Arteris’s Earnings Call: Psycuity Royalty Dispute, Data Center Growth Claims, and Cycuity Financials at Odds

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $24.1 million, up 46% year-over-year
• EPS: $0.30 non-GAAP diluted net loss per share
• Gross Margin: 87% (GAAP); Non-GAAP gross margin not specified
• Operating Margin: Non-GAAP operating loss of $4.6 million

Guidance:

• Q3 2026 revenue expected to be $3 to $1 million.
• Q3 2026 ACV plus royalties expected to be $99 to $103 million.
• Full year 2026 revenue guidance raised to $95 to $98 million (prior was $91.5 to $94.5 million), representing a 37% YOY increase at midpoint.
• Full year 2026 non-GAAP operating loss expected to be $10 to $7 million.
• Full year 2026 non-GAAP free cash flow expected to be positive $5 to positive $9 million (unchanged).
• Expect to report non-GAAP operating profit as early as Q4 2026.

Business Commentary:

Record Revenue and ACV Growth:

• Arteris reported record revenue of $24.1 million for Q2 2026, representing a 44% year-over-year increase and exceeding the top end of their guidance range.
• The company's ACV plus royalties reached $99.5 million, also up 44% year-over-year.
• The growth was driven by large deals in enterprise computing and automotive, as well as increased demand for AI infrastructure.

Strong Deal Flow and Customer Diversification:

• Arteris achieved record order bookings and a 44% increase in revenue, with a healthy increase in design starts year-over-year.
• No single customer accounted for more than 10% of revenue in the first half of 2026.
• This diversification and strong deal flow were supported by demand across multiple verticals, including enterprise computing, automotive, aerospace, and consumer electronics.

Expansion in Data Center and AI Infrastructure:

• Enterprise computing represented an average of 29% of Arteris' ACV plus royalties over the past four quarters.
• The increasing demand for data center chips and AI infrastructure contributed significantly to the company's growth.
• This trend is driven by the need for high-performance, energy-efficient semiconductors to support complex AI workloads and data movement in data centers.

Growth in Automotive and Physical AI Applications:

• Automotive applications, including autonomous driving and advanced driver-assisted systems, are showing strong demand for Arteris' products.
• Li Auto's deployment of Arteris technology in autonomous driving chips exemplifies this trend, with initial royalty contributions beginning as vehicles are delivered.
• The demand is fueled by the need for performance, energy efficiency, safety, and security in foundational semiconductors for automotive and other physical AI systems.

Increased RPO and Revenue Outlook:

• Arteris' RPO at the end of Q2 2026 totaled $135 million, with expectations that just over half will be recognized as revenue in the next 12 months.
• The company raised its full-year revenue guidance to $95 to $98 million, reflecting continued strength in the semiconductor market and a strong start to Q3.
• The positive outlook is based on strong customer engagement and the expectation of continued market strength.

Sentiment Analysis:

Overall Tone: Positive

• Management stated they 'beat the top-end of our guidance range' and achieved 'record revenue' and 'record ACV plus royalties.' They see 'continued strength' and a 'strong start to the third quarter with momentum and increased strong revenue growth,' and believe the company is 'on a path to profitability.'

Q&A:

• Question from Kevin Gerrigan (Jefferies): Can you talk more about the expanded partnership with Arm with Psycuity? 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?
  Response: It is a greenfield opportunity, not a royalty-bearing product currently, involving ARM using the technology for hardware security assurance in CPU designs.

• Question from Kevin Gerrigan (Jefferies): Does the addition of Psycuity allow you to negotiate a higher royalty rate with customers?
  Response: No, it is currently a non-royalty bearing product, though there may be future opportunities for service-based models.

• Question from Josh Bacalter (TD Cowan): Can you elaborate on the U.S. design house win on an ASIC platform, is this a new customer and maybe speak to what type of applications and maybe timeline to materiality for this revenue contribution?
  Response: It is not a new customer but a small one previously; the deal involves fulfilling chips for hyperscalers in data centers, with revenue materializing through their business models.

• Question from Josh Bacalter (TD Cowan): Can you size the Li Auto opportunity and maybe how big China Auto is overall within your royalty portfolio, how big it can be over the next couple of years?
  Response: Li Auto is a midsize EV company with meaningful and growing volumes; typical automotive royalty streams ramp over the first three years and plateau, but the long-term impact is being monitored.

