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What changed in Arteris, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Arteris, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+469 added−478 removedSource: 10-K (2024-02-20) vs 10-K (2023-03-01)

Top changes in Arteris, Inc.'s 2023 10-K

469 paragraphs added · 478 removed · 397 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

102 edited+18 added−22 removed150 unchanged
Biggest changeWe work directly with our customers throughout their design processes and seek to develop long-term, sustainable relationships with them as our technology becomes embedded in their products. As a result, we believe we are well positioned to continue to attract and retain customers, and to continue developing next-generation System IP solutions for their future products.
Biggest changeCustomers We license our products to a global and diverse customer base, including semiconductor manufacturers, OEMs, hyperscale system houses, semiconductor design houses and other producers of electronic systems. We work directly with our customers throughout their design processes and seek to develop long-term, sustainable relationships with them as our technology becomes embedded in their products.
We believe IP and software can save our customers time and money and enable them to focus on product differentiation and revenue generation. 11 Table of Contents ■ We believe we have grown our product portfolio through robust and focused research and development.
We believe our IP and software can save our customers time and money and enable them to focus on product differentiation and revenue generation. 11 Table of Contents ■ We believe we have grown our product portfolio through robust and focused research and development.
As a result of these close relationships and detailed information sharing, our application engineers gather early knowledge of future expected customer needs including potential new sales opportunities within the customer and requirements for new capabilities for our products. As a result, we believe our close relationships and technical credibility with our customers provide a competitive advantage.
As a result of these close relationships and detailed information sharing, our application engineers gather early knowledge of future expected customer needs including potential new sales opportunities within the customer and requirements for new capabilities for our products. Therefore, we believe our close relationships and technical credibility with our customers provide a competitive advantage.
With needs to address cache coherent, non-coherent, machine learning and chiplet traffic, customers need a System IP solution that works together across all these data traffic types. IP deployment technologies allow customers to manage the deployment of the rest of the IP blocks in the SoC in order to ease SoC IP integration.
With needs to address cache coherent, non-coherent, machine learning and chiplet traffic, customers need a System IP solution that works together across all these data traffic types. SoC integration automation technologies allow customers to manage the deployment of the rest of the IP blocks in the SoC in order to ease SoC IP integration.
The wireless communications market is in the midst of disruption as it allows efficient machine-to-machine communications at a massive scope and scale. 5G technology allows the cost-efficient connections of massive numbers of embedded sensors and other devices into ultra-reliable, high-bandwidth, and low-latency networks.
Communications Applications The wireless communications market is in the midst of disruption as it allows efficient machine-to-machine communications at a massive scope and scale. 5G technology allows the cost-efficient connections of massive numbers of embedded sensors and other devices into ultra-reliable, high-bandwidth, and low-latency networks.
Such NoC interface IP products may include a variety of types of inter-chip links for seamless connectivity of chiplets, which make up larger system-in-package type SoCs and memory schedulers.
Such NoC interface IP products may include a variety of types of inter-chip links for seamless connectivity, which make up larger system-in-package type SoCs and memory schedulers.
Our solutions address packaging, connectivity, register configuration, embedded software, and design software flows and we believe we provide best-in-class front-end design environments based on worldwide IEEE 1685 IP-XACT extensible markup language (XML) standard and SystemRDL language through our ready-made design solutions. 16 Table of Contents We believe the combination of IP deployment software and SoC interconnect hardware provides our customers with more comprehensive SoC integration capabilities.
Our solutions address packaging, connectivity, register configuration, embedded software, and design software flows and we believe we provide best-in-class front-end design environments based on worldwide IEEE 1685 IP-XACT extensible markup language (XML) standard and SystemRDL language through our ready-made design solutions. 16 Table of Contents We believe the combination of SIA solutions and SoC interconnect hardware provides our customers with more comprehensive SoC integration capabilities.
In addition, these IP deployment tools allow us to gain a deep understanding of the entire “bill of materials” of the IP blocks integrated into an SoC, as the interconnect IP is the on-chip means to connect these blocks. We believe our planned continued integration of these technologies can provide substantially increased efficiency in the effective development of SoCs.
In addition, these SIA tools allow us to gain a deep understanding of the entire “bill of materials” of the IP blocks integrated into an SoC, as the interconnect IP is the on-chip means to connect these blocks. We believe our planned continued integration of these technologies can provide substantially increased efficiency in the effective development of SoCs.
Many of the largest semiconductor companies have their own interconnect IP development teams which make customer penetration relatively difficult, time-consuming, and expensive. However, we believe that over time the expense and difficulty of developing a broad suite of interconnect IP and IP deployment solutions has the potential to expand the use of commercial SoC integration solutions.
Many of the largest semiconductor companies have their own interconnect IP development teams which make customer penetration relatively difficult, time-consuming, and expensive. However, we believe that over time the expense and difficulty of developing a broad suite of interconnect IP and SoC integration automation has the potential to expand the use of commercial SoC integration solutions.
Our IP deployment capabilities were significantly enhanced by our acquisitions of Magillem in 2020 and Semifore in 2022, complementing our interconnect IP solutions by helping automate the customer configuration of its NoC IPs, the process of integrating and assembling all the customer’s IP blocks into SoC hardware, and ensuring correct hardware-software integration for software development.
Our SoC integration automation capabilities were significantly enhanced by our acquisitions of Magillem in 2020 and Semifore in 2022, complementing our interconnect IP solutions by helping automate the customer configuration of its NoC IPs, the process of integrating and assembling all the customer’s IP blocks into SoC hardware, and ensuring correct hardware-software integration for software development.
Our IP deployment solutions also help accelerate SoC development by enabling the IP blocks making up an SoC to be packaged in a standard format called IP-XACT (Institute of Electrical and Electronics Engineers—IEEE 1685), which provides a uniform IP block assembly and reuse methodology.
Our SIA solutions also help accelerate SoC development by enabling the IP blocks making up an SoC to be packaged in a standard format called IP-XACT (Institute of Electrical and Electronics Engineers—IEEE 1685), which provides a uniform IP block assembly and reuse methodology.
Our research and development strategy includes offering customers several product enhancement releases per year, complemented with a planned introduction of at least one new interconnect IP or IP deployment product every year. We believe we have assembled one of the premier engineering teams for interconnect IP development and IP deployment in the world.
Our research and development strategy includes offering customers several product enhancement releases per year, complemented with a planned introduction of at least one new interconnect IP or SIA product every year. We believe we have assembled one of the premier engineering teams for interconnect IP development and SIA in the world.
NoC interface IP represents a natural expansion of our technical and business capabilities. Our Solutions We provide semiconductor interconnect IP and IP deployment solutions to serve our target end-markets, including automotive, enterprise computing, consumer electronics, communications across wired and wireless, and industrial segments.
NoC interface IP represents a natural expansion of our technical and business capabilities. Our Solutions We provide semiconductor interconnect IP and SIA solutions to serve our target end-markets, including automotive, enterprise computing, consumer electronics, communications across wired and wireless, and industrial segments.
The IP deployment tool suite includes numerous packages that allow the configuration of IP block exit port registers, establish high-level SoC connectivity and link documentation to the IP-XACT design information. ■ Our products help improve the performance of our customers’ SoCs.
Our SIA tool suite includes numerous packages that allow the configuration of IP block exit port registers, establish high-level SoC connectivity and link documentation to the IP-XACT design information. ■ Our products help improve the performance of our customers’ SoCs.
We aim to deliver at least one new interconnect IP or IP deployment product every year, addressing new SoC technology needs. We intend to expand the functionality of interconnect by adding NoC interface IP products that leverage SoC data moving through our interconnect IP products.
We aim to deliver at least one new interconnect IP or SIA product every year, addressing new SoC technology needs. We intend to expand the functionality of interconnect by adding NoC interface IP products that leverage SoC data moving through our interconnect IP products.
We see an opportunity to further expand our product portfolio and TAM with additional control networks and subsystems that can accelerate our customers’ ability to deliver production SoCs to their end markets. Such networks may include clocking, register management and interrupt networks.
We see an opportunity to further expand our product portfolio and market with additional control networks and subsystems that can accelerate our customers’ ability to deliver production SoCs to their end markets. Such networks may include clocking, register management and interrupt networks.
We believe such roadmap products can expand our TAM and offer an opportunity for us to further expand the value of our System IP products. In addition, we plan to continue to work with customers to deliver product enhancement releases for existing products.
We believe such roadmap products can expand our market and offer an opportunity for us to further expand the value of our System IP products. In addition, we plan to continue to work with customers to deliver product enhancement releases for existing products.
We were founded in 2003 when we believe we helped pioneer the industry’s NoC interconnect IP and have maintained our competitive position with our global team of 145 hardware and software engineers as of December 31, 2022.
We were founded in 2003 when we believe we helped pioneer the industry’s NoC interconnect IP and have maintained our competitive position with our global team of 145 hardware and software engineers as of December 31, 2023.
We work directly with our customers throughout their design processes to develop long-term sustainable relationships as our technology becomes embedded in their products. We have 33 corporate and field application engineers in our global support organization.
We work directly with our customers throughout their design processes to develop long-term sustainable relationships as our technology becomes embedded in their products. We have 38 corporate and field application engineers in our global support organization.
For example, we are a leader in the market of interconnect for advanced driver assistance systems (ADAS) SoCs, which we believe is a result of our quality, reliability, and innovative technology targeted at that business application, and longstanding collaboration with automotive semiconductor companies, Tier 1 suppliers, and car manufacturing original equipment manufacturers (OEMs).
For example, we are a leader in the market of interconnect for advanced driver assistance systems (ADAS) SoCs, which we believe is a result of our quality, reliability, and innovative technology targeted at that business application, and longstanding collaboration with automotive semiconductor companies, Tier 1 suppliers, and car manufacturing OEMs.
We regularly release new products to address the rapid evolution of SoC technology, across our two core product platforms: a. Network -on-Chip IP Products i. Non-coherent NoC IP, with FlexNoC and FlexWay ii. Cache-coherent NoC IP, with Ncore iii. Last-level cache, with CodaCache b. IP Deployment Products i.
We regularly release new products to address the rapid evolution of SoC technology, across our two core product platforms: a. Network -on-Chip IP Products i. Non-coherent NoC IP, with FlexNoC and FlexWay ii. Cache-coherent NoC IP, with Ncore iii. Last-level cache, with CodaCache b. SIA Solutions Products i.
Our marketing strategy emphasizes thought leadership and educates potential customers about how our products can address their System IP challenges. We use technical papers, and in-person and online events, to highlight our capabilities. Research and Development We devote the most of our operating expenses to research and development of interconnect IP and IP deployment solutions and technologies.
Our marketing strategy emphasizes thought leadership and educates potential customers about how our products can address their System IP challenges. We use technical papers, and in-person and online events, to highlight our capabilities. Research and Development We devote the most of our operating expenses to research and development of interconnect IP and SIA solutions.
IP deployment software development is similarly challenging as it requires broad support of the IP packaging standard, IEEE 1685 IP-XACT, and the ability to deliver features and enhancements required as customers deploy ever-changing IP block libraries for their SoC projects, address hardware-software integrations.
