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DATE

Thursday, Aug. 6, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer - Karel Charles Janac
  • Chief Financial Officer - Nicholas Bryan Hawkins

TAKEAWAYS

  • Revenue -- $24.1 million for Arteris, Inc. (AIP -2.09%), representing 46% growth compared to the prior year.
  • ACV Plus Royalties -- $99.5 million, reaching a record high with 44% year-over-year growth.
  • Trailing 12-Month Variable Royalties -- $8.6 million, an increase of 65% year over year and a record high for the company.
  • Remaining Performance Obligation -- $135 million, representing a 36% increase in contracted future revenue compared to the prior year.
  • Non-GAAP Gross Margin -- 87%, reflecting the inclusion of subcontractor costs as cost of revenue for certain security government contracts.
  • Non-GAAP Operating Loss -- $4.6 million, which included $1.7 million in unexpectedly high French employer payroll taxes related to RSU vesting.
  • Non-GAAP Net Loss -- $4.7 million or $0.10 per diluted share.
  • Cash and Investments -- $123 million, an increase of $81.6 million following the completion of an at-the-market offering program.
  • ATM Net Proceeds -- $72.5 million raised during the quarter at an average share price exceeding $35.
  • Free Cash Flow -- $8.6 million in the quarter, bringing the trailing 12-month free cash flow to positive $6.8 million.
  • Full-Year 2026 Revenue Guidance -- $95 million to $98 million, an increase of $3.5 million from prior guidance reflecting market cycle trends.
  • Full-Year 2026 ACV Plus Royalties Guidance -- $102 million to $106 million for the year-end exit target.
  • Full-Year 2026 Free Cash Flow Guidance -- $5 million to $9 million, representing no change from previous projections.
  • Q3 2026 Revenue Guidance -- $24 million to $25 million.
  • Design Starts -- up 21% year over year for the trailing 12-month period ended June 30, 2026.
  • Enterprise Computing Concentration -- 29% average of ACV plus royalties over the previous four quarters, with AI infrastructure driving the largest deals.
  • Customer Concentration -- zero customers represented more than 10% of revenue in the first half of 2026.
  • Acquisition Expenses -- $2.2 million in GAAP operating expenses related to the acquisition of Cycuity earlier in the year.
  • Non-GAAP Research and Development Expense -- $13.8 million, representing a focus on system IP products and global customer support.
  • High-Value Deals -- multiple seven-figure agreements for FlexGen SmartNOC IP closed with major semiconductor customers during the first half of 2026.

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RISKS

  • Hawkins stated, "Non-GAAP operating income was impacted by unexpectedly high employer payroll taxes related to French employee RSU vesting, which totaled $1.7 million in the quarter," noting this expense was driven by a much higher stock price during the June quarter.
  • Hawkins noted a slight sequential pause in royalty expansion, stating that "one of our customers... had some logistical and supply chain issues and that held back one quarter's worth of shipments."

SUMMARY

Management reported record levels for multiple financial metrics, including revenue and remaining performance obligation, driven by robust demand for data center and automotive semiconductor designs. The company raised its full-year revenue guidance while maintaining its free cash flow outlook, citing a positive upward trend in the semiconductor market cycle. Arteris completed a significant at-the-market capital raise to fund future product investments and potential acquisitions. Strategic focus remains on integrating hardware security assurance technology and expanding partnerships within high-performance computing and AI infrastructure sectors.

  • CEO Janac noted that "the majority of our customers' design starts supported AI or HPC use cases as part of the device," with this trend expected to continue.
  • Management reported that one of the world's largest hyperscale cloud companies has standardized on Arteris silicon system IP for next-generation data center energy efficiency and performance.
  • The company expanded its partnership with Arm, which is adopting Arteris hardware security technology across additional next-generation processors to identify and mitigate design vulnerabilities.
  • Li Auto has successfully deployed autonomous driving chips designed with Arteris technology in its L9S SUV model, which Janac identified as a source of initial royalty contributions.
  • Management expects to report a non-GAAP operating profit for a period as early as the fourth quarter of 2026, driven by operating leverage and expense discipline.
  • CFO Hawkins maintained a long-term compound annual growth rate target for royalties in the high 30% to low 40% range, despite a slight sequential growth slowdown in the second quarter.
  • SiEngine selected Arteris for its next-generation automotive platforms, including intelligent cockpit and advanced driver assistance applications.

