Arteris, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Arteris develops and licenses semiconductor system-IP and on-chip interconnect technology, related software, support, and services.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $14.8 million | $10.8 million | $26.6 million | $17.5 million |
| Gross profit / margin | $13.5 million / 91% | $9.9 million / 92% | $24.3 million / 91% | $15.7 million / 90% |
| Operating loss | $5.4 million | $3.5 million | $12.0 million | $10.0 million |
| Net loss | $5.7 million | $3.9 million | $12.5 million | $10.6 million |
| Net loss per share, diluted | $0.18 | $0.20 | $0.39 | $0.55 |
At June 30, cash was $81.3 million, down from $85.8 million at year-end 2021. Current assets were $94.9 million and current liabilities $42.5 million. Stockholders’ equity was $45.7 million. Vendor financing arrangements totaled $1.3 million; the filing reports no term-loan balance. Six-month operating cash use was $1.2 million, investing cash use $0.7 million, and financing cash use $2.6 million. Management said available cash, borrowing capacity, and expected operating cash generation should cover requirements for at least 12 months.
Changes versus prior comparable periods
- Q2 revenue rose 37%; first-half revenue rose 52%. Licensing, support, and maintenance grew 40% in Q2 and 52% for the first half, primarily from new agreements with existing customers and added customers.
- First-half royalties increased 34%, attributed primarily to new customers; Q2 royalties decreased 14%.
- Operating expenses rose 41% in both Q2 and the first half. R&D and sales and marketing increased with headcount, investment, and stock-based compensation; Q2 G&A declined 13%, mainly due to lower professional fees.
- Cash used in operations improved from $1.5 million to $1.2 million for the first half, despite a larger net loss, aided by noncash expenses and collections of receivables. Financing cash flow shifted from $4.9 million provided in 2021 to $2.6 million used in 2022.
Outlook, commentary, and risks
- No specific revenue or earnings guidance was provided. Management expects R&D spending to rise in the near term, both in dollars and as a share of revenue, and expects it to decline as a share of revenue over the medium to longer term. It expects sales and marketing costs to increase in dollars.
- At June 30, annual contract value (ACV) was $48.6 million, versus $40.6 million a year earlier; remaining performance obligations (RPO) were $55.7 million, versus $50.2 million. The filing says $25.1 million of contracted obligations, excluding non-cancelable FSA commitments, was expected to be recognized over the next 12 months.
- Arteris added nine active customers in Q2 and reported 18 confirmed design starts, compared with 23 a year earlier. Annual average customer retention, excluding IP deployment solutions, was 97%.
- Key risks include sustained losses, revenue and customer concentration, long design-to-production cycles, semiconductor-market cyclicality, competition, and customer product delays or cancellations. International operations and export restrictions also pose risks; China generated 22.6% of first-half revenue. Management expects China revenue to decrease due to U.S. trade restrictions.
- COVID-19 had not materially adversely affected reported results or cash flows in the first half, but future effects remained uncertain. The company said the BIS closed a voluntary export-control disclosure matter with a warning letter in April 2022, without referral for prosecution; it had stopped providing products and support to the two customers involved.
- On June 20, Arteris completed a transaction that relinquished control of Transchip and left it with a 40.3% equity interest, accounted for under the equity method. The investment was recorded at $12.2 million. A $11.6 million technology license contribution was recorded as deferred income; $10.4 million remained classified as noncurrent deferred income at quarter-end. The company recognized a $0.1 million deconsolidation gain.
- Management reported effective disclosure controls and procedures. It was not aware of legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Whether license growth and elevated ACV/RPO translate into recognized revenue and cash collections, given contract timing and long customer design cycles.
- How much of the continuing operating loss reflects ongoing investment versus IPO-related stock-based compensation, and whether expense growth moderates.
- The durability of customer concentration and China-related revenue, including the effects of export restrictions and disclosed customer concentration figures.
- Transchip’s commercial progress, the terms and revenue-recognition schedule of its license, and the risks of Arteris’s minority, equity-method investment.
- Cash runway against planned R&D and sales investment, and the potential for dilution or restrictive terms if additional financing becomes necessary.