SoC integration automation development is similarly challenging as it requires broad support of the IP packaging standard, IEEE 1685 IP-XACT, and the ability to deliver features and enhancements required as customers deploy ever-changing IP block libraries for their SoC projects, address hardware-software integrations.
Our commercially available interconnect IP products currently ship in billions of devices worldwide. Innovative use of proprietary networking techniques for on-chip communications has enabled our industry-proven solutions to deliver higher SoC performance with shorter design schedules, lower research, and development costs, lower SoC unit costs, and reduced project risk when compared to customer-developed internal solutions.
Our commercially available interconnect IP products are shipping in billions of devices worldwide. Innovative use of proprietary networking techniques for on-chip communications has enabled our industry-proven solutions to deliver higher SoC performance with shorter design schedules, lower research, and development costs, lower SoC unit costs, and reduced project risk when compared to customer-developed internal solutions.
We believe we ar e positioned to take advantage of the rapid growth of semiconductor content in cars. We have been focused on the automotive market segment since inception and have over 117 automotive SoC design wins. Additionally, we have established customer relationships with market leaders such as Mobileye, Intel, BMW, NXP and Bosch.
We believe we ar e positioned to take advantage of the rapid growth of semiconductor content in cars. We have been focused on the automotive market segment since inception and have 140 automotive SoC design wins. Additionally, we have established customer relationships with market leaders such as Mobileye/Intel, BMW, NXP, Bosch, and Dreamchip.
We believe that, as we have and continue to deliver new products since the date of the License Agreement, such as our range of IP deployment products, Ncore cache coherent interconnect, CodaCache last-level cache, and CSRCompiler physical awareness capabilities, the importance to our business and product portfolio of the FlexNoC development environment will decrease over time.
We believe that, as we have and continue to deliver new products since the date of the License Agreement, such as our range of SIA solutions, Ncore cache coherent interconnect, CodaCache last-level cache, and CSRCompiler physical awareness capabilities, the importance to our business and product portfolio of the FlexNoC development environment will decrease over time.
These trends of specialization and OEMs controlling their own destiny in light of supply chain disruptions are amplified by trends towards heterogeneous disaggregation of SoC design into multi-die systems with many chiplets and 3D-IC assembly.
These trends of specialization and OEMs controlling their own destiny in light of supply chain disruptions are amplified by trends towards heterogeneous disaggregation of SoC design into multi-die systems and 3D-IC assembly.
We believe this increase in SoC complexity has created a significant opportunity for sophisticated System IP solutions that incorporate NoC interconnect IP, IP deployment software and NoC interface IP (consisting of peripheral data transport IP and control plane networks connected to NoC interconnect IPs).
We believe this increase in SoC complexity has created a significant opportunity for sophisticated System IP solutions that incorporate NoC interconnect IP, SoC Integration Automation software (SIA) (formerly IP deployment software) and NoC interface IP (consisting of peripheral data transport IP and control plane networks connected to NoC interconnect IPs).
We have been focused on the automotive market segment since 2012 and have over 117 design wins in this sector.
We have been focused on the automotive market segment since 2012 and have over 130 design wins in this sector.
Our IP deployment software has to conform not only to industry standards, but also to ever-evolving SoC integration methodologies. Once interconnect IP is designed into customer SoC projects, there are significant switching costs to adopting different interconnect IP and IP deployment solutions, especially in the automotive sector where switching interconnect IP solutions may involve product functional safety re-certification.
Our SIA solutions have to conform not only to industry standards, but also to ever-evolving SoC integration methodologies. Once interconnect IP is designed into customer SoC projects, there are significant switching costs to adopting different interconnect IP and SIA solutions, especially in the automotive sector where switching interconnect IP solutions may involve product functional safety re-certification.
Therefore, the larger and more complex the SoC, the more important the on-chip interconnect for overall chip performance, power consumption and cost. Interconnect and IP deployment technology is key to allowing SoC designers to design these types of chips while meeting their technical and time-to-market requirements.
Therefore, the larger and more complex the SoC, the more important the on-chip interconnect for overall chip performance, power consumption and cost. Interconnect and SoC integration automation technology is key to allowing SoC designers to design these types of chips while meeting their technical and time-to-market requirements.
Further, critical tools in our IP deployment software product portfolio have been TCL-certified by the TUV Sud to confirm that they are safe to use in automotive and mission-critical markets like aerospace & space as part of the industrial vertical. 9 Table of Contents Both our NoC Interconnect IP and NoC Interface IP are used alongside processor architecture and eventually mapped into semiconductor manufacturing technologies.
Further, critical tools in our SIA product portfolio have been “Tool Confidence Level” (TCL)-certified by the TUV SUD to confirm that they are safe to use in automotive and mission-critical markets like aerospace & space as part of the industrial vertical. 9 Table of Contents Both our NoC Interconnect IP and NoC Interface IP are used alongside processor architecture and eventually mapped into semiconductor manufacturing technologies.
We believe our System IP is integral to our customers in the automotive, enterprise computing, consumer electronics, communications across wired and wireless, and industrial markets. Our core strengths include: ■ We help accelerate our customers’ time to market. Our interconnect IP and SoC cockpit software helps accelerate SoC development and integration at several different steps in the SoC design cycle.
We believe our System IP is integral to our customers in the automotive, enterprise computing, consumer electronics, communications across wired and wireless, and industrial markets. Our core strengths include: ■ We help accelerate our customers’ time to market. Our interconnect IP software and SIA solutions help accelerate SoC development at several different steps in the design cycle.
For repeat customers, our sales cycle length is generally shorter. 17 Table of Contents As of December 31, 2022, we maintained sales offices, sales personnel, or sales representatives in the United States, China, France, South Korea, Japan, Israel, and India. As of December 31, 2022, our sales management had an average of 26 years of sales experience.
For repeat customers, our sales cycle length is generally shorter. 17 Table of Contents As of December 31, 2023, we maintained sales offices, sales personnel, or sales representatives in the United States, China, France, South Korea, Japan, and Israel. As of December 31, 2023, our sales management had an average of 25 years of sales experience.
Item 1. Business Overview We are a leading provider of semiconductor system IP, including interconnect and other intellectual property, (collectively, System IP) technology that manages the on-chip communications and IP block deployments in System-on-Chip (SoC) semiconductors.
Item 1. Business Overview We are a leading provider of semiconductor system IP, including interconnect and other intellectual property, (collectively, System IP) technology. Our System IP technology manages the on-chip communications and IP block deployments in System-on-Chip (SoC) semiconductors and systems of chiplets.
This software suite manages the assembly of multiple IP blocks into SoC devices, registers configurations of IP blocks, and links design parameters and metadata to documentation. Our IP deployment software is designed to shorten our customers’ design schedules and improve SoC engineers’ productivity across architects, logic designers, software/firmware developers, verification teams, and documentation teams.
This software suite manages the assembly of multiple IP blocks into SoC devices, registers configurations of IP blocks, and links design parameters and metadata to documentation. Our SIA solutions are designed to shorten our customers’ design schedules and improve SoC engineers’ productivity across architects, logic designers, software/firmware developers, verification teams, and documentation teams.
Industry Background Semiconductor complexity is increasing as the industry increasingly moves from integrated circuits (ICs) that process data to SoCs that make decisions. Historically, a chip’s complexity was much lower as processors were connected to memories with relatively few peripheral IP block functions.
Industry Background Semiconductor complexity is increasing as the industry moves from integrated circuits (ICs) that process data to SoCs that make decisions, and now extends to systems. Historically, a chip’s complexity was much lower as processors were connected to memories with relatively few peripheral IP block functions.
Our strategy is to deliver at least one new Interconnect IP or IP deployment product per year, and we have done so since 2013. As of December 31, 2022, we have 145 development engineers on staff covering IP hardware, software, verification, testing and methodology development.
Our strategy is to deliver at least one new Interconnect IP or SIA product release per year, and we have done so since 2013. As of December 31, 2023, we have 145 development engineers on staff covering IP hardware, software, verification, testing and methodology development.
This IP deployment software suite of products from Magillem and Semifore acquisition s provides a design environment to any semiconductor and system company from the architecture of the SoC through the delivery of a fully documented and traceable chip design.
This SIA suite of products from Magillem and Semifore acquisition s provides a design environment to any semiconductor and system company from the architecture of the SoC through the delivery of a fully documented and traceable chip design.
We work with suppliers who provide these blocks, including IP companies such as Arm, SiFive, MIPS, Synopsys, Cadence Design Systems, Codasip and other RISC-V IP vendors to support their products and protocols working with our IP deployment solutions and interconnect IP products.
We work with suppliers who provide these blocks, including IP companies such as Arm, SiFive, MIPS, Synopsys, Cadence Design Systems, Semidynamics, Andes, Codasip and other RISC-V IP vendors to support their products and protocols working with our SIA and interconnect IP products.
While most of our customer engagements are handled directly by our regional sales and application engineering forces, we utilize distributors in Israel and India for interconnect IP, although this represented less than 5% of our worldwide revenue in each 2022 and 2021.
While most of our customer engagements are handled directly by our regional sales and application engineering forces, we utilize distributors in Israel and India for interconnect IP, although this represented less th an 5% of our worldwide revenue in each 2023 and 2022.
In addition, we are targeting emerging AI/ML-enabled applications that leverage massively multi-core architectures. As of December 31, 2022, we had 100 customers who have built or are building advanced AI/ML-enabled applications, which accounted for 24 of our customers’ Design Starts.
In addition, we are targeting emerging AI/ML-enabled applications that leverage massively multi-core architectures. As of December 31, 2023, we had 123 customers who have built or are building advanced AI/ML-enabled applications, which accounted for 205 of our customers’ Design Starts.
In exchange for providing Transchip with a non-exclusive license (without standalone resale rights) to utilize substantially all of our interconnect IP products and an IP deployment solution, we retained a minority, non-controlling interest in Transchip.
In exchange for providing Transchip with a non-exclusive license (without standalone resale rights) to utilize substantially all of our interconnect IP products and SIA solutions, we retained a minority, non-controlling interest in Transchip.
Since our inception, our interconnect IP solutions have been used in over 667 unique SoC Design Starts. In 2022, we added 38 net new Active Customers. We define Active Customers as customers who have entered into a license agreement with us that remains in effect.
Since our inception, our interconnect IP solutions have been used in over 760 unique SoC Design Starts. In 2023, we added 23 net new Active Customers. We define Active Customers as customers who have entered into a license agreement with us that remains in effect.
In addition, our IP deployment software enables easier IP integration of our interconnect IPs – among other IP blocks that make up an SoC, across both hardware and software. 5 Table of Contents We work directly with our customers throughout the SoC development process and seek to develop long-term, sustainable relationships with them as our technology becomes embedded in their products.
In addition, our SIA solutions enable easier IP integration of our interconnect IPs – among other IP blocks that make up an SoC, across both hardware and software. We work directly with our customers throughout the SoC development process and seek to develop long-term, sustainable relationships with them as our technology becomes embedded in their products.
