Arteris, Inc. Q1 FY2025 Earnings Call

Good afternoon everyone and welcome to the Arteris' First Quarter 2025 Earnings Call. Please note, this call is being recorded and simultaneously webcast. All material contained in the webcast is sole property and copyright of Arteris Incorporated with all rights reserved. For opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead.

Thank you and good afternoon. With me today from Arteris are Charlie Janac, Chief Executive Officer; and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the first quarter ended March 31, 2025. Nick will review the financial results for the first quarter followed by the company’s outlook for the second quarter and the full year of 2025. We will then open the call for questions. Before we begin, I'd 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 involve material risks and uncertainties that could cause actual results or events to materially differ 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 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 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’s 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 March 31, 2025. In addition, for a definition of certain of the key performance indicators used in this presentation such as annual contract value, contract design starts, and remaining performance obligations, please see the press release for the quarter ended March 31, 2025. Listeners who do not have a copy of the press release for the quarter ended March 31st, 2025, may obtain a copy by visiting the Investor Relations' section of the company’s website. In addition, management will be referring to the Q1 2025 earnings presentation, which 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.

Thank you, Erica, and thanks to everyone for joining us on our call today. In the first quarter of 2025, we achieved another record annual contract value plus royalties of $66.8 million and generated $2.7 million in non-GAAP positive free cash flow as demand for commercial semiconductor system IP products continues to grow. Our success during the quarter saw steady adoption across enterprise computing, communications, and automotive semiconductors, driven by growing chiplet and SoC design complexity, as well as the proliferation of AI applications. During the quarter, we had several key design wins. Four came from top 30 global technology companies expanding their deployment of Arteris products. The largest win included Magillem SoC integration automation software as well as interconnect IP for various applications, including memory controllers and consumer electronic projects. Another of the large wins came from an expanded reorder from a top five technology company with products and services, including hyperscale computing and consumer electronics. Also, a major automotive OEM expanded its use of Arteris product portfolio for its next generation of EV vehicles. Another key win and one of the three new Arteris customers in the quarter was with an industry-leading Japanese automotive OEM. This customer licensed our products to support their new in-house development of autonomous driving SoCs that include AI and functional safety capabilities. They selected Arteris based on the combination of our products' superior performance, lower power area efficiency, and high resilience for their mission-critical applications. With this latest addition, we now have 10 automotive OEMs as direct Arteris customers. Adoption of our technology also continues to be strong with advanced semiconductor companies. For example, our physically aware FlexNoC IP with AI and functional safety support was chosen for the development of Nextchip's next-generation vision-based ADAS technology to realize the future of autonomous driving with sustainability. We are seeing increased movement from internal system IP solutions to commercial vendors such as Arteris as customers desire resource efficiency, quality, and faster solution delivery. I'm pleased to report that our penetration of the increasingly complex microcontroller, MCU system IP market continues with initial receipt of royalties from a top five MCU manufacturer. This penetration is driven by continued increases in MCU complexity as well as ever more stringent latency and cost requirements. In addition to our customer momentum, we continue to deliver new technology. In the last earnings call, we announced FlexGen, our AI-driven smart NoC IP technology, which has the potential to revolutionize semiconductor designs by delivering up to 10x engineering productivity, lowering power consumption, and improving overall performance. We now have