INDUSTRY GLOSSARY

  • ACV (Annual Contract Value): Total fixed fees under a customer agreement divided by the number of years in the agreement term.
  • ASIC (Application-Specific Integrated Circuit): A semiconductor chip customized for a particular use rather than intended for general-purpose use.
  • EDA (Electronic Design Automation): Software tools used for designing electronic systems such as integrated circuits and printed circuit boards.
  • FPGA (Field-Programmable Gate Array): An integrated circuit designed to be configured by a customer or a designer after manufacturing.
  • HPC (High-Performance Computing): The practice of aggregating computing power in a way that delivers much higher performance than typical desktop computers.
  • IP (Intellectual Property): Reusable units of logic, cell, or chip layout design that are the intellectual property of one party.
  • NoC (Network-on-Chip): A communication subsystem on an integrated circuit that manages data movement between modules.
  • RPO (Remaining Performance Obligation): The amount of contracted future revenue that has not yet been recognized.
  • SoC (System-on-Chip): An integrated circuit that integrates all or most components of a computer or other electronic system.
  • tops: Trillion operations per second, a metric used to measure the computing performance of AI and autonomous driving chips.

Full Conference Call Transcript

Operator: Good afternoon, everyone, and welcome to the Arteris Second Quarter 2026 Earnings Call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris with all rights reserved. For opening remarks and introductions, I would now like to turn the call over to Erica Mannion, at Sapphire Investor Relations. Please go ahead.

Erica Mannion: Thank you, and good afternoon. With me today from Arteris are Karel Charles Janac, Chief Executive Officer, and Nicholas Bryan Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the second quarter ended 06/30/2026. Nick will review the financial results for the second quarter 2026 followed by the company's outlook for the third quarter and the full year of 2026. We will then open the call for questions. Before we begin, I would 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 are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results to differ materially 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 Arteris issued today and then in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share and free cash flow, Which are not measures prepared in accordance with U.S. GAAP.

The non GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company, 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. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended 06/30/2020. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, and remaining performance obligations, please see the press release for the quarter ended 06/30/2026.

These key performance indicators are presented for supplemental informational purposes only should not be considered a substitute for financial information presented in accordance with GAAP and may differ from similarly titled metrics or measures used by other companies securities analysts, investors. Listeners who do not have a copy of the press release for the quarter ended 06/30/2026, may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the second quarter 2026 earnings presentation 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.

Karel Charles Janac: Thank you, Erica. And thanks to everyone for joining us on our call today. The Arteris second quarter of 2026 produced multiple record breaking results. We reached another record annual contract value plus royalties, exiting the quarter at $99.5 million representing a 44% year-on-year increase. We achieved record revenue, royalties, and RPO backlog. License deal flow in the quarter was driven by several large deals with existing and new customers. These wins spanned all key verticals led by growth in enterprise computing and automotive, followed by aerospace and defense, communications, consumer electronics, and industrial markets, for varieties of semiconductors, including chiplets, system on chip or SOCs, application specific integrated circuits or ASICs, field programmable gate arrays or FPGAs, and microcontrollers.

Further to our diversification strategy, no single customer made up more than 10% of our revenue in the first half of 2026. Our customer design activity was healthy again in the quarter, with a trailing 12-month to 06/30/2026 our customers reported 21% higher number of design starts year over year. Rapidly evolving high performance computing or HPC workloads continue to drive demand for more complex chips and chiplets across data centers, smart jet devices, and physical AI systems. This in turn is increasing the demand for Arteris products that help deliver the underlying high performance, efficient, safe, and secure data movement essential to semiconductors in the AI era.

In the second quarter of 2026, the majority of our customers' design starts supported AI or HPC use cases as part of the device, and this trend is continuing. Data center chip and chiplet development continues to be a key revenue driver for Arteris. Over the past 4 quarters, enterprise computing has made up an average of 29% of our tariffs ACV plus royalties, with AI infrastructure representing some of the biggest deals in the second quarter. As an example, 1 of the world's largest hyperscale cloud companies has chosen to adopt and standardize on Arteris's infrastructure silicon system IT. Arteris technology will enable the high performance and energy efficient semiconductor data movement for the next generation of data centers.