Our IP deployment technology suite across Magillem, CSRCompiler and Harmony Trace products cover the following key capabilities for IP deployment software and overall SoC development acceleration: ■ Magillem Connectivity: The Magillem connectivity product shortens and streamlines the system-on-chip (SoC) integration process. Magillem Connectivity allows users to build very complex, correct-by-construction SoC designs.
Our SIA technology suite across Magillem and CSRCompiler products cover the following key capabilities for SoC integration automation and overall SoC development acceleration: ■ Magillem Connectivity: The Magillem connectivity product shortens and streamlines the system-on-chip (SoC) integration process. Magillem Connectivity allows users to build very complex, correct-by-construction SoC designs.
Our actual or perceived failure to comply with such obligations could harm our business,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—Our failure to comply with the large body of laws and regulations to which we are subject could materially harm our business,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—Our failure to comply with the Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable anti-money laundering laws could subject us to penalties and other adverse consequences,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—We are subject to government regulation, including import, export and economic sanctions laws and regulations that may expose us to liability and increase our costs,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—We will lose sales if we are unable to obtain government authorization to export certain of our products, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations.” 21 Table of Contents Human Capital Resources As of December 31, 2022, we had 245 full-time equivalent employees as follows: Number Function Research and development 151 Sales and marketing 52 Administration 42 Geographic Distribution United States 111 France 113 China 9 South Korea 5 Japan 5 Elsewhere 2 We consider relations with our employees to be good and have never experienced a work stoppage.
Our actual or perceived failure to comply with such obligations could harm our business,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—Our failure to comply with the large body of laws and regulations to which we are subject could materially harm our business,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—Our failure to comply with the Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable anti-money laundering laws could subject us to penalties and other adverse consequences,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—We are subject to government regulation, including import, export and economic sanctions laws and regulations that may expose us to liability and increase our costs,” “Risk Factors—Risks Related to Legal, Regulatory, Accounting and Tax Matters—We will lose sales if we are unable to obtain government authorization to export certain of our products and services, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations or if such laws and regulations were to change.” 21 Table of Contents Human Capital Resources As of December 31, 2023, we had 243 employees as follows: Number Function Research and development 145 Sales and marketing 57 Administration 41 Geographic Distribution United States 96 France 122 China 13 South Korea 5 Japan 5 Elsewhere 2 We consider relations with our employees to be good and have never experienced a work stoppage.
The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. Corporation Information We were incorporated in the State of Delaware in April 2004. Our principal executive offices are located at 595 Millich Dr. Suite 200 Campbell, CA 95008.
The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. Corporation Information We were incorporated in the State of Delaware in April 2004. Our principal executive offices are located at 900 E. Hamilton Ave. Suite 300 Campbell, CA 95008.
Over time, we have expanded and scaled our interconnect IP and other IP businesses to provide hardware, software, documentation, support, and training under a license fee and a royalty business model, to companies that design and produce semiconductors worldwide and increasingly also to their electronic systems customers.
Over time, we have expanded and scaled our interconnect IP and other IP businesses to provide hardware, software, documentation, support, and training under a license fee and a royalty business model, to companies that design and produce semiconductors.
These challenges have significantly complicated SoC innovation and contributed to the increasing adoption of System IP, across the growing number of customer design starts coupled with the expanding number of NoC IPs used in current SoC. We leveraged our extensive technical expertise to develop a new method for on-chip communication, the NoC, to address these critical semiconductor development challenges.
These challenges have significantly complicated SoC innovation and contributed to the increasing adoption of System IP, across the growing number of customer design starts coupled with the expanding number of NoC IPs used in current SoC. 5 Table of Contents We leveraged our extensive technical expertise to develop configurable IP for a new method for on-chip communication, the NoC, that has emerged over the past couple of decades to address these critical semiconductor development challenges.
For the years ended December 31, 2022 and 2021, we generated $50.4 million and $37.9 million in revenue, $6.8 million and $0.8 million in cash flows used in operating activities, and $27.4 million and $23.4 million in net loss, respectively. We expect to incur further net losses in the short term as we invest in our business.
For the years ended December 31, 2023 and 2022, we generated $53.7 million and $50.4 million in revenue, $15.7 million and $6.8 million in cash flows used in operating activities, and $36.9 million and $27.4 million in net loss, respectively. We expect to incur further net losses in the short term as we invest in our business.
Corporate and field application engineers work closely with our customers in both presales and support roles, providing expert advice to our SoC architect and engineering users on how best to use our IP and software to design and implement their SoCs.
As of December 31, 2023, we had 38 corporate and field application engineers. Corporate and field application engineers work closely with our customers in both presales and support roles, providing expert advice to our SoC architect and engineering users on how best to use our IP and software to design and implement their SoCs.
During the fiscal year 2022, our revenue by geographic area based on customer location was as follows: ■ 41.1% of our revenue was derived from customers based in the Americas; ■ 13.0% of our revenue was derived from customers based in Europe and the Middle East; and ■ 45.9% of our revenue was derived from customers based in the Asia Pacific region.
During the fiscal year 2023, our revenue by geographic area based on customer location was as follows: ■ 35.9% of our revenue was derived from customers based in the Americas; ■ 12.0% of our revenue was derived from customers based in Europe and the Middle East; and ■ 52.1% of our revenue was derived from customers based in the Asia Pacific region.
For a discussion of the various risks we face from regulation and compliance matters, see “Risk Factors—Risks Related to Our Business and Industry—We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection, and information security, and consumer protection laws across different markets where we conduct our business.
For a discussion of the various risks we face from regulation and compliance matters, see “Risk Factors—Risks Related to Our Business and Industry—We are subject to data protection, privacy and security laws, regulations, standards and other requirements across different markets where we conduct our business.
In 2022, we spent $41.2 million on research and development, which represented 82% of our revenue. 18 Table of Contents Competition For interconnect IP, we primarily compete with interconnect solutions developed internally by our SoC customers and potential customers.
In 2023, we spent $45.1 million on research and development, which represented 84% of our revenue. 18 Table of Contents Competition For interconnect IP, we primarily compete with interconnect solutions developed internally by our SoC customers and potential customers.
O ur marketing is focused on helping customers understand the value of our solutions and creating awareness of the latest developments in our markets. We believe a key measure of our success is the number of successful SoCs produced by our customers utilizing our technology.
O ur marketing is focused on helping customers understand the value of our solutions and creating awareness of the latest developments in our markets. We believe a key measure of our success is the number of successful SoCs produced by our customers utilizing our technology. To date, there have been over 380 production SoCs designed with our technology.
Integration of processors, accelerators, machine learning subsystems, sophisticated multi-channel memories, and an ever-larger number of interface standards have placed a premium on the ability to move data efficiently inside the SoC and between SoC chiplets. These trends further highlight the growing importance of interconnect IP in today’s SoCs, and more so for more advanced or complex SoCs.
Integration of processors, accelerators, machine learning subsystems, sophisticated multi-channel memories, and an ever-larger number of interface standards have placed a premium on the ability to move data efficiently inside the SoC and between SoC chiplets. These trends further highlight the growing importance of interconnect IP in today’s SoCs. Increasing chip design complexity leads to rising costs.
As of December 31, 2022, we had Annual Contract Value (ACV), which we define for an individual customer agreement as the total fixed fees under the agreement divided by the number of years in the agreement term, of $49.2 million. ACV and trailing twelve months royalties and other revenue reached $52.4 million as of December 31, 2022.
As of December 31, 2023, we had Annual Contract Value (ACV), which we define for an individual customer agreement as the total fixed fees under the agreement divided by the number of years in the agreement term, of $50.9 million. ACV and trailing-twelve-months variable royalties and other revenue reached $56.1 million as of December 31, 2023.
These compliance enhancements were developed and implemented in consultation with outside counsel specializing in U.S. trade compliance. These steps have included annual basic export compliance training within our company, updating our written export control policies and procedures, and adopting a revised export compliance manual in 2021. We have provided export awareness training for relevant personnel including in 2022 and 2021.
These compliance enhancements were developed and implemented in consultation with outside counsel specializing in U.S. trade compliance. These steps have included annual basic export compliance trainin g within our company, updating our written export control policies and procedures, and adopting a revised export compliance manual in 2021.
We believe the transition to 5G will accelerate System IP market growth because the high complexity of 5G chips require more stringent requirements for bandwidth, latency, and power consumption, making an easy-to-integrate, high performance and low power on-chip interconnect a critical requirement. Gartner estimates 5G infrastructure semiconductor revenue will exceed $1 billion by 2024, with 6G technology on the horizon.
We believe the transition to 5G and 6G will accelerate System IP market growth because the high complexity of 5G and 6G chips require more stringent requirements for bandwidth, latency, and power consumption, making an easy-to-integrate, high performance and low power on-chip interconnect a critical requirement.
AI/ML is deployed in cloud data centers for applications such as personalized advertising and credit card fraud detection. AI/ML is also deployed at the edge of networks for applications such as automated driving, cell phones and numerous other applications, and is as such considered a technology addressing various industry vertical business segments.
AI/ML is also deployed at the edge of networks for applications such as automated driving, cell phones and numerous other applications, and is as such considered a technology addressing various industry vertical business segments.
The hardware/software interface (HSI) provides the technology for software to control this SoC hardware and it forms the foundation of the entire SoC design project.
The hardware/software interface (HSI) provides the technology for software to control this SoC hardware and it forms the foundation of the entire SoC design project. The Magillem Register product and CSRCompiler products automate the creation of this SoC foundation.
Our solutions enable customer innovation because they are configurable for each customer’s design flow and SoC development projects and have wide applicability for many types of SoCs, having been designed into over three billion production SoCs.
Our solutions enable customer innovation because they are configurable for each customer’s design flow and SoC development projects and have wide applicability for many types of SoCs. We estimate that our solutions have been incorporated into three and a half billion production SoCs since inception.
Our interconnect IP solutions offer proven connections to multiple industry-standard processors such as x86, Arm, RISC-V, CEVA, Synopsys ARC, Cadence Tensilica and MIPS, as well as memory controllers, I/O and a variety of IP subsystems, to enable customers to integrate such IP blocks with high levels of efficiency and performance.
Our interconnect IP solutions can be found in multiple industry-standard designs supporting instruction set architectures such as x86, Arm, RISC-V, CEVA, Synopsys ARC, Cadence Tensilica and MIPS, as well as memory controllers, UCIe, BoW, and XSR controllers, I/O and a variety of IP subsystems, to enable customers to integrate such IP blocks with high levels of efficiency and performance.
We previously provided our sales employees worldwide with training in basic export compliance. We engaged third-party vendor software to assist us with an ongoing screening of new and existing customers, third-party agents or representatives, suppliers, and other vendors against U.S., France and several other jurisdictions’ prohibited or restricted party lists.
We engage d third-party vendor software to assist us with an ongoing screening of new and existing customers, third-party agents or representatives, suppliers, and other vendors against U.S., France and several other jurisdictions’ prohibited or restricted party lists.
FlexNoC and FlexWay started shipping in 2011 and have been incorporated into over 2.8 billion SoCs shipped in production electronic systems. ■ Ncore: Silicon-proven, cache coherent interconnect IP product that provides scalable, configurable, and area-efficient features for use across multiple end markets.