over 20 customer SoC projects evaluating FlexGen, which is a promising start for this innovative product, which we expect will generate revenue and ACV in the second half of the year. In the first quarter, Arteris also released the latest generation of Magillem register management automation software used for semiconductor hardware and software integration. This latest technology provides a single source of data for the development of SoCs and chiplets by chip architects, hardware designers, firmware engineers, verification teams, and documentation teams, helping to mitigate the silicon failure risks associated with the unfortunate and quite common instances of out-of-date specifications, interpretation differences across various teams, and user errors. The latest product improves performance and scalability to address the needs of any semiconductor design, ranging from simple IoT devices to state-of-the-art complex artificial intelligence SoCs, FPGAs, and chiplets. I'm also proud to see that our focus on innovation being recognized in three prominent categories in the 23rd Annual American Business Awards out of 3,600 nominations. These included the Gold Award for the Most Innovative Tech Company of the Year, another Gold Award for Technical Innovation of the Year for our nCORE NoC IP with its support for ARM & 5x86 and mix architectures, and the Silver Award in the Product Innovation category for our FlexNoC and nCORE NoC dialing technology in support of advanced AI computing as a data center and the edge. Beyond actively driving in-house innovation, Arteris continues to expand ecosystem collaboration to provide full solutions to our customers, including leveraging our products' physical awareness to support the faster development of advanced electronics with more predictable power performance and area for SoCs and chiplets. We recently announced that Arteris joined the Intel Foundry Accelerator Program, becoming members of the IP Alliance, enabling silicon designs using Intel's 18A advanced process node to collaborate on physically aware NoCs for future nodes. Additionally, Arteris also became a founding member of Intel Foundry's new Chiplet Alliance, which aims to create a robust network of ecosystem partners to ensure interoperability and to accelerate the creation of a wide range of multi-die silicon applications. Similarly, Arteris also joined the IMEC-sponsored Automotive Chiplet Forum, whose goal is to share insights and ensure industry alignment and interoperability for automotive chiplet-based architectures, where our NoC products with ISO 26262 functional safety capabilities will play an increasingly important role moving forward. Lastly, we announced the opening of our new engineering and customer support center in Kraków, Poland. This new location will support the development of network-on-chip IP and SoC integration automation software for the semiconductor industry. Arteris has hundreds of customers worldwide who are supported by a workforce across 11 countries. The addition of a hub in Poland will expand the company's global footprint and provide Arteris with expanded access to top engineering talent for product development, validation, and customer support. We believe the scale and scope of our long-term opportunity remain robust and are supported by our current products and strong product pipeline of new silicon system IP technologies as well as growing relationships with some of the largest and most advanced electronics companies in the world. Our customers continue to innovate in exciting high-growth areas such as generative AI, autonomous driving, 5G and 6G communications using Arteris products and global support. We are diligently monitoring the current global economic uncertainty, although this did not lead to any deal cancellations or delays in the first quarter. Nevertheless, we do see greater potential for variability in financial outcomes for the year due to this economic uncertainty. The clearest impacts are potential short-term headwinds to royalties as a result of waning customer global confidence and automotive and other tariffs. Additionally, our overseas-based OpEx is likely to increase should the recent weakness of the U.S. dollar persist or worsen. As a potential offsetting factor, we are seeing opportunities for our customer base to accelerate outsourcing of their silicon system IP needs to Arteris to accelerate their products time to market, reduce their own costs, and increase their operating efficiencies. Nick will cover these impacts more when he discusses our guidance. With that, I'll turn it over to Nick to discuss our financial results in more detail.