Large scale compute must adapt quickly for rapidly evolving software workloads that require ASICs, SoCs, and chiplets with interconnect that can support the throughput bandwidth and power requirements making Arteris the obvious choice for scale up and scale out architectures. Another example of Arteris' progress in data center applications was a large win with 1 of the top US semiconductor design houses building ASICs for various hyperscalers. Where Arteris FlexGen SmartNOC IP is increasingly being used with the underlying data movement in chiplets and multi die chips to support high end scale up AI compute.

Additionally, we announced that Speedata, developer of the purpose built analytics processing unit or APU, has deployed Arteris in its Callisto processor, that runs large volume analytics processing for applications which require high bandwidth capable chips. Often in data centers. Physical AI from automotive to aerospace and defense and along with industrial applications such as robotics continues to experience strong and growing demand for Arteris products and solutions. Here, performance, energy, safety, security, and proven reliability are essential for foundational semiconductors. Li Auto, a leader in China's new energy vehicle market, has successfully deployed its in house design autonomous driving chips in their L9S SUV model.

Multiple chips designed with Arteris are used in each vehicle and run 2.56 thousand trillion operations per second or tops, to effectively and safely perform autonomous driving and other advanced driving tasks. As customers take deliveries of these vehicles, we are starting to see initial royalty contributions. Another example is CyEngine, a provider of advanced automotive chips, selecting Arteris for its next generation SoC platforms with the intelligent cockpit advanced driver assistance applications, and AI cockpit drive fusion solution with high performance and functional safety requirements. On the product side, we are seeing equally strong momentum with customer adoption of new technologies.

Following the acquisition of Cicuity earlier this year, which provides semiconductor cybersecurity assurance, We recently announced an expanded partnership with Arm. The security hardware security assurance technology is already in use by Arm, during the design phase of selected CPUs. Moving forward, Arm engineering teams are expanding their adoption of Security technology across additional next generation processors to help identify and mitigate potential security weaknesses and vulnerabilities supporting the delivery of robust and resilient CPUs. We are honored to be supporting Arm's leadership in the application of cybersecurity hardware assurance for safer CPU hardware.

We see similar cybersecurity hardware assurance opportunities with other IP suppliers semiconductor companies, and system houses, building silicon for applications ranging from AI infrastructure mission critical applications where cybersecurity is rapidly moving from a 'should' to a 'must' technology accelerated by rapid development in frontier AI models and growing sets of required standards and regulations. On the NOC IP front, the number of FlexGen smart NOC customers continues to grow as customers are increasingly seeing the value in automation and wire length efficiency which helps reduce power, that Arteris SmartKnock IP offers. In the first half of 2026, we closed multiple 7-figure deals for FlexGen with major semiconductor customers.

On the ecosystem front, we announced a collaboration with iCLINK by IMEC which is IMEC's service provider for high end ASICs and silicon photonics. Arteris technology will be deployed as part of their ongoing efforts to accelerate and simplify the development of next generation HPC chiplets and ASIC chips. Our customers continue to innovate in exciting high growth areas. All of these require a combination of high performance, energy efficiency, safety, and security. Overall, Arteris continues to be in a strong position to support growing semiconductor applications in the AI era across data centers, edge devices, and physical AI systems, helping customers to innovate and develop next generation of silicon chips and chiplets with our technology.

I am happy also to announce that we have completed our ATM program raising $72 million to support our ability to invest in industry leading system IP products, global customer support, and additional tuck in acquisitions. As previously announced, Nick Hawkins will be retiring following a distinguished tenure as our CFO. Nick helped lead Arteris through its successful IPO, built an excellent finance organization, delivered at or above financial guidance on nearly all financial metrics, and was instrumental achieving a positive free cash flow operation while laying the foundation for near future non GAAP profitability.

I am very grateful for his leadership and contribution to Arteris over the years, and wish him the best in the next chapter of his life. I am pleased to share that Sarab Sinha, will join Arteris as our new CFO starting on September 8, 2026. Sarab comes to us from EVA Technologies where he was instrumental in taking the company public on Nasdaq and in managing financial operations, capital allocation, and investor relations. We expect a smooth transition and remain focused on executing our strategy meeting our customers' growing needs and delivering shareholder value.

With that, I want to again thank Nick for having been an invaluable partner, and I will turn it over to him 1 last time to discuss our financial results in more detail.