FlexNoC and FlexWay started shipping in 2011 and w e estimate that our solutions have been incorporated into three and a half billion production SoCs since inception. ■ Ncore: Silicon-proven, cache coherent interconnect IP product that provides scalable, configurable, and area-efficient features for use across multiple end markets.
As a dedicated interconnect IP provider, we enable our customers to leverage the knowledge and deep expertise developed by us through many years of focus on solutions for a variety of customers. Our growth strategy includes the following: ■ Leverage our System IP technology leadership and focused research and development to provide solutions for the semiconductor industry that builds SoCs.
As a dedicated interconnect IP provider, we enable our customers to leverage the knowledge and deep expertise developed by us through many years of focus on solutions for a variety of customers.
As of December 31, 2022, we had 91 engineers devoted to interconnect IP development and 54 engineers devoted to IP deployment software totaling 145 employees.
As of December 31, 2023, we had 89 engineers devoted to interconnect IP development and 56 engineers devoted to SIA solutions totaling 145 employees.
Communication between chiplets adds complexity, which increases the value of interconnect IP. Another complexity factor is the increasing use of cache coherent traffic which makes multiple processors and/or accelerators look like a single hardware programming space to the application software, which simplifies software development.
Another complexity factor is the increasing use of cache coherent traffic which makes multiple processors and/or accelerators look like a single hardware programming space to the application software, simplifying software development. Many complex SoCs now use cache coherent and non-coherent traffic in a single SoC, raising the volume and value of our System IP solutions.
We believe this dynamic is accelerating the degree to which interconnect IP solutions are outsourced to commercial vendors. Commercial interconnect vendors, such as Arteris, have the potential to accelerate time-to-market because they engage with a greater variety of SoC applications and a greater variety of designs than the typical internal interconnect teams.
Commercial interconnect vendors, such as Arteris, have the potential to accelerate time-to-market because they engage with a greater variety of SoC applications and a greater variety of designs than the typical internal interconnect teams. Commercial vendors are also able to spread interconnect and SoC development costs across a greater number of projects than internal interconnect and design teams.
We intend to remain neutral regarding the connection and integration of SoC IP blocks whether they are sourced from IP block vendors or are internally developed. We intend to continue to compete vigorously in the interconnect IP segment and to support and minimize the risks of competing with, our valued partners and customers developing non-interconnect IPs.
We intend to continue to compete vigorously in the interconnect IP segment and to support and minimize the risks of competing with, our valued partners and customers developing non-interconnect IPs.
We call this the System IP market. The System IP market consists of interconnect IP, NoC interface IP and IP deployment software. According to Informa PLC (Omdia), the semiconductor market is set to grow from about $604 billion in 2022 to $734 billion in 2026.
According to Informa PLC (Omdia), the semiconductor market is set to grow from about $604 billion in 2022 to $734 billion in 2026.
As of December 31, 2022, our net new Active Customers were geographically distributed as follows: ■ 13 net new Active Customers based in the Americas; ■ 4 net new Active Customers based in Europe and the Middle East; and ■ 21 net new Active Customers based in the Asia Pacific region. Our key customers include Intel and Samsung.
During the fiscal year 2023 , our net new Active Customers were geographically distributed as follows: ■ 8 net new Active Customers based in the Americas; ■ 2 net new Active Customers based in Europe and the Middle East; and ■ 13 net new Active Customers based in the Asia Pacific region.
This has resulted in the adoption of significantly more expensive and complex chip design methods and manufacturing processes, creating a substantial rise in semiconductor design costs.
The slowing of Moore’s law and the need for more functionality and performance has necessitated new architectural paradigms and accelerated the move to more advanced process nodes. This has resulted in the adoption of significantly more expensive and complex chip design methods and manufacturing processes, creating a substantial rise in semiconductor design costs.
We further estimate that the TAM will reach $3.2 billion in 2026, driven by an increasing number of SoC designs and growing complexity, increasing average selling prices of interconnect IP and IP deployment software, and the growing proliferation of the NoC interface IP market segment.
We provide solutions for the global SoC market and believe that market growth will be driven by an increasing number of SoC designs and growing complexity, increasing average selling prices of interconnect IP and SIA, and the growing proliferation of the NoC interface IP market segment.
Of these, we had 54 allowed or issued patents, 48 of which are U.S. allowed or issued patents, three of which are allowed or issued China patents, one is a U.K. issued patent, one is a Japan issued patent, and one is a South Korea issued patent.
Of these, we had 73 allowed or issued patents, 64 are U.S. allowed or issued patents, five are allowed or issued China patents, two are South Korea issued patents, one is a U.K. issued patent, and one is a Japan issued patent. The 73 allowed or issued patents generally expire between July 2035 and December 2041.
To date, there have been over 341 production SoCs designed with our technology, which have been incorporated in approximately 3.0 billion SoCs that have been shipped in electronic systems. 14 Table of Contents ■ Continue to pursue selective acquisitions and other strategic transactions, such as joint ventures, to acquire complementary solutions and accelerate growth.
We estimate that our solutions have been incorporated into three and a half billion production SoCs since inception. 14 Table of Contents ■ Continue to pursue selective acquisitions and other strategic transactions, such as joint ventures, to acquire complementary solutions and accelerate growth.
As the electronically enabled car has continued to grow in sophistication and performance, complex SoCs must increasingly receive, process and communicate data, further requiring advanced interconnect IP solutions.
Omdia estimates that the automotive SoC market will grow from nearly $7.0 billion in 2023 to over $13.1 billion in 2027, at a CAGR of over 17.1%. As the electronically enabled car has continued to grow in sophistication and performance, complex SoCs must increasingly receive, process and communicate data, further requiring advanced interconnect IP solutions.
The different levels of automated driving are defined as “Level 1” to “Level 5” with “Level 1” being sophisticated cruise control and “Level 5” is fully automated without the need for human driving intervention.
The different levels of automated driving are defined as “Level 1” to “Level 5” with “Level 1” being sophisticated cruise control and “Level 5” being fully automated without the need for human driving intervention. Informa Tech LLC estimates that over half of all light vehicles sold in 2027 will be equipped with ADAS systems considered “Level 2” and above.
Growth in the total addressable market (TAM) for our solutions is being driven by growing SoC sophistication and associated complexity. The addition of more processors, channels of memory access, machine learning sections, chiplets, additional I/Os interface standards, and other subsystems within SoCs is driving the need for more advanced System IP, including NoC interconnect IP’s.
The addition of more processors, channels of memory access, machine learning sections, additional I/Os interface standards, and other subsystems within SoCs is driving the need for more advanced System IP, including NoC interconnect IP’s. The growth in the numbers of these connected on-chip subsystems places an increasing premium on the interconnect IP capability to move data inside complex SoCs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of the other risks related to doing business in China include: ■ The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. ■ Restrictions on currency exchange may limit our ability to receive, transfer and use our cash effectively. ■ Increased uncertainties related to the enforcement of IP rights including any IP rights that we may license to a Chinese (or other emerging jurisdiction) entity, including any joint ventures we may form. ■ Increased uncertainties relating to Chinese regulation of exports of products and technology to and from China. ■ Increased and rapidly changing export and related trade regulations and restrictions imposed by U.S. and Chinese legislation, executive actions and regulations. ■ Difficulty of travel to and from China (and to and from United States) arising from or related to the COVID-19 pandemic or any future pandemic. ■ The Chinese government may favor its local businesses and make it more difficult for foreign businesses to operate in China on an equal footing, or create generally difficult conditions for foreign headquartered businesses to operate. ■ Increased uncertainties related to the enforcement of contracts with certain parties. ■ More restrictive rules on foreign investment could adversely affect our ability to expand our operations in China. ■ Geopolitical tensions between China on the one hand and the United States and/or the European Union on the other hand, may increase and may lead to increased export sanctions with Chinese entities and sanctions made against China.
Biggest changeSome of the other risks related to doing business in China include: ■ The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. ■ Restrictions on currency exchange may limit our ability to receive, transfer and use our cash effectively. ■ Increased uncertainties related to the protection and enforcement of intellectual property rights, including risk of theft or misappropriation of our products and intellectual property in China, as well as any intellectual property rights that we may license to a Chinese (or other emerging jurisdiction) entity, including any joint ventures we may form. ■ Increased uncertainties relating to Chinese regulation of exports of products and technology to and from China. ■ Increased and rapidly changing export and related trade regulations and restrictions imposed by U.S. and Chinese legislation, executive actions and regulations. ■ Difficulty of travel to and from China (and to and from United States) arising from or related to the COVID-19 pandemic or any future pandemic. ■ The Chinese government may favor its local businesses and make it more difficult for foreign businesses to operate in China on an equal footing or create generally difficult conditions for foreign headquartered businesses to operate. ■ Increased uncertainties related to the enforcement of contracts with certain parties. ■ More restrictive rules on foreign investment could adversely affect our ability to expand our operations in China. ■ Geopolitical tensions between China on the one hand and the United States and/or the European Union on the other hand, may increase and may lead to increased export sanctions with Chinese entities and sanctions made against China. 47 Table of Contents Political instability, changes in government or destabilizing political developments in or around the major countries and jurisdictions in which we do business have created challenges and an adverse business environment which in turn has impacted our business and financial condition.
Alternatively, we may issue additional equity securities, which could dilute your ownership and voting power. ■ We expect to incur integration and startup costs. ■ Acquisitions, joint ventures and other strategic relationships could cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term challenges associated with integrating employees from the acquired company into our organization. ■ Pre-closing and post-closing earnings charges could adversely impact operating results in any given period, and the impact may be substantially different from period to period. 34 Table of Contents ■ Acquisitions, joint ventures and other strategic relationships could create demands on our management, operational resources and financial and internal control systems that we are unable to effectively address. ■ We could experience difficulty in integrating personnel, operations and financial and other controls and systems and retaining key employees and customers. ■ We may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition, joint venture or other strategic relationship. ■ We may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities and the realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position and/or cause us to fail to meet our public financial reporting obligations. ■ In connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results. ■ As a result of our acquisitions, we have recorded significant goodwill and other assets on our consolidated balance sheet and if we are not able to realize the value of these assets, or if the fair value of our investments declines, we may be required to incur impairment charges. ■ We may have interests that diverge from those of our joint venture partners or other strategic partners and we may not be able to direct the management and operations of the joint venture or other strategic relationship in the manner we believe is most appropriate, exposing us to additional risk. ■ Investing in or making loans to early-stage companies often entails a high degree of risk, and we may not achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.