• Question from Martin Yang (Open): Is the change in the annual guidance relating to profitability, is the bulk of that change related to the payroll tax increase? Is there any additional OPEX increase?
  Response: The majority of the decrease in operating income guidance is due to unexpected French payroll taxes on RSU vesting, with additional impacts from lower-margin government work and higher sales commissions.

• Question from Martin Yang (Open): Can you give us the outlook on how the royalty revenue would trend into the second half or into 2017?
  Response: Royalty growth is slightly slower sequentially due to one-time factors, but the trailing 12-month growth is 67% YOY, well above the long-term high 30s to low 40s percent CAGR.

• Question from Suji De Silva (Roth Capital): Maybe you can talk about the areas that you're seeing the strongest growth outside of your core auto and AI data center, just to understand where. On the deal activity, very strong in the quarter. What areas might be inflicting earlier?
  Response: Growth is broadly distributed, with data center leading, but also strength in microcontrollers, automotive, embedded FPGAs, and memory players, with no single customer exceeding 10% of revenue.

• Question from Suji De Silva (Roth Capital): Can you talk about where those data center AI 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?
  Response: Hyperscalers use a combination of buying commercial chips, building in-house, and outsourcing to partners; they maintain a balance between these approaches based on workload needs.

• Question from Maddy DePaola (Rosenblatt): How do you expect physical AI products production cycle to compare to data center and automotive life cycles for driving royalty revenue.
  Response: Physical AI cycles are expected to be faster than automotive but slower than data center, as they involve functional safety and security similar to automotive but require quicker time-to-market for specific workloads.

Contradiction Point 1

Nature of the Arm Partnership with Psycuity

Contradiction on whether the deal involves royalties, impacting the company's revenue model and growth projections.

Kevin Garrigan (Jefferies) - Kevin Garrigan (Jefferies)

2026Q2: It is a greenfield opportunity... It is currently a non-royalty bearing, software EDA-type model. - Charlie Janac(CEO)

Can you clarify the structure of the expanded partnership with Arm and Cycuity, including whether it involves licensing and royalties, and if it displaced a competing solution or represents a greenfield opportunity? - Kevin Gerrigan (Jefferies)

2026Q2: Psycuity is currently a non-royalty bearing product. - Charlie Janet(CEO)

Contradiction Point 2

Growth and Positioning of the Data Center Vertical

Contradiction on whether Data Center is the largest license-generating vertical, affecting strategic priorities and growth expectations.

Suji De Silva (Roth Capital) - Suji De Silva (Roth Capital)

2026Q2: Growth has been broadly distributed, with data center leading due to high AI investment. - Charlie Janet(CEO)

"Outside of core auto and AI/data center, which areas are experiencing the strongest growth, and where could deal activity emerge?" - Joshua Buchalter (TD Cowen)

2026Q1: The data center (enterprise computing) segment is the largest vertical for license generation, slightly ahead of automotive. - K. Charles Janac(CEO)

Contradiction Point 3

Cycuity Acquisition's Financial Impact and Integration

Contradiction on the acquisition's revenue contribution and P&L impact, raising questions about financial reporting and integration progress.

Kevin Gerrigan (Jefferies) - Kevin Gerrigan (Jefferies)

2026Q2: Psycuity is currently a non-royalty bearing product. - Charlie Janet(CEO)