Thank you, Charlie, and good afternoon everyone. As I review our first quarter results today, please note I will be referring to GAAP as well as non-GAAP metrics. 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 1Q 2025 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 first quarter, characterized by beating our guidance on all key financial measures. Turning to Slide 5 of the presentation. Total revenue for the first quarter was $16.5 million, up 28% year-over-year, benefiting from approximately $0.5 million one-time revenue and exceeding the top end of our guidance range. At the end of the first quarter, annual contract value or ACV plus royalties was $66.8 million, up 15% year-over-year, above the midpoint of our guidance range and a record high for the company. Remaining performance obligations, or RPO, at the end of the first quarter were $88.9 million, representing a 19% year-over-year increase, once again, a new high for Arteris. Non-GAAP gross profit for the quarter was $15.3 million, representing a gross margin of 92%. GAAP gross profit for the quarter was $15.0 million, representing a gross margin of 91%. Now, turning to Slide 6. Non-GAAP operating expense in the quarter was $18.4 million, up 9% sequentially and 8% higher year-over-year, impacted by the timing of certain nonlinear expenses and in part driven by the weaker U.S. dollar increasing the cost of our overseas operations. Additionally, we continue to grow the investment in our R&D and field application engineering teams that drive technology innovations and solution support. Total GAAP operating expense for the first quarter was $22.7 million, representing a 10% year-over-year increase. As we look ahead, we plan to focus spending on strategically critical areas, in particular, in key people who can help drive product development, enhance customer support through field application engineering, and expand the geographic and key account reach of our global sales team. We believe that these ongoing investments can accelerate our top line growth. At the same time, we are driving operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for approximately three years. Non-GAAP operating loss for the first quarter was $3.2 million, close to the top end of our guidance range. This represents a $2.1 million or 40% improvement compared to the loss of $5.3 million in the prior year period. GAAP operating loss for the first quarter was $7.7 million compared to a loss of $9.1 million in the prior year period. Non-GAAP net loss in the quarter was $3.6 million or diluted net loss per share of $0.09 based on approximately 40.9 million weighted average diluted shares outstanding. GAAP net loss in the quarter was $8.1 million or diluted net loss per share of $0.20. Moving to Slide 7 and turning to the balance sheet and cash flow. We ended the quarter with $55.1 million in cash, cash equivalents, and investments, and we have no financial debt. Free cash flow, which includes capital expenditure, was positive $2.7 million for the quarter, above the top end of our guidance, benefiting from some early customer payments that were due early in the second quarter. I would now like to turn to our outlook for the second quarter and full year 2025 and refer now to Slide 8. Looking forward, the current economic turbulence has created some market uncertainty for our business and consequently, we have revisited our 2025 guidance. As a general contextual comment, our view is that the current economic turbulence presents three key financial considerations for 2025. First, the current trade challenges may result in short-term reduction for end demand for some of our customers' products and in our key market verticals, especially automotive and consumer. It is, however, not yet clear what, if any, impact there will be to our royalty revenue in 2025. The first quarter unit sales out reports from our customers have generally been better than expected. However, it is possible that this is in part resulting from pull-forward demand for our customers' products in anticipation of increased tariff costs. Consequently, we have not adjusted our overall FY 2025 revenue guidance at the midpoint since we believe that the overall net impact will not be materially different from our prior expectations. Second, since the start of the year, the U.S. dollar has weakened against most major currency payers. While the significant majority of our revenue is invoiced in U.S. dollars, approximately 40% of our expenses are denominated in foreign currencies, predominantly the euro, which has appreciated by up to 10% against the U.S. dollar this year. In the event that the U.S. dollar exchange rates remain at current levels, we estimate that the annual impact on Arteris expenses would be approximately $1 million. However, due to unrelated offsetting expense factors, we are not adjusting our midpoint guidance for non-GAAP operating income and free cash flow for FY 2025. Third, while Arteris products are not subject to tariffs, there is a potential existential impact of the ongoing trade disputes and collateral economic impacts to our business environment, including factors such as consumer and industrial confidence. As a result, we have widened our top-line guidance ranges. This economic turbulence is exogenous to Arteris' business operations, and it is hard to forecast with certainty the longevity or collateral consequences of changing economic policies. That being said, while the industrial markets remain clouded with tariff and geopolitical uncertainty, we see our customers' long-term growth and therefore, our license and royalty revenue remaining robust. For the second quarter of 2025, we expect ACV plus royalties of $66 million to $70 million, revenue of $16.1 million to $16.5 million, with non-GAAP operating loss of $4 million to $3 million and non-GAAP free cash flow of negative $5 million to zero, which reflects the reverse effect of early customer payments that benefited the first quarter, as I mentioned earlier. Therefore, we expect free cash flow for the first half overall to be positive at the midpoint. For the full year 2025, our guidance is as follows; ACV plus royalties to exit 2025 at $71 million to $79 million; revenue of $65 million to $71 million, non-GAAP operating loss of between $14 million to $7 million; non-GAAP free cash flow of 0 to positive $8 million. In spite of the near-term challenges I outlined, we are very encouraged by the continued strong deal pipeline. And I would reiterate the point raised earlier by Charlie that we are seeing promising signs of an accelerated interest by some major customers to increase their outsourcing to the commercial market for the system IP products that Arteris specializes in. With that, I will turn the call over to the operator and open it up for questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Josh Buchalter from TD Cowen. You may now ask your question.