Alternatively, we may issue additional equity securities, which could dilute your ownership and voting power. ■ We expect to incur integration and startup costs. ■ Acquisitions, joint ventures and other strategic relationships could cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term challenges associated with integrating employees from the acquired company into our organization. ■ Pre-closing and post-closing earnings charges could adversely impact operating results in any given period, and the impact may be substantially different from period to period. ■ Acquisitions, joint ventures and other strategic relationships could create demands on our management, operational resources and financial and internal control systems that we are unable to effectively address. ■ We could experience difficulty in integrating personnel, operations and financial and other controls and systems and retaining key employees and customers. ■ We may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition, joint venture or other strategic relationship. ■ We may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities and the realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position and/or cause us to fail to meet our public financial reporting obligations. ■ In connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results. 35 Table of Contents ■ As a result of our acquisitions, we have recorded significant goodwill and other assets on our consolidated balance sheet and if we are not able to realize the value of these assets, or if the fair value of our investments declines, we may be required to incur impairment charges. ■ We may have interests that diverge from those of our joint venture partners or other strategic partners and we may not be able to direct the management and operations of the joint venture or other strategic relationship in the manner we believe is most appropriate, exposing us to additional risk. ■ Investing in or making loans to early-stage companies often entails a high degree of risk, and we may not achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.
Bribery Act). ■ Difficulties and costs of staffing and managing international operations across different geographic areas, time zones and cultures. ■ Changes in diplomatic and trade relationships. ■ Potential political, legal and economic instability, armed conflict, and civil unrest in the countries in which we and our customers are located. ■ Difficulty and costs of maintaining effective data security. ■ Inadequate protection of our IP. ■ Nationalization and expropriation. ■ Restrictions on the transfer of funds to and from foreign countries, including withholding taxes and other potentially negative tax consequences. ■ Unfavorable and/or changing foreign tax treaties and policies. ■ Increased exposure to general market and economic conditions inside and outside of the United States. ■ Currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future. ■ Increased regulatory uncertainties with respect to our wholly foreign-owned enterprise operating in China and any joint ventures we may form or contribute IP or other resources to in the future. ■ Trends such as global and regional inflation, supply shortages and supply chain disruptions, geopolitical conflicts and retaliatory actions and regulations affecting or relating to regions such as but not limited to Ukraine, Russia, Eastern Europe or in the Greater China region, may lead to the deterioration of our immediate customers’ and/or end market customers’ ability and/or willingness to purchase, use, develop, market or sell products or solutions that incorporate or are made while using our products.
Bribery Act). ■ Difficulties and costs of staffing and managing international operations across different geographic areas, time zones and cultures. ■ Changes in diplomatic and trade relationships. ■ Potential political, legal and economic instability, armed conflict, and civil unrest in the countries in which we and our customers are located. ■ Difficulty and costs of maintaining effective data security. ■ Inadequate protection of our intellectual property. ■ Nationalization and expropriation. ■ Restrictions on the transfer of funds to and from foreign countries, including withholding taxes and other potentially negative tax consequences. ■ Unfavorable and/or changing foreign tax treaties and policies. ■ Increased exposure to general market and economic conditions inside and outside of the United States. ■ Currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future. ■ Increased regulatory uncertainties with respect to our wholly foreign-owned enterprise operating in China and any joint ventures we may form or contribute IP or other resources to in the future. ■ Trends such as global and regional inflation, supply shortages and supply chain disruptions, geopolitical conflicts and retaliatory actions and regulations affecting or relating to regions such as but not limited to Ukraine, Russia, Eastern Europe or in the Greater China region, may lead to the deterioration of our immediate customers’ and/or end market customers’ ability and/or willingness to purchase, use, develop, market or sell products or solutions that incorporate or are made while using our products.
Although we believe these solutions are complementary to our IP interconnect solutions, we have less experience and a more limited operating history in offering software that, among other things, manages register configurations of IP blocks, assembles multiple IP blocks into SoC platforms and links design parameters and metadata to documentation, and our efforts in this area may not be successful.
Although we believe these solutions are complementary to our IP interconnect solutions, we have less experience and a more limited operating history in offering software that, among other things, manages register configurations of IP blocks, assembles multiple IP blocks into SoC platforms and links design parameters and metadata to documentation, and our ongoing efforts in this area may not be successful.
It is also difficult and costly to continuously monitor the IP portfolios of our competitors to ensure our technologies do not violate the IP rights of any third parties. Claims by other companies that we infringe their intellectual property rights or that patents on which we rely are invalid could adversely affect our business.
It is also difficult and costly to continuously monitor the intellectual property portfolios of our competitors to ensure our technologies do not violate the intellectual property rights of any third parties. Claims by other companies that we infringe their intellectual property rights or that patents on which we rely are invalid could adversely affect our business.
The occurrence of any of the below could adversely affect our ability to compete and harm our business: ■ Our ability to anticipate and lead critical product development cycles and technological shifts as driven by our target markets, to innovate rapidly and efficiently and to improve our existing solutions. ■ Whether any competitor substantially increases its engineering and marketing resources to compete with us in the semiconductor IP deployment software technology arena. ■ Whether a new entrant with substantially greater resources and/or supported by governmental resources decides to enter the markets in which we compete. ■ Whether any existing or new competitor bundles its technologies into one package at a discounted price that would make it uneconomical for our customers to license our products separately. ■ The challenges of developing, or acquiring externally developed, technology solutions that are adequate and competitive in meeting the rapidly evolving requirements of next-generation design challenges. ■ Our ability to compete on the basis of payment and pricing features and terms. 23 Table of Contents ■ Decisions by semiconductor companies, system companies, device or other end product producers, and/or OEMs to develop IP development internally, rather than license IP from outside vendors due to budget constraints or excess engineering capacity. ■ Actions by regulators or governmental entities to impose license requirements, limit product availability, limit trade and exportability of our products, the features or contractual terms that either we or our customers can apply to product and service offerings, or to affect monetary policy. ■ Actions by regulators or governmental entities to modify or augment tax treatment of our product and service offerings. ■ The impact of global and regional inflation on ours and our customers’ profitability and expansion plans due to among other effects of inflation, increases in wages, availability of capital, salaries, operating expenses, and costs of insurance, benefits and medical coverage. ■ The potential effects of geopolitical conflicts, such as the military conflict between Russia and Ukraine, including retaliatory and regulatory actions, on purchasing, development, sales and innovation responses and trends in response to such conflicts. ■ Competition, embargoes, sanctions, boycotts and/or social unrest. ■ Local or international economic headwind trends that may lead to recessions, economic slowdowns or sudden changes in economic needs of regions and consumers. ■ Silicon chip supply chain and shipment volume restrictions on our customers and their end customers that will impact the amount of royalties payable to us.
The occurrence of any of the below could adversely affect our ability to compete and harm our business: ■ Our ability to anticipate and lead critical product development cycles and technological shifts as driven by our target markets, to innovate rapidly and efficiently and to improve our existing solutions. ■ Whether any competitor substantially increases its engineering and marketing resources to compete with us in the semiconductor IP interconnect and SIA software technology arena. ■ Whether a new entrant with substantially greater resources and/or supported by governmental resources decides to enter the markets in which we compete. ■ Whether any existing or new competitor bundles its technologies into one package at a discounted price that would make it uneconomical for our customers to license our products separately. ■ The challenges of developing, or acquiring externally developed, technology solutions that are adequate and competitive in meeting the rapidly evolving requirements of next-generation design challenges. ■ Our ability to compete on the basis of payment, pricing, features and/or terms. 23 Table of Contents ■ Decisions by semiconductor companies, system companies, device or other end product producers, and/or OEMs to develop IP development internally, rather than license IP from outside vendors due to budget constraints or excess engineering capacity. ■ Actions by regulators or governmental entities to impose license requirements, limit product availability, limit trade and exportability of our products, the features or contractual terms that either we or our customers can apply to product and service offerings, or to affect monetary policy. ■ Actions by regulators or governmental entities to modify or augment tax treatment of our product and service offerings. ■ The impact of global and regional inflation on ours and our customers’ profitability and expansion plans due to among other effects of inflation, increases in wages, availability of capital, salaries, operating expenses, and costs of insurance, benefits and medical coverage. ■ The potential effects of geopolitical conflicts, such as the military conflict between Russia and Ukraine and the conflict in Israel, including retaliatory, military and regulatory actions, on our customers’ engineering resources, design schedules, purchasing, development, sales and innovation responses and trends in response to such conflicts. ■ Competition, embargoes, sanctions, boycotts and/or social unrest. ■ Local or international economic headwind trends that may lead to recessions, economic slowdowns or sudden changes in economic needs of regions and consumers. ■ Silicon chip supply chain and shipment volume restrictions on our customers and their end customers that will impact the amount of royalties payable to us.
The introduction of new products by our competitors or our failure to timely develop new or enhanced products or technologies in response to changing market demand, whether due to technological shifts or otherwise, could result in the loss of customers and decreased revenue and have an adverse effect on our business, financial condition, and results of operations.
The appearance of new competitors, introduction of new products by our competitors or our failure to timely develop new or enhanced products or technologies in response to changing market demand, whether due to technological shifts or otherwise, could result in the loss of customers and decreased revenue and have an adverse effect on our business, financial condition, and results of operations.
Furthermore, potential acquisitions, investments, joint ventures and other strategic transactions, whether or not consummated, may divert our management’s attention and require considerable cash outlays at the expense of our existing operations. This, and any of the risks set forth above, could harm our business.
Furthermore, potential acquisitions, investments, divestitures, joint ventures and other strategic transactions, whether or not consummated, may divert our management’s attention and require considerable cash outlays at the expense of our existing operations. This, and any of the risks set forth above, could harm our business.
If we fail to offer high-quality support, our reputation could suffer. Interconnect IP technology is complex, and our customer support is critical for the successful deployment of our IP in our customers’ designs, and we maintain a team of corporate and field application engineers in our global support organization.
If we fail to offer high-quality support, our reputation could suffer. Interconnect IP and SIA technology is complex, and our customer support is critical for the successful deployment of our IP in our customers’ designs, and we maintain a team of corporate and field application engineers in our global support organization.
Joint ventures or similar investments such as the investment in Transchip as discussed elsewhere in this report, and other joint ventures or similar investments we may form in the future are subject to a number of risks, including but not limited to: ■ Our joint venture or investment partners may not commit sufficient resources to market and distribute our products or to otherwise support the joint venture and its intended operations. ■ Our joint venture or investment partners may have economic or business interests or goals that are different from ours. ■ Our joint venture or investment partners may infringe the IP we assign to such joint venture, or the IP of other parties, which may expose us to litigation and other potential liabilities. ■ Disputes may arise among us and our joint venture or investment partners that result in the delay or termination of activities contemplated by such joint venture or investment or that could result in costly litigation or arbitration that diverts management attention and resources. 48 Table of Contents ■ Our joint venture or investment partners may not provide us with timely and accurate information regarding the status or activities of the joint venture or investment which could, among other things, impact our ability to accurately forecast financial results or provide timely information to our shareholders. ■ Risks associated with additional capital requirements. ■ Any of the risks related to doing business in China or having a Chinese joint venture or investment that are discussed elsewhere in these risk factors.