Nicholas Bryan Hawkins: Thank you, Charlie. Good afternoon, everyone. As Charlie mentioned, this is my final earnings call for Arteris. and I am delighted to be handing over the reins to Sarab next month. I have absolute confidence that you will continue the solid financial of the company, and he will be supported by our exceptional global finance team. This has been a great and enjoyable journey, and together, we have delivered many remarkable achievements that have benefited our stockholders and our people. As I review our second quarter results for 2026 today, please note I will be referring to GAAP as well as non GAAP metrics.

Please also note that 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 will be referring to the 2Q26 earnings presentation, which can be found in the Investor Relations section of the company's website. Under the Events and Presentations tab. We had a strong second quarter, beating the top end of our guidance for revenue and ACV plus royalties. Non-GAAP operating income was impacted by unexpectedly high employer payroll taxes related to French employee RSU vesting, which totaled $1.7 million in the quarter. This increased expense was driven by a much higher stock price. During the June quarter.

Turning to Slide 5 of the presentation. Total revenue for the second quarter was $24.1 million up 46% year-over-year. And above the top end of our guidance range. Notably, trailing 12-month royalties was $8.6 million 65% higher year-over-year setting a new record high. Royalties continue to show strong growth. Driven by a healthy mix of customers across all of our verticals, and with exciting new royalty streams coming online every quarter. At the end of the second quarter, ACV plus royalties was $99.5 million, up 44% year-over-year, above the top end of our guidance range. Once again, a new record high.

Remaining performance obligation to RPO, which is our contracted future revenue at the end of the second quarter totaled $135 million, another all time high for Arteris. We expect just over half our RPO at the end of the second quarter will be recognized as revenue in the province starting July 1, 2026. Non-GAAP gross profit in the quarter was $21 million, representing a gross margin of 87%. GAAP gross profit in the quarter was $20.5 million, representing a gross margin of 85%. A reminder that our 2026 gross margin now reflects the inclusion of subcontractor costs as cost of revenue for certain security government contracts. Now moving to Slide 6.

Non-GAAP operating expense in the quarter was $25.5 million Our OpEx was slightly above trend as a result of the RSU driven payroll taxes that I mentioned earlier, together with higher commissions resulting from a very strong deal flow quarter. As a reminder, our long term operating leverage model is to limit our OpEx growth rate to approximately half our revenue growth rate. We continue to believe that our investments into product development and customer success will help to accelerate our top line growth in coming years.

Total GAAP operating expense for the second quarter was $34.4 million, which included acquisition related expenses of $2.2 million Non-GAAP operating loss in the quarter was $4.6 million GAAP operating loss for the quarter was $13.9 million Non-GAAP net loss for the quarter was $4.7 million, or a diluted net loss per share of $0.10. GAAP net loss in the quarter was $14.1 million, or diluted net loss per share of $0.30. Moving to Slide 7 and turning to balance sheet and cash flow. We ended the quarter with $123 million in cash equivalents and investments. And we have no financial debt.

The overall $81.6 million increase in cash equivalents and investments in the quarter was driven by the successful ATM execution which raised approximately $72 million of net proceeds at an average price of over $35, coupled with $8.6 million positive free cash flow in the second quarter which brought the trailing 12 month free cash flow to positive $6.8 million I would now like to turn to the outlook for the third quarter and the full year 2026, and refer now to Slide 8 For the sake of clarity, NOL guidance for the third quarter and the full year takes into account the higher run rate of French employer payroll taxes on RSU vesting.

For the third quarter, we expect ACV plus royalties of $99 million to $103 million revenue of $24 million to $25 million, and a non-GAAP operating loss of between $3 million to $1 million. As a reminder, we are no longer guiding quarterly free cash flow. As we look forward to full-year 2026, we are seeing continued strength in semiconductors and signs of an upward trend in the cycle in the market. Consequently, we are raising our full year revenue guidance. For the full-year 2026, our guidance is as follows.

ACV plus royalties to exit 2026 at $102 million to $106 million revenue of $95 million to $98 million an increase of $3.5 million from prior guidance and representing a 37% year-over-year increase at the midpoint. non-GAAP operating loss of between $10 million and $7 million, and non-GAAP free cash flow of between positive $5 million to positive $9 million, unchanged from prior guidance. We are seeing a strong start to the to the third quarter. With momentum and increasing customer engagement leading us to believe that we will see continued strength in the second half of the year.