Okay, let's see. The user wants me to rewrite the input into a single concise earnings-call question. The input is: "Does the addition of Psycuity allow you to negotiate a higher royalty rate with customers?" First, I need to check if this is already a question. Yes, it starts with "Does" and ends with a question mark. But the user might want it more concise. Let me parse the key elements here. The main subject is "the addition of Psycuity," and the action is "negotiate a higher royalty rate with customers." The user's instruction says to make it into ONE concise earnings-call question. The original is already a question, but maybe it can be made more direct. "Addition of Psycuity" could be phrased as "Psycuity's addition" or "adding Psycuity." Also, "allow you to negotiate" might be simplified to "enable higher royalty rates" or something similar.But I need to make sure not to lose the meaning. The core is whether adding Psycuity leads to higher royalty rates. Let me try a few variations. "Can adding Psycuity lead to higher royalty rates with customers?" That's shorter. Or "Does Psycuity's addition enable higher royalty rates with customers?" Wait, the original uses "allow you to negotiate," which is a bit more specific. The rewritten question should capture that negotiation aspect. Maybe "Does Psycuity's addition allow for higher royalty rate negotiations with customers?" But the original question is about whether the addition allows them to negotiate higher rates. Another angle: "Will adding Psycuity enable higher royalty rates with customers?" That's concise. But does it capture the negotiation part? The original is about the ability to negotiate, not just enabling. So maybe "Does Psycuity's addition allow you to negotiate higher royalty rates with customers?" But the original already has that. Wait, the original is already a question. The user's instruction says if the input is already a question, but maybe it's not concise enough. The user wants it in one line, concise. The original is a bit wordy. Let me check the character count. The original is: "Does the addition of Psycuity allow you to negotiate a higher royalty rate with customers?" Possible rewrite: "Does Psycuity's addition allow higher royalty rate negotiations with customers?" That's shorter. But does "negotiations" capture the meaning? The original is about the ability to negotiate a higher rate, not the act of negotiating. Hmm. Maybe "Does Psycuity's addition enable higher royalty rates with customers?" That's concise and captures the essence. Alternatively, "Can adding Psycuity lead to higher royalty rates with customers?" But the original is about the ability to negotiate, so maybe "Does Psycuity's addition allow you to negotiate higher royalty rates with customers?" Wait, that's almost the same as the original. The user's rules say if the input is already a clear question, output it as-is. But the user might want it more concise. Let me check the rules again: "If the input is NOT a question, is too vague, or lacks enough information to form a clear earnings-call question, output the input EXACTLY as-is, with no modification." So if the input is a clear question, but can be made more concise, then we should rewrite it. The original is a valid question. So we need to make it more concise. Let me try: "Does Psycuity's addition allow higher royalty rates with customers?" That removes "you to negotiate a" and keeps the key elements. Is that acceptable? The original is about the ability to negotiate, which might be implied by "allow higher royalty rates." But maybe the negotiation aspect is important. For example, the company might be able to get higher rates because they can negotiate better terms with Psycuity. So the question is whether the addition gives them leverage in negotiations. Alternative phrasing: "Does Psycuity's addition enable higher royalty rate negotiations with customers?" But "negotiations" is plural here. Hmm. The original question is specific about negotiating a higher rate. The rewritten version should maintain that. Maybe "Can Psycuity's addition lead to higher royalty rates through customer negotiations?" But that's a bit longer. Alternatively, "Does adding Psycuity allow you to negotiate higher royalty rates with customers?" That's shorter than the original. The original says "the addition of Psycuity," which can be "adding Psycuity" or "Psycuity's addition." I think the most concise version that retains the meaning is: "Does adding Psycuity allow you to negotiate higher royalty rates with customers?" But wait, the original has "a higher royalty rate" (singular) and the rewritten version has "higher royalty rates" (plural). But in context, it's about the rate, so maybe it - Auguste Richard (Northland)

20260213-2025 Q4: For the full-year 2026 revenue midpoint guide of $91 million, approximately $7 million is from Cycuity... Cycuity is expected to contribute about $1 million to the loss for the full year 2026. - Nicholas Hawkins(CFO)

Contradiction Point 4

Timeline for Royalty Revenue from New Products

Contradiction on the speed of product cycles between Data Center and Automotive, affecting royalty forecasting and investment outlook.

Maddy DePaola (Rosenblatt), on behalf of Kevin Cassidy - Maddy DePaola (Rosenblatt), on behalf of Kevin Cassidy

2026Q2: Physical AI cycles are expected to be faster than automotive but slower than data center - Charlie Janet(CEO)

How will the physical AI product cycle compare to data center and automotive cycles in driving royalty revenue? - Kevin Cassidy (Rosenblatt)

2026Q1: Design cycles for hyperscaler and data center products are 2 to 3 years, faster than automotive's 6-year cycles. - Nick Hawkins(CFO)

Contradiction Point 5

Royalty Growth Trajectory and Key Drivers

The characterization of royalty strength and its primary drivers appears inconsistent, impacting the understanding of growth sustainability.

Martin Yang (Open) - Martin Yang (Open)

2026Q2: The sequential growth rate of royalties slightly slowed... The dip was due to temporary factors... The 12-month royalty growth rate is still up 67% year-over-year, well above Arteris' long-term high-30s to low-40s percent CAGR. - Nicholas Hawkins(CFO)

What is the outlook for royalty revenue trends in the second half and into 2027? - Kevin Garrigan (Jefferies)

20260213-2025 Q4: The royalty strength is due to both a single significant royalty pickup (less than $0.5 million) and broad-based customer growth. - Nicholas Hawkins(CFO)