Joint ventures or similar investments such as the investment in Transchip as discussed elsewhere in this report, and other joint ventures or similar investments we may form in the future are subject to a number of risks, including but not limited to: ■ Our joint venture or investment partners may not commit sufficient resources to market and distribute our products or to otherwise support the joint venture and its intended operations. ■ Our joint venture or investment partners may have economic or business interests or goals that are different from ours. ■ Our joint venture or investment partners may infringe the IP we assign to such joint venture, or the IP of other parties, which may expose us to litigation and other potential liabilities. ■ Disputes may arise among us and our joint venture or investment partners that result in the delay or termination of activities contemplated by such joint venture or investment or that could result in costly litigation or arbitration that diverts management attention and resources. ■ Our joint venture or investment partners may not provide us with timely and accurate information regarding the status or activities of the joint venture or investment which could, among other things, impact our ability to accurately forecast financial results or provide timely information to our shareholders. ■ Risks associated with additional capital requirements. ■ Any of the risks related to doing business in China or having a Chinese joint venture or investment that are discussed elsewhere in these risk factors.
Certain of our products, including our IP interconnect and other solutions and technology are subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations (EAR) and economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls.
Certain of our products, including our IP interconnect and other solutions and technology are subject to U.S. export controls, including the U.S. Department of Commerce’s EAR and economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls.
Risks Related to Intellectual Property, Information Technology and Data Security and Privacy If we are unable to protect our proprietary technology and inventions through patents and other IP rights, our ability to compete successfully and our financial results could be adversely impacted.
Risks Related to Intellectual Property, Information Technology and Data Security and Privacy If we are unable to protect our proprietary technology and inventions through patents and other intellectual property rights, our ability to compete successfully and our financial results could be adversely impacted.
The semiconductor industry has also faced significant global supply chain issues as a result of the impact of the COVID-19 pandemic (both on demand for devices to enable wireless connectivity and remote environments and on supply from the related imposition of government restrictions on staffing and facility operations) as well as other trends such as the increasing demand for semiconductors in automobiles, which together have resulted in the inability of fabrication plants to produce sufficient quantities of chips to meet demand, supply chain shortages and other disruptions.
The semiconductor industry has also faced significant global supply chain issues as a result of the impact both on demand for devices to enable wireless connectivity and remote environments and on supply from the related imposition of government restrictions on staffing and facility operations due to the recent COVID-19 pandemic as well as other trends such as the increasing demand for semiconductors in automobiles, which together have resulted in the inability of fabrication plants to produce sufficient quantities of chips to meet demand, supply chain shortages and other disruptions.
Moreover, conducting business outside the United States subjects us to a number of additional risks and challenges, including: ■ Changes in a specific country’s or region’s political, regulatory or economic conditions. ■ Imposition of significant new export control regulations targeting the Chinese semiconductor industry and technical support of the Chinese semiconductor industry, tariffs and other barriers, restrictions and regional stability measures, including as between U.S.-China. ■ A pandemic, epidemic or other outbreak of an infectious disease, including the current COVID-19 pandemic, which may cause us or our distributors, vendors and/or customers to temporarily suspend our or their respective operations in the affected city or country or completely. ■ Compliance with a wide variety of domestic and foreign laws and regulations (including those of municipalities or provinces where we have operations) and unexpected changes in those laws, export and trade controls, and regulatory requirements, including uncertainties regarding taxes, social insurance contributions and other payroll taxes and fees to governmental entities, tariffs, quotas, export controls, export licenses and other trade barriers. ■ Unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action, unfavorable foreign exchange controls and currency exchange rates. ■ Potential for substantial penalties and litigation related to violations of a wide variety of laws, treaties and regulations, including labor regulations, export control and anti-corruption regulations (including the U.S.
Moreover, conducting business outside the United States subjects us to a number of additional risks and challenges, including: ■ Changes in a specific country’s or region’s political, regulatory or economic conditions. ■ Imposition of significant new export control regulations targeting the Chinese semiconductor industry and technical support of the Chinese semiconductor industry, tariffs and other barriers, restrictions and regional stability measures, including as between U.S.-China. ■ A pandemic, epidemic or other outbreak of an infectious disease, including the recent COVID-19 pandemic, which may cause us or our distributors, vendors and/or customers to temporarily suspend our or their respective operations in the affected city or country or completely. 29 Table of Contents ■ Compliance with a wide variety of domestic and foreign laws and regulations (including those of municipalities or provinces where we have operations) and unexpected changes in those laws, export and trade controls, and regulatory requirements, including uncertainties regarding taxes, social insurance contributions and other payroll taxes and fees to governmental entities, tariffs, quotas, export controls, export licenses and other trade barriers. ■ Unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action, unfavorable foreign exchange controls and currency exchange rates. ■ Potential for substantial penalties and litigation related to violations of a wide variety of laws, treaties and regulations, including labor regulations, export control and anti-corruption regulations (including the U.S.
If we are unable to meet these demands for increased SoC design complexity, if we are unable to anticipate technological changes in our industry by introducing new or enhanced IP interconnect and other solutions and/or IP deployment solutions in a timely and cost-effective manner, or if we fail to introduce new technologies that meet market demand, we may lose our competitive position, our products may become obsolete, and our business could be harmed.
If we are unable to meet these demands for increased SoC design complexity, if we are unable to anticipate technological changes in our industry by introducing new or enhanced IP interconnect and other solutions and/or SIA solutions in a timely and cost-effective manner, or if we fail to introduce new technologies that meet market demand, we may lose our competitive position, our products may become obsolete, and our business could be harmed.
The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including: ■ market acceptance of our semiconductor IP and other solutions, and our IP deployment solutions; ■ the need to adapt to changing technologies and technical requirements; ■ the existence of opportunities for expansion; and ■ access to and availability of sufficient management, technical, marketing and financial personnel.
The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including: ■ market acceptance of our semiconductor IP and other solutions, and our SIA solutions; ■ the need to adapt to changing technologies and technical requirements; ■ the existence of opportunities for expansion; and ■ access to and availability of sufficient management, technical, marketing and financial personnel.
Any litigation of this nature, regardless of outcome or merit, could materially harm our business and hurt our competitive advantage. 37 Table of Contents If we are unable to protect our proprietary technology and inventions through trade secrets, our competitive position and financial results could be adversely affected.
Any litigation of this nature, regardless of outcome or merit, could materially harm our business and hurt our competitive advantage. 38 Table of Contents If we are unable to protect our proprietary technology and inventions through trade secrets, our competitive position and financial results could be adversely affected.
These factors, individually or in combination, could impair our ability to effectively operate one or more of our foreign facilities or deliver our semiconductor IP or IP deployment solutions, result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries or regions.
These factors, individually or in combination, could impair our ability to effectively operate one or more of our foreign facilities or deliver our semiconductor IP or SIA solutions, result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries or regions.
In the event that any third-party succeeds in asserting a valid claim against us or any of our customers, we could be forced to do one or more of the following: ■ discontinue selling access to certain technologies that contain the allegedly infringing IP which would result in a decline in our revenue and could result in breach of contract claim by our affected customers and damage to our reputation; ■ stop receiving payment from a customer that can no longer sell the end-product if it contains allegedly infringing IP; ■ seek to develop non-infringing technologies, which may not be feasible; ■ incur significant legal expenses; 38 Table of Contents ■ pay substantial monetary damages to the party whose IP rights we may be found to be infringing; and/or ■ we or our customers could be required to seek licenses to the infringed technology that may not be available on commercially reasonable terms, if at all.
In the event that any third-party succeeds in asserting a valid claim against us or any of our customers, we could be forced to do one or more of the following: ■ discontinue selling access to certain technologies that contain the allegedly infringing intellectual property which would result in a decline in our revenue and could result in breach of contract claim by our affected customers and damage to our reputation; ■ stop receiving payment from a customer that can no longer sell the end-product if it contains allegedly infringing intellectual property ; 39 Table of Contents ■ seek to develop non-infringing technologies, which may not be feasible; ■ incur significant legal expenses; ■ pay substantial monetary damages to the party whose intellectual property rights we may be found to be infringing; and/or ■ we or our customers could be required to seek licenses to the infringed technology that may not be available on commercially reasonable terms, if at all.
Our long-term success is dependent upon our ability to successfully market our interconnect IP and IP deployment solutions, develop new interconnect IP and IP deployment solutions, earn revenue, obtain additional capital when needed and, ultimately, to maintain profitable operations. We will need to generate significant additional revenue to achieve profitability.
Our long-term success is dependent upon our ability to successfully market our interconnect IP and SIA solutions, develop new interconnect IP and SIA solutions, earn revenue, obtain additional capital when needed and, ultimately, to maintain profitable operations. We will need to generate significant additional revenue to achieve profitability.
Any downturn in economic conditions or other business factors could threaten the financial health of our counterparties, including companies with which we have entered into licensing agreements, and their ability to fulfill their financial and other obligations to us.
Any downturn in economic conditions, geopolitical events or other business factors could threaten the financial health of our counterparties, including companies with which we have entered into licensing agreements, and their ability to fulfill their financial and other obligations to us.
Factors affecting these markets could seriously harm our customers and/or end customers and, as a result, harm us, examples of which include: ■ Reduced sales of our customers’ and/or end customers’ products. ■ The effects of catastrophic and other disruptive events at our customers’ and/or end customers’ offices or facilities including, but not limited to, natural disasters, telecommunications failures, cyber-attacks, terrorist attacks, pandemics, epidemics or other outbreaks of infectious disease, including the current COVID-19 pandemic, breaches of security or loss of critical data. ■ Increased costs associated with potential disruptions to our customers’ and/or end markets’ supply chain and other manufacturing and production operations. ■ The deterioration of our customers’ and/or end customers’ financial condition. ■ Delays and project cancellations as a result of design flaws in the products developed by our customers and/or end customers. ■ The inability of our customers and/or end customers to expand or dedicate the resources necessary to promote and commercialize their products. ■ The inability of our customers and/or end customers to adapt to changing technological demands resulting in their products becoming obsolete. ■ The failure of our customers’ and/or end customers’ products to achieve market success and gain broad market acceptance. ■ Disruption and uncertainty caused by new developments in export and related regulations. ■ Regional and global effect of inflation or other adverse economic conditions, such as recessions or economic slowdowns, resulting in delays or cancellations of new product design starts. ■ Adverse impact of multiple interest rate increases implemented and forecasted by the U.S.
Factors affecting these markets could seriously harm our customers and/or end customers and, as a result, harm us, examples of which include: ■ Reduced sales of our customers’ and/or end customers’ products. ■ The effects of catastrophic and other disruptive events at our customers’ and/or end customers’ offices or facilities including, but not limited to, natural disasters, telecommunications failures, cyber-attacks, terrorist attacks, regional conflicts, pandemics, epidemics or other outbreaks of infectious disease, including the recent COVID-19 pandemic, breaches of security or loss of critical data. ■ Increased costs associated with potential disruptions to our customers’ and/or end markets’ supply chain and other manufacturing and production operations. ■ The deterioration of our customers’ and/or end customers’ financial condition. ■ Delays and project cancellations as a result of design flaws in the products developed by our customers and/or end customers. ■ The inability of our customers and/or end customers to expand or dedicate the resources necessary to promote and commercialize their products. ■ The inability of our customers and/or end customers to adapt to changing technological demands resulting in their products becoming obsolete. ■ The failure of our customers’ and/or end customers’ products to achieve market success and gain broad market acceptance. 25 Table of Contents ■ Disruption and uncertainty caused by new developments in export and related regulations. ■ Regional and global effect of inflation or other adverse economic conditions, such as rising interest rates, recessions or economic slowdowns, resulting in delays or cancellations of new product design starts. ■ Adverse impact of multiple interest rate increases implemented and forecasted by the U.S.