Building on our strong revenue growth, coupled with carefully focused expense discipline that is delivering operating leverage, we continue to believe that Arteris is on a path to profitability. And we expect to report a non-GAAP operating profit for a period as early as the fourth quarter of the current year. With that, I will turn the call back to the operator for the Q and A portion of the call.

Operator: Your first question comes from Kevin Garrigan from Jefferies. Please go ahead.

Kevin Garrigan: Yeah. Hey, Charlie and Nick, congrats on the great results. And Charlie, great working with you. Hope you and you enjoy your retirement. Hey, can you talk more about the expanded partnership with Arm on Cycuity? Should we think about it as a licensing deal and then get royalties? And did that displace a competing solution, or was this a greenfield opportunity?

Karel Charles Janac: So it is a greenfield opportunity. There is not actually a whole lot of commercial situation solutions for what Cycuity does. Essentially what ARM is using it for is to identify potential weaknesses in the high end and midrange CPU designs. Right? And basically, they are essentially taking a leadership position about making the designs that they deliver to their customers be essentially have significant amount of hardware security assurance. So it is a greenfield opportunity. there is opportunities for expansion. And, you know, we think that other processor type companies should be taking the lead of ARM in deploying cybersecurity hardware assurance solutions. Got it. I will also That makes sense.

I would also like to thank Arm that they allow us to announce it because security has a significant number of very impressive customers. But people tend to be secretive about security, so Arm was very nice to let us announce it.

Nicholas Bryan Hawkins: Hey, Doug. Kevin. Okay. This is Nick. I just wanna chip in. You said that Charlie was retiring. I know that was a slip of the tongue, and you know that it is actually me who is retiring. But I just want everybody else who might be listening to this call to know that Charlie's not retiring. it is Nick.

Kevin Garrigan: Yeah. I apologize for that. it is been a long week so far. My fault. And then so, I guess, you know, just kind of going off that, does the addition of Cycuity allow you to negotiate a higher royalty rate with customers?

Karel Charles Janac: No. So Cycuity, at least so far, has been a non-royalty-bearing sort of software EDA type model. You know, in the future, there are opportunities between the network on chip and security to actually not only identify weaknesses, cybersecurity weaknesses, but also to fix them. So there might be some opportunities there. But right now, it is a nonroyalty bearing product.

Kevin Garrigan: Okay. Perfect. Thanks, guys. And Nick, enjoy your retirement.

Nicholas Bryan Hawkins: Thank you, Kevin. Been a delight working with you for over the last several years.

Operator: Your next question comes from Joshua Buchalter from TD Cowen. Please go ahead.

Joshua Buchalter: Hey guys, thanks for taking my questions, and let me echo the congrats to Nick on retirement and say thank you for all the work over the years and also Charlie, thank you for staying with us. Maybe to start, you called out the US Design House win for on an ASIC platform, I think, using for chiplets and multidie offerings. Can you elaborate on, is this a new customer and maybe speak to what type of applications and maybe timeline to materiality for this to be a revenue contribution? Thank you.

Karel Charles Janac: it is not a new customer, but it was a very small customer or relatively small customer prior to this, but essentially the hyperscalers are employing a number of different business models. They buy commercial chips from Intel and maybe ARM in the future. They are building accelerators themselves and they are also working with partners to build chips to their specification. And this, a large semiconductor company, 1 of their strong business product lines is that they build chips for hyperscalers. And they have, after an extensive evaluation, decided to use Arteris for fulfilling those designs. Okay. And then data center hyperscaler application.

Joshua Buchalter: Got it. Okay. Thank you for that, Charlie. And then maybe to follow-up, I thought the Li Auto announcement was interesting as well, especially given it is in for an in-house autonomous driving chip. Any way you can size this opportunity and maybe how big China auto is overall within your royalty portfolio? How big it can be over the next couple of years? Thank you.

Karel Charles Janac: I think I will defer to Nick on the on the royalty question. But we have a strong presence in the China automotive market and also with China automotive OEMs. And so Li Auto is just 1 of the opportunities that we are pursuing or have pursued. And this has been underway for a while. And they are starting to ship their system in a car. In actual real world cars. But as far as the royalty percentage in China, Nick, do you wanna take that 1?