Hey guys, thank you for taking my questions and congrats on the steady results in an interesting backdrop. I guess I want to hit on the tariff and the trade environment right now. You're being upfront with sort of your cautious view. I guess I wanted to ask more directly, are you seeing any changes from your customers' behaviors yet? And in particular, on their willingness and desire to invest in their IP and SoC roadmaps going forward? Or is no change yet and you're just being more cautious on the back half?

Semiconductors, particularly in IP and EDA, are not directly affected by tariffs. However, we are observing some project re-planning in China due to tariffs and increasing U.S. regulations. On the positive side, larger companies are looking for greater efficiencies and seem more willing to outsource system IP to commercial vendors like Arteris. Companies like Arteris typically perform well during uncertain market conditions, as our clients often innovate to navigate recessions. While there might be a minor impact on royalties, which account for a small part of our revenue, licensing activity continues to be strong.

Thank you for the color there.

And just to add to that, Josh, thanks for the question. This is Nick speaking. So, yes, just to reiterate in case anybody missed it, while we're pointing out that there is some economic uncertainty around because things are changing day-to-day, the business is still robust. We're not seeing a change in the pipeline one way or the other. So, we think we're well set for the year, which is why we haven't changed our full year midpoint guidance on any of the metrics. There is, as you rightly point out, a great deal of uncertainty still. And so we don't know what the knock-on impact and what the collateral impact might be, which is why in common with many other companies, we just widened our guidance range because we have less certainty right now.

Okay. Makes sense. Thank you for the color, both of you. And for my follow-up, I wanted to ask about FlexGen. It sounds like you're increasingly confident in the success of that platform. Could you maybe elaborate on what's driving the expectations for revenue and ACV in the second half of the year and where sort of you're seeing initial traction from an application standpoint for FlexGen? Thank you.

We have been working on FlexGen for three years and started delivering it to customers in the second half of last year. Currently, around 20 projects are evaluating FlexGen, and the feedback has been overwhelmingly positive. We achieved full production status in February with the release of FlexGen 1.2, which is our third version. We expect it to generate significant bookings and revenue that will be recognized in the second half of the year. We're very pleased with the response to FlexGen, which is being applied across a wide range of sectors including automotive, data center, enterprise, and consumer.

To add more insight, Josh, as you may recall from earlier comments, any increase from FlexGen is expected to be reflected first in RPO and ACV due to its contract structure, which impacts revenue on a contract-by-contract basis immediately. The revenue is tied to a contract term of approximately two and a half to three and a half years, so the effect on revenue from deals signed in the second half or even in the second quarter will be less pronounced. The full impact will be seen in 2026. It may also enhance free cash flow if customers make upfront payments.

Thanks both, appreciate it.

Your next question comes from Kevin Garrigan from Rosenblatt Securities. Please ask your question.

Yes, hey Charlie, Nick, congrats on the solid results. You guys spoke about accelerated interest from companies that have insourced. Are you also seeing accelerating decision timelines by customers that are kind of going from having an initial conversation to signing the licensing agreement than you've previously seen?

Not really. People are generally trying to speed up their design cycles, but the licensing activity is fairly steady, with consistent growth. Several large companies are indicating that while they will maintain their current system IP, they are not planning to invest in it for the next generation due to increasing complexity and challenges. Consequently, the next generation tends to be outsourced. We are quite pleased with this aspect of our business. Ultimately, as complexity and new applications grow, we believe that most system IP will be outsourced. We anticipate a shift from about two-thirds of the market being internal to one-third being internal and two-thirds being commercial. I think this economic uncertainty is actually driving that trend, although we haven't seen much impact on the speed of decision-making for individual projects.

And Kevin, thanks for the question. This is Nick. Just to add to Charlie's excellent commentary. There are two key things that are driving that. One is a pure economic one, which is driven out by the complexity, the increasing complexity of SoC designs. And it's becoming tougher and tougher to support internal teams, which are very expensive. And typically, we look at a sort of a 10x payback from taking an Arteris license versus doing the design internally. So, pure economics in times like we have at the moment, that is something that our customers we're noticing are supremely focused on is improving their OpEx and improving the bottom line. And the second is actually just a scarcity issue, and we've touched on this before. There is a scarcity of qualified hardware engineers who are capable of designing networks on chip. And that is something that actually FlexGen plays into very well because it decreases the amount of sophistication required by a customer's design team to be able to design a NoC. So, those two factors are quite interesting and almost inexorable drivers of the move to the commercial market.