If any of these changes were to occur, our business could be harmed and our stock price could decline. Any disruption in the credit markets, including as a result of the current COVID-19 pandemic, could also impede our access to capital.
If any of these changes were to occur, our business could be harmed and our stock price could decline. Any disruption in the credit markets, including as a result of the recent COVID-19 pandemic, could also impede our access to capital.
Product errors, including those resulting from third-party suppliers, could negatively affect the performance or interoperability of our IP interconnect and IP deployment solutions, could delay the development or release of new solutions or new versions and could adversely affect market acceptance or perception of our technology.
Product errors, including those resulting from third-party suppliers, could negatively affect the performance or interoperability of our IP interconnect and SIA solutions, could delay the development or release of new solutions or new versions and could adversely affect market acceptance or perception of our technology.
In addition, any allegations of manufacturability issues resulting from use of our IP interconnect and other solutions or semiconductor design efficiency issues resulting from our IP deployment solutions could, even if untrue, adversely affect our reputation and our customers’ willingness to license our technology.
In addition, any allegations of manufacturability issues resulting from use of our IP interconnect and other solutions or semiconductor design efficiency issues resulting from our SIA solutions could, even if untrue, adversely affect our reputation and our customers’ willingness to license our technology.
Recent downturns have directly impacted our business, as has been the case with many other companies, suppliers, distributors and customers in the semiconductor industry and other industries around the world, and any prolonged or significant future downturns in the semiconductor industry could harm our business.
Economic downturns have directly impacted our business, as has been the case with many other companies, suppliers, distributors and customers in the semiconductor industry and other industries around the world, and any prolonged or significant future downturns in the semiconductor industry could harm our business.
We maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems. 41 Table of Contents We are subject to data protection, privacy and security laws, regulations, standards and other requirements across different markets where we conduct our business.
We maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems. We are subject to data protection, privacy and security laws, regulations, standards and other requirements across different markets where we conduct our business.
Among other things, these provisions include those establishing: ■ a classified board of directors with three-year staggered terms, which may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control of us or our management; ■ no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ■ the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors; ■ the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; ■ the ability of our board of directors to alter our bylaws without obtaining stockholder approval; ■ the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to amend or repeal our bylaws or amend the provisions of our Certificate of Incorporation regarding the election and removal of directors; ■ a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; ■ the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take action, including the removal of directors; and ■ advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at an annual meeting or special meeting of stockholders, which may discourage or delay a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us until the next stockholder meeting or at all. 55 Table of Contents In addition, we are subject to Section 203 of the DGCL.
Among other things, these provisions include those establishing: ■ a classified board of directors with three-year staggered terms, which may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control of us or our management; ■ no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ■ the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors; ■ the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; ■ the ability of our board of directors to alter our bylaws without obtaining stockholder approval; ■ the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to amend or repeal our bylaws or amend the provisions of our Certificate of Incorporation regarding the election and removal of directors; ■ a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; ■ the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take action, including the removal of directors; and ■ advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at an annual meeting or special meeting of stockholders, which may discourage or delay a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us until the next stockholder meeting or at all.
The new export controls impose broad end-use and other restrictions on facilities in China that develop or produce semiconductor chips or manufacturing equipment, and may impact our ability to license or support our products to entities in or doing business with certain advanced AI or “supercomputer” design companies, foundries and manufacturers of assemblies and components in China.
These export controls impose broad end-use and other restrictions on facilities in China that develop or produce semiconductor chips or manufacturing equipment, and may impact our ability to license or support our products to entities in or doing business with certain advanced AI or “supercomputer” design companies, foundries and manufacturers of assemblies and components in China.
Additionally, perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners and customers. 56 Table of Contents Litigation , including securities class action litigation, may impair our reputation and lead us to incur significant costs .
Additionally, perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners and customers. Litigation , including securities class action litigation, may impair our reputation and lead us to incur significant costs.
These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business. 36 Table of Contents Catastrophic events may disrupt our business. Our corporate headquarters are located in an area that is an active earthquake zone.
These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business. Catastrophic events may disrupt our business. Our corporate headquarters are located in an area that is an active earthquake zone.
Any significant impairments of our IP rights from any litigation we face could harm our business and our ability to compete in our industry. We may not be able to continue to obtain licenses to third-party software and IP on reasonable terms or at all, which may disrupt our business and harm our financial results.
Any significant impairments of our intellectual property rights from any litigation we face could harm our business and our ability to compete in our industry. We may not be able to continue to obtain licenses to third-party software and intellectual property on reasonable terms or at all, which may disrupt our business and harm our financial results.
To the same extent that we seek to protect our technology and inventions with patents, trade secrets and other IP rights, our competitors and other third parties do the same for their technology and inventions. We have no means of knowing the content of patent applications filed by third parties until they are published.
To the same extent that we seek to protect our technology and inventions with patents, trade secrets and other intellectual property rights, our competitors and other third parties do the same for their technology and inventions. We have no means of knowing the content of patent applications filed by third parties until they are published.
Moreover, certain IP rights may be licensed to us on a non-exclusive basis, and accordingly, the owners of such IP are free to license such rights to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage.
Moreover, certain intellectual property rights may be licensed to us on a non-exclusive basis, and accordingly, the owners of such intellectual property rights are free to license such rights to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage.
Until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value. Provisions in our Certificate of Incorporation and Bylaws and under the DGCL contain antitakeover provisions that could prevent or discourage a takeover .
Until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value. 55 Table of Contents Provisions in our Certificate of Incorporation and Bylaws and under the DGCL contain antitakeover provisions that could prevent or discourage a takeover .
Fluctuations in our revenue and operating results could cause our stock price to decline and, as a result, you may lose some or all of your investment. Royalty rates could decrease for existing and future license agreements, which could materially adversely affect our operating results.
Fluctuations in our revenue and operating results could cause our stock price to decline and, as a result, you may lose some or all of your investment. 33 Table of Contents Royalty rates could decrease for existing and future license agreements, which could materially adversely affect our operating results.
If we are unable to obtain or maintain rights to any of this IP because of IP infringement claims brought by third parties against our licensors or against us, our ability to develop, maintain and support our products and technology incorporating that IP could be severely limited and our business could be harmed.
If we are unable to obtain or maintain rights to any of this intellectual property because of intellectual property rights infringement claims brought by third parties against our licensors or against us, our ability to develop, maintain and support our products and technology incorporating that intellectual property could be severely limited and our business could be harmed.
If we are unable to obtain licenses to these third-party software and IP on reasonable terms or at all, we may not be able to sell or support the affected products, our customers’ use of the products may be interrupted, and/or our product development processes and professional services offerings may be disrupted, which could in turn harm our financial results, our customers, and our reputation.
If we are unable to obtain licenses to these third-party software and intellectual property rights on reasonable terms or at all, we may not be able to sell or support the affected products, our customers’ use of the products may be interrupted, and/or our product development processes and professional services offerings may be disrupted, which could in turn harm our financial results, our customers, and our reputation.
Exports of certain of our IP interconnect and other solutions are subject to export controls imposed by the U.S. government and administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may require pre-shipment authorization from the administering department.
Exports of certain of our IP interconnect and other solutions are subject to export controls imposed by the U.S. government and administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may require pre-shipment authorization from the administering department. For products subject to the EAR, administered by the U.S.
In addition, in May 2020, Semifore, Inc., a company that we recently acquired, was a recipient of $0.1 million of proceeds from a note payable issued under the Paycheck Protection Program (PPP) under section 7(a)(36) of the Small Business Act.
In addition, in May 2020, Semifore, Inc., a company that we recently acquired, was a recipient of $0.1 million of proceeds from a note payable issued under the Paycheck Protection Program (PPP) under section 7(a)(36) of the Small Business Act. The note was repaid in full in December 2020.
We also cannot be certain that our licensors are not infringing the IP rights of others or that our licensors have sufficient rights to the IP to grant us the applicable licenses. Although we seek to mitigate this risk contractually, we may not be able to sufficiently limit our potential liability.
We also cannot be certain that our licensors are not infringing the intellectual property rights of others or that our licensors have sufficient rights to the intellectual property to grant us the applicable licenses. Although we seek to mitigate this risk contractually, we may not be able to sufficiently limit our potential liability.
For products subject to the EAR, administered by the Department of Commerce’s Bureau of Industry and Security (BIS), the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply. Certain of our solutions are subject to EAR.
Department of Commerce’s Bureau of Industry and Security (BIS), the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user and whether a license exception might apply. Certain of our solutions are subject to EAR.
Our ability to compete successfully depends in part on our ability to commercialize our IP solutions without infringing the patent, trade secret or other IP rights of others.
Our ability to compete successfully depends in part on our ability to commercialize our IP solutions without infringing the patent, trade secret or other intellectual property rights of others.
There is a risk that any material changes which are made to the UK data protection regime could result in the Commission reviewing the UK adequacy decision, and the UK losing its adequacy decision if the Commission deems the UK to no longer provide adequate protection for personal data.
There is a risk that any material changes which are made to the U.K. data protection regime could result in the Commission reviewing the U.K. adequacy decision, and the U.K. losing its adequacy decision if the Commission deems the U.K. to no longer provide adequate protection for personal data.
The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. As part of our business, we collect personal data, and other potentially sensitive and/or regulated data from our customers.
The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. 42 Table of Contents As part of our business, we collect personal data, and other potentially sensitive and/or regulated data from our customers.
The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the UK will be regulated in the long term.
The relationship between the U.K. and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how U.K. data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the U.K. will be regulated in the long term.
As a consequence of the above referenced factors, as well as unforeseen factors in the future, the royalty rates we receive for use of our technology could decrease with new or renewed customers, thereby decreasing future anticipated revenue and cash flow. Variable royalty revenue was 6.2% of our revenue for the year ended December 31, 2022.
As a consequence of the above referenced factors, as well as unforeseen factors in the future, the royalty rates we receive for use of our technology could decrease with new or renewed customers, thereby decreasing future anticipated revenue and cash flow. Variable royalty revenue was 9.6% of our revenue for the year ended December 31, 2023 .
The EU and UK regimes also include laws which, among other things, require European Economic Area (EEA) member states and the UK to regulate marketing by electronic means and the use of cookies and similar technologies.
The EU and U.K. regimes also include laws which, among other things, require European Economic Area (EEA) member states and the U.K. to regulate marketing by electronic means and the use of cookies and similar technologies.
Regulatory changes concerning the export classification of our products, changes to the applicability of the EAR to certain product offerings, or the addition of new entities to the restricted party lists can further increase the scope of export restrictions applicable to our business.
Regulatory changes concerning the export classification of our products, changes to the applicability of the EAR to certain product offerings, or the addition of new entities to the Entity List or other restricted party lists can further increase the scope of export restrictions applicable to our business.