Nicholas Bryan Hawkins: Sure. Absolutely, Charlie. Hi, Joshua. So yeah, so Li Auto is a midsize EV Chinese EV company. So their volumes can be meaningful and they are growing. So we are delighted that they have started to send checks so rapidly. It is a feature of the Chinese automotive market. As far as how far it can go, the jury's out on that. We will have to wait and see. But, typically, if you go back to any automotive royalty stream that we have seen in the past. Typically, you see a ramp over the first 3 years.

Not necessarily totally even, but there is a ramp over the first 3 years, and then it plateaus for a large number of years. You will know that, for example, the Chinese automotive market has swung very heavily towards EVs. As part of their electrification strategy as a country. So this is something that we are watching very carefully, and I am sure my successor, Sarab, will be keeping a close watching eye on that.

Joshua Buchalter: Got it. Thank you both.

Karel Charles Janac: Welcome.

Operator: Your next question comes from Martin Yang from Oppenheimer. Please go ahead.

Martin Yang: Good afternoon. Thank you for taking my question. First, Nick, I hope you have a very satisfying retirement. it is been a pleasure working with you through different companies over the years. First question is on OpEx.

Nicholas Bryan Hawkins: So the change in the annual guidance relating to profitability, is the bulk of that change related to the payroll tax increase or is there any additional OpEx increase? Yeah, Martin. So, yeah, you are absolutely right. The majority of that decrease in NOL guidance, the $2 million decrease is, as you rightly say, that is the French employer payroll taxes on RSU vesting. We had a-- maybe we should have seen this coming, but we did not. We had a very large, spike in the stock price during the June quarter. And it is tax that is levied based on the prevailing price at the date of vesting. And so completely exogenous to us, outside of our control.

There are a couple of other things. We have had, at least you saw, a lot of success and we are guiding up on the revenue front. Some of that a good portion of that is coming from Cycuity. And a lot of that is coming from government work. And government work, as you know, carries a much lower gross margin than traditional, organic work or even the commercial business that, that Cycuity has. So those are the 2 big levers that have led us to that. There is also an element of this which is, again, a victim of our own success because our deal flow is so strong. And this also affected the second quarter.

Our sales commissions and FAE commissions are significantly higher than we thought when we had that lower guide on revenue. Thanks, Nick.

Martin Yang: Next question regarding royalty, and cadence of royalty. This quarter royalty has a very slight dip. So actually maybe give us the outlook on how the royalty revenue would trend into the second half or into 2027. Thanks.

Nicholas Bryan Hawkins: Yeah. Yeah. Great observation, Martin. So the I would I would characterize it more that the upward trajectory is slightly slower than in a sequential quarter. based than it was last quarter, And, indeed the quarter before. There are a couple of things to bear in mind for that. 1 is that royalties do go through slight ups and downs. We remember we saw a down in the, March quarter of, of 2024 when Mobileye I think it was 2024. Somebody correct me if I got that wrong. But it was the March quarter when Mobileye had a they had an overstuffed channel, and they had to reduce their inventory levels in the channel.

And so they shipped significantly less in the March quarter and then also in the second in the June quarter. So these things can happen. There was 1 of our customers, I obviously cannot mention who, but who had some logistical and supply chain issues and that held back 1 quarter's worth of shipments. And but that is come back on stream. So it is a pause. The growth rate, I mean, if you look at the last 12 months over the prior year last 12 months, at June 30, that is still up 67%. And that is still even with that little dip. That is still well above our long term CAGR that we have socialized with the street.

Thank you, Nick. You did ask about 2027 as well. I am sorry. I did not-- Right. A longer-term a longer-term trajectory. So is another great question. So our long term guide on royalties CAGR, growth rate annual, is high thirties to low forties percent. that is what we have said in the past. Now clearly, we are traveling at a faster rate than that today. We are as you as Amber just mentioned, we are 67% up On a on a trailing 12 months basis. Now I do not want you to get to assume that rate can carry on ad infinitum. So I am sticking at the moment.

Now Sarab, when he joins, may come to a different view. But right now, I think it is safe to stick with the high thirties to low forties percent. CAGR and we can revisit that if we see this level of robustness and royalties and success. Then, you know, we can revisit that in the coming quarters.

Martin Yang: Thank you. I appreciate the color.