Okay, great. I appreciate the color on that. And then as a follow-up on your joining the Intel Foundry Alliance program. I know it's only been two weeks or so since the announcement, but have you guys seen any increase in interest? And do you think this joint by joining the alliance, it could help you land a customer or two that you might have otherwise thought you wouldn't be able to capture?

Yes, I mean, a lot of this is related to Lip-Bu Tan taking over as CEO of Intel, right? And what we're expecting is that Lip-Bu is going to be much more open towards commercial solutions, both EDA and on the IP side. And also that there is a commitment by Intel toward continued investment in the foundry technology and in customer relationships for the foundry. So, we want to make sure that we participate in the 18A sort of process deployment and that we're basically the main system IP partner for that alliance. So, yes, we expect that this will result in some additional business over the next 12 months.

Yes, that makes sense. Okay, great. Thanks guys and congrats again on the results.

Your next question is from the line of Gus Richard from Northland. Please ask your question.

Yes, thanks for taking the questions. First of all, was book-to-bill approximately 1 in the quarter? That was kind of what I was coming up with.

Yes. So, Gus, thanks. But we don't disclose bookings and so I don't really want to comment on that.

Okay. I have to ask. Charlie, you joined two chiplet alliances, IMEC and Intel. I'm curious about a couple of things regarding chiplets. How do you see that evolving? Has the industry embraced the UCIe standard, or is there another interconnect standard that’s competing with it? And how long do you think it will take for things to stabilize so that people can mix and match chiplets?

Yes. Chiplets are currently in production, specifically homogeneous chiplet SoCs, where they are from a single company and process. For instance, multi-die chips like Intel's Meteor Lake are being shipped in substantial volumes. What is just beginning to take shape is a heterogeneous chiplet environment where chiplets are sourced from different suppliers and processes, necessitating innovative packaging methods. This development will require several years, even though investments are already being made. We are particularly interested in this area of the system IP world because our role is to facilitate communication between chips on a single die, and now we must extend that communication across multiple dies or chiplets in a more efficient way, which complicates the system IP and increases its value. To make this feasible, the industry and ecosystem need to establish some standards. You mentioned UCIe, which appears to be the communication mechanism for cash coherent communication across multiple dies. Our goal is to enable multiple dies with various processors to appear as a single programming space to software, which is quite intricate. Therefore, standards like UCIe, IP-XACT, and SystemVerilog will be essential. We anticipate that in the coming years, the industry will consolidate around a few standards to minimize the costs associated with individual projects. The key to making this economically viable is ensuring these processes are repeatable based on standards, and we are dedicated to supporting any emerging standards. The ecosystem must unite around these standards for heterogeneous multi-die chiplet SoCs to become a practical reality.

Got it. And effectively, when this happens, you need a NoC for the chiplets.

Exactly.

And then you talked about the market being two-thirds internal today, one-third outsourced. Roughly, what's your estimate on how big the market is today for system IP?

It's estimated to be between $1 billion and $1.2 billion. The Network on Chip (NoC) portion is around $600 million to $700 million. There is also approximately $300 million allocated for the SIA integration software, which packages, connects, and configures various IP blocks. Additionally, there is about $250 million to $300 million in system IP blocks that enhance the chip's functionality and communication efficiency, including components like last level caches and memory controllers. Overall, the total is roughly $1.2 billion to $1 billion.

Understood. That's very insightful. My final question pertains to your larger customers who are looking into outsourcing. Given that the next generation will involve higher costs, increased complexity, and limited resources, I want to know if there is a specific technological shift that is driving this trend now rather than two years earlier or later. What is motivating companies to make this decision at this time?

When Arteris began over 20 years ago, the technology involved a single processor with two memory channels and a few input/output connections, making it relatively straightforward to manage in-house. However, the introduction of multi-core processors required implementing cache coherency. The next significant shift was driven by AI, which brought about substantial demands for data communication, both internally and externally, necessitating very high bandwidth. Now, with the emergence of chiplets, the complexity and expense of these systems have increased even more. There isn't a single moment when CFOs and engineering VPs wake up to decide to make a change, but rather these technological advancements make the situation increasingly complicated. At the Intel Foundry Day, a slide by Kevin O'Buckley illustrated a chiplet system that was twelve times larger than traditional reticles, about 600 square millimeters. Dealing with such large systems becomes very costly, which in turn drives the need for commercial IP solutions that can be distributed across numerous projects rather than being limited to the capabilities of just one company.

