. It expects R&D expense to increase in the near term, while potentially declining as a percentage of revenue over the medium to longer term. The filing provides no specific revenue or earnings guidance.
- Management said COVID-19 did not materially adversely affect 2022 results, cash flows or financial condition, but noted continuing uncertainty. Semiconductor cyclicality, customer product delays, competition, long design-to-royalty cycles and customer concentration may affect results.
- New U.S. export controls announced in October 2022 could constrain licensing or support for certain Chinese semiconductor and advanced-computing customers. Separately, BIS closed a prior export-control voluntary disclosure with a warning letter in April 2022; Arteris said it had implemented remedial measures.
- In December 2022, Arteris received notice of patent-infringement litigation filed by Network System Technologies, LLC, including complaints involving Arteris technology and some customers. The company intends to defend itself; outcomes and potential financial effects were uncertain.
- Arteris acquired Semifore for approximately $3.1 million in consideration. It also held a 35% interest in Transchip at year-end; the investment’s carrying value was $11.9 million, and Arteris recorded a $0.3 million share of its loss.
- Arteris contributed a technology license to Transchip valued at $11.6 million. Related deferred income was to be recognized over ten years; the filing reports $0.4 million of income recognized in 2022.
Most important facts for investors to verify
- How revenue growth and ACV translate into future recognized revenue and royalty growth, particularly given lower design starts and long customer production timelines.
- Whether operating cash use, continued net losses and elevated R&D spending remain within management’s liquidity expectations; management estimated available resources would cover at least 12 months.
- Exposure to Intel and China, including the practical impact of export restrictions on customer access, licensing and support.
- Developments, defense costs and any potential liabilities from the patent litigation.
- Transchip’s performance, the recoverability of the $11.9 million investment and timing of recognition of the related deferred income.
- Potential dilution and compensation expense from stock awards; unamortized stock-based compensation for unvested RSUs was $32.3 million at year-end.