Nicholas Bryan Hawkins: Of course.

Operator: Your next question comes from Suji Desilva from Roth Capital. Please go ahead.

Suji Desilva: Hi Charlie, hi Nick. Congrats on the results here. And Nick, best of luck with the transition. Certainly. On the deal activity, strong in the quarter. Maybe you can talk about the areas that you are seeing the strongest growth outside of your core auto and AI data center just to understand where some of these other areas might be inflecting earlier.

Karel Charles Janac: Yeah. I mean, it is it is been a pretty broadly distributed sort of growth and deal flow. The data center has sort of taken the lead, I would say. Because there is a lot of investment in data center. And we think that some of that is going to perhaps change a little bit but I think AI is going to be everywhere. And as the cost of AI comes down a bit, people are just going to need more and more chips. So we think that whatever happens with the data center investment is not going to have a major effect on us. But we are also seeing strong action in microcontrollers. Automotive.

We have some embedded FPGA business. The space business continues reasonably well. So we are pretty happy. And I think we have announced on the on the earnings is that for the first half, for the first time for 6 months, no 1 was more than 10% of our license revenue in the first half of 2026. So we are we are well distributed, I think.

Nicholas Bryan Hawkins: Can I just add a couple of things to that, Suji? And thanks for your kind words. We will no doubt stay in touch. But the 2 other areas that are interesting to note, in terms of strong deal flow. 1 was Cycuity. Cycuity had a very solid quarter, and there are some consequences to that. You probably saw it as a $2.2 million GAAP OpEx charge that went through in the quarter because we had a more robust view in terms of the lack of them hitting their full earn out target. Which is obviously good news.

And secondly, we are seeing some very interesting strength. in some of the memory players, And that is obviously ultimately data center related, but it has been some solid deal flow from them.

Suji Desilva: Very interesting. And then my other question is on the-- you talked about data center AI generally and an ASIC customer in particular. Maybe, Charlie, you can talk about where those customers were hitting a breaking point where they cut over to you guys and what they were using in the past. Was it an in house solution? Just to understand the cutover and maybe the reasons for it. Thanks.

Karel Charles Janac: So the hyperscalers are a specific type of customer. Their goal is not to make everything in house. So our observation is that they keep buying from Intel. They keep buying from AMD. They keep buying some from some of the new ARM chips. But they are also building they understand the workloads that they are dealing with through the data center better than anyone else. And sometimes they are reluctant to even share the information about how those workloads behave and what those specifications are. So they are doing a lot of that workload acceleration ASIC work in house.

And sometimes they outsource that to large companies unfortunately, the 1 that we got a very large deal in the quarter wants to be remain confidential, but So they are doing a combination of buying commercial chips, making stuff in house, and also going to, you know, design partners or usually large design partners And they, I think, are going to keep on doing that. So there is no goal on their side to go 1 way or the other. They just wanna maintain a balance between those 3 approaches.

Suji Desilva: Okay. Thanks, Charlie. Thanks, Nick.

Operator: Ladies and gentlemen, Your next question comes from Madison de Paola from Rosenblatt. Please go ahead.

Madison de Paola: Hey, guys. Calling on behalf of Kevin Cassidy. Thanks for taking my question. How do you expect physical AI products production cycle to compare to data center and automotive life cycles for driving royalty revenue?

Karel Charles Janac: So to us, the physical AI chips look very much like automotive. Because you need functional safety, and you need security Because when mechanized systems interacts with human beings, those scenarios have to be handled. Right? So the functional safety and now the cybersecurity assurance capability we have are going to play very well in the physical AI space. But the design cycles we think, will be significantly faster in robotics than they will in automotive.

But because you have functional safety and security involved, those design cycles will be slower than you see in data center where basically in a data center people come up with a workload and they that workload may be worth a billion or 2 in revenue. And they want a chip extremely fast. So you are going to have the fastest cycles be the data center workload accelerators The physical AI will be somewhere in the middle. And automotive will be, you know, among the longest design cycles.

Madison de Paola: Okay. Thank you.

Operator: And there are no further questions at this time. I will turn the call back over to Charlie for closing remarks.

Karel Charles Janac: Well, thank you for joining us, on our call today. We really appreciate your interest in Arteris. We are very excited about our business. And we look forward to meeting and updating you on our business progress in the course ahead. Thank you very much.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.