Right. And then last question for me, and I'll step back. You're in a certain position, it would take you so much R&D to get to what's needed for 12x the reticle size. Sort of what would it take a large company that does huge SoCs to develop something for the chiplet economy?

These large companies have significant budgets, allowing them to invest in their chiplet infrastructure. However, as Nick mentioned, the challenge lies in assembling and retaining talent over several years to justify that investment across relatively few projects. Most of these companies are currently engaged in only two to three chiplet projects, rather than the ten to fifteen they pursue for single die projects. As a result, the CFOs of these firms question the feasibility of such investments. On the other hand, companies like Arteris can learn more quickly than any internal team and spread that investment over a larger number of projects. The rapid learning and ability to amortize R&D costs across many projects gives us a competitive edge against internal teams. We are seeing a gradual move towards outsourcing to commercial solutions. While this won't change overnight, the trend is clear.

Got it. Thanks a lot. Thanks for the patience.

Your next question is from the line of Blayne Curtis from Jefferies. Please go ahead.

Hey guys, thanks for letting me ask question here. Charlie, I just want to curious what you would point to in terms of your annual forecast, you're looking for continued growth on the licensing side. I was wondering if you could talk to it by an end market perspective, where you're most hopeful of for the remainder of the year?

The highest growth area right now is in AI, with projects focused on data center training, data center inference, and edge inference. AI is also being integrated into endpoints like phones and cars, leading to a significant number of projects. Around half of the design starts this quarter are related to AI. We remain optimistic about the automotive sector, which has some cycles, but designers are already preparing automotive chips meant for six or seven years down the line. Our entry into microcontrollers is particularly exciting as they become more complex and require efficient network-on-chip and software integration. Consumer and enterprise applications are stable as well. In terms of market size, there are about 600 to 700 system-on-chips (SoCs) designed each year, and we currently capture only 15% of that market, indicating substantial growth potential. Each project demands increasingly more system IP, which adds value. We are enthusiastic about the opportunities ahead, and our primary challenge is to maintain our position as the independent neutral player in this sector.

Got you. Thanks. And then just for Nick, I wanted to ask you on the OpEx. You were, I think, last quarter talking about keeping SG&A flat. Obviously, it's at a higher level in the first half. Just kind of curious if flat is still the right way to think about it?

When we discussed our full year guidance previously, I indicated that I expect 2025 to show about a 10% increase, which is approximately half the rate of our top line growth. This year, we anticipate revenue growth of 18%, and we plan to keep our operating expenses at around half that rate, or roughly 9% to 10% overall. I believe this remains a reasonable outlook, especially since we have achieved operating leverage, particularly in general and administrative expenses, which have stayed flat for the last three years, including 2025, 2024, and 2023. Our investments will focus on research and development, sales, and field application engineering, as these areas are essential for driving short, medium, and long-term growth. We see significant opportunities ahead.

Thanks Nick.

Blayne, I'd like to add to Charlie's point. I attempted to speak earlier but was on mute. To bring some numbers into Charlie's comments, AI-related deals now make up more than 55% of our total business, showing significant growth. This encompasses a broad market rather than a specific sector. The two sectors with the highest growth rates for us are, unsurprisingly, automotive, when I assess ACV and royalties, and enterprise. The enterprise segment is crucial to the AI narrative as it supports AI workloads. This is also encouraging because enterprise is now our fastest-growing royalty segment.

There are no further questions at this time. I'd like to turn the call over to Mr. Charlie Janac for closing comments. Sir, please go ahead.

Yes. Well, thank you for your interest in Arteris. I hope that you're pleased with the results that we've delivered in Q1. And we look forward to meeting with you at the upcoming investor conferences that we're participating in during the next couple of months, and we look forward to updating you all on our business progress in the quarters to come. So, thank you very much.

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.