As part of our business strategy, we make acquisitions of and investments in new businesses, such as our acquisition of Magillem, products and technologies and enter into joint ventures and other strategic relationships in the ordinary course.
As part of our business strategy, we make acquisitions of and investments in new businesses, such as our acquisitions of Magillem and Semifore, Inc., products and technologies and enter into joint ventures and other strategic relationships in the ordinary course.
As a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
As a result of the recent COVID-19 or any future pandemic, we may face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
The trading price of our common stock could be volatile and subject to wide fluctuations in response to various factors, many of which are beyond our control, including, but not limited to: ■ variations in our actual or anticipated annual or quarterly operating results or those of others in our industry; ■ the potential effects arising if U.S. inflationary and/or currency devaluation trends appear or increase; ■ results of operations that otherwise fail to meet the expectations of securities analysts and investors; ■ changes in earnings estimates or recommendations by securities analysts, or other changes in investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; ■ market conditions in the semiconductor industry; ■ failure to meet our publicly announced guidance or other expectations about our business; ■ publications, reports or other media exposure of our products or those of others in our industry, or of our industry generally; ■ announcements by us or others in our industry, or by our or their respective suppliers, distributors or other business partners, regarding, among other things, significant contracts, price reductions, capital commitments or other business developments, the entry into or termination of strategic transactions or relationships, securities offerings or other financing initiatives, and public reaction thereto; ■ additions or departures of key management personnel; ■ regulatory actions involving us or others in our industry, or actual or anticipated changes in applicable government regulations or enforcement thereof; ■ the development and sustainability of an active trading market for our common stock; ■ sales, or anticipated sales, of large blocks of our common stock, such as any sales that may occur following the expiration of the lockups entered into in connection with our initial public offering or any sales to cover tax obligations or exercise costs in connection with the vesting of restricted stock units or the exercise of options, respectively; ■ general economic and securities market conditions; and ■ other factors discussed in this “Risk Factors” section and elsewhere in this report.
The trading price of our common stock could be volatile and subject to wide fluctuations in response to various factors, many of which are beyond our control, including, but not limited to: ■ variations in our actual or anticipated annual or quarterly operating results or those of others in our industry; ■ the potential effects arising if U.S. inflationary and/or currency devaluation trends appear or increase; ■ results of operations that otherwise fail to meet the expectations of securities analysts and investors; ■ changes in earnings estimates or recommendations by securities analysts, or other changes in investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; ■ market conditions in the semiconductor industry; ■ failure to meet our publicly announced guidance or other expectations about our business; ■ publications, reports or other media exposure of our products or those of others in our industry, or of our industry generally; ■ announcements by us or others in our industry, or by our or their respective suppliers, distributors or other business partners, regarding, among other things, significant contracts, price reductions, capital commitments or other business developments, the entry into or termination of strategic transactions or relationships, securities offerings or other financing initiatives, and public reaction thereto; ■ additions or departures of key management personnel; ■ regulatory actions involving us or others in our industry, or actual or anticipated changes in applicable government regulations or enforcement thereof; ■ the development and sustainability of an active trading market for our common stock; ■ sales, or anticipated sales, of large blocks of our common stock, such as any sales that may occur following the expiration of the lockups entered into in connection with our initial public offering or any sales to cover tax obligations or exercise costs in connection with the vesting of restricted stock units or the exercise of options, respectively; ■ general economic and securities market conditions, including rising interest rates; and ■ other factors discussed in this “Risk Factors” section and elsewhere in this report. 53 Table of Contents Furthermore, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies.
Employees may be more likely to terminate their employment with us if the shares they own or the shares underlying their vested options or restricted stock units have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or, conversely, if the exercise prices of the options that they hold are significantly above the trading price of our common stock.
Employees may be more likely to terminate their employment with us if the shares they own or the shares underlying their vested options or restricted stock units have significantly depreciated or otherwise expressed volatility in value relative to the original purchase prices of the shares or the exercise prices of the options, or, conversely, if the exercise prices of the options that they hold are significantly above the trading price of our common stock.
Furthermore, consolidation among our customers may increase the leverage of our existing customers to extract concessions from us in royalty rates. 33 Table of Contents Changing currency exchange rates could harm our business.
Furthermore, consolidation among our customers may increase the leverage of our existing customers to extract concessions from us in royalty rates. Changing currency exchange rates could harm our business.
Further, in such proceedings, the defendant could counterclaim that our IP is invalid or unenforceable and the court may agree, in which case we could lose valuable IP rights.
Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights.
We may face claims based on IP rights from individuals, companies, non-practicing entities, academic and research institutions, and other parties, including claims from multiple sources against us and other companies.
We may face claims based on intellectual property rights from individuals, companies, non-practicing entities, academic and research institutions, and other parties, including claims from multiple sources against us and other companies.
We will lose sales if we are unable to obtain government authorization to export certain of our products and services, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations.
We will lose sales if we are unable to obtain government authorization to export certain of our products and services, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations or if such laws and regulations were to change.
As noted above, we seek to protect our proprietary technology and innovations, particularly those relating to our products, as patents, trade secrets and other forms of IP.
As noted above, we seek to protect our proprietary technology and innovations, particularly those relating to our products, as patents, trade secrets and other forms of intellectual property.
As reflected in other Risk Factors, such risks may increase if additional Chinese entities are placed on the Entity List due, among other things, to their business with Russia in light of China’s stance and actions taken relating to Russia-Ukraine tensions and hostilities. 46 Table of Contents In July 2021, we submitted a voluntary self-disclosure (VSD) to the BIS, noting potential violations of the EAR.
As reflected in other Risk Factors, such risks may increase if additional Chinese entities are placed on the Entity List due, among other things, to their business with Russia in light of China’s stance and actions taken relating to Russia-Ukraine tensions and hostilities. 46 Table of Contents In July 2021, we submitted a voluntary self-disclosure (VSD) to the U.S.
Moreover, royalty rates may be negatively affected by macroeconomic trends, including from global semiconductor supply chain issues (including from shortages in the availability of the supply of chips in several semiconductor sectors and applications), the COVID-19 pandemic and its world effects and changes in products mix.
Moreover, royalty rates may be negatively affected by macroeconomic and geopolitical trends, including from global semiconductor supply chain issues (including from shortages in the availability of the supply of chips in several semiconductor sectors and applications), the recent COVID-19 or any future pandemic and its world effects and changes in products mix.
If our business and the markets in which we operate experience a prolonged occurrence of adverse public health conditions, such as COVID-19, it could materially adversely affect our business, financial condition, and results of operations.
If our business and the markets in which we operate experience a prolonged occurrence of adverse public health conditions, it could materially adversely affect our business, financial condition, and results of operations.
The GDPR has resulted in, and will continue to result in, significant compliance burdens and costs for companies with customers and/or operations in the EEA and the UK.
The GDPR has resulted in, and will continue to result in, significant compliance burdens and costs for companies with customers and/or operations in the EEA and the U.K.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall. If our existing stockholders, including current or former employees sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline.
See “Dividend Policy” for additional information. 54 Table of Contents Management may apply our net proceeds from our initial public offering to uses that do not increase our market value or improve our operating results.
See “Dividend Policy” for additional information. Management may apply our net proceeds from our initial public offering to uses that do not increase our market value or improve our operating results.
If anticipated demand in the end market for these vehicles does not materialize, whether due to consumer demand not materializing, regulatory interventions delaying the deployment of automated driving, or the emergence of economic instability in end markets arising from factors such as inflationary trends, deteriorating purchasing power, trade or supply chain disruptions and regional and/or worldwide chip shortages or excess supply, demand fluctuations, unemployment spikes, labor shortages or end market reactions to regional or global geopolitical uncertainties or conflicts, or other factors beyond our control, it would adversely affect demand for our products from customers and royalty revenue and impact our ability to execute our growth strategy. 25 Table of Contents We depend on market acceptance of third-party semiconductor IP.
If anticipated demand in the end market for these vehicles does not materialize, whether due to consumer demand not materializing, regulatory interventions delaying the deployment of automated driving, or the emergence of economic instability in end markets arising from factors such as inflationary trends, deteriorating purchasing power, trade or supply chain disruptions and regional and/or worldwide chip shortages or excess supply, demand fluctuations, unemployment spikes, labor shortages or end market reactions to regional or global geopolitical uncertainties or conflicts, or other factors beyond our control, it would adversely affect demand for our products from customers and royalty revenue and impact our ability to execute our growth strategy.
Additionally, the COVID-19 pandemic could increase the magnitude of many of the other risks described in this Annual Report on Form 10-K, and may have other material adverse effects on our operations that we are not currently able to predict.
Additionally, such crises could increase the magnitude of many of the other risks described in this Annual Report on Form 10-K, and may have other material adverse effects on our operations that we are not currently able to predict.
The semiconductor industry is ripe with patent assertion entities and is characterized by frequent litigation regarding patent and other IP rights. From time to time, we receive communications from or are sued by third parties that allege that our products or technologies infringe their patent or other IP rights.
The semiconductor industry is rife with patent assertion entities and is characterized by frequent litigation regarding patent and other intellectual property rights. From time to time, we receive communications from or are sued by third parties that allege that our products or technologies infringe their patent or other intellectual property rights.
If the volume of our international operations increases and foreign currency exchange rates change, the impact to our consolidated statements of operations could be significant and may affect the comparability of operating results. The impact from foreign currency exchange for the twelve months ended December 31, 2022 was immaterial.
If the volume of our international operations increases and foreign currency exchange rates change, the impact to our consolidated statements of operations could be significant and may affect the comparability of operating results. The impact from foreign currency exchange for the the year ended December 31, 2023 was immaterial.
For example, the EU General Data Protection Regulation (EU GDPR) and the UK General Data Protection Regulation and the UK Data Protection Act 2018 (UK GDPR) (collectively, the GDPR) imposes comprehensive data privacy compliance obligations on our collection, processing, sharing, disclosure, transfer and other use of data relating to an identifiable living individual or “personal data”.
Data Protection Act 2018 (UK GDPR) (collectively, the GDPR) imposes comprehensive data privacy compliance obligations on our collection, processing, sharing, disclosure, transfer and other use of data relating to an identifiable living individual or “personal data”.
Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the Delaware Court of Chancery) will be the exclusive forum for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or stockholders to us or our stockholders; (3) any action asserting a claim against us, any director or our officers and employees arising pursuant to any provision of the DGCL, our Certificate of Incorporation or our Bylaws, or as to which the DGCL confers exclusive jurisdiction on the Delaware Court of Chancery; or (4) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act, the rules and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Delaware Court of Chancery dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. 56 Table of Contents Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the Delaware Court of Chancery) will be the exclusive forum for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or stockholders to us or our stockholders; (3) any action asserting a claim against us, any director or our officers and employees arising pursuant to any provision of the DGCL, our Certificate of Incorporation or our Bylaws, or as to which the DGCL confers exclusive jurisdiction on the Delaware Court of Chancery; or (4) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act, the rules and regulations thereunder or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Delaware Court of Chancery dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
The net losses we incur may fluctuate significantly from quarter to quarter and may increase as a result of geopolitical and market fluctuations, inflation, slow downs and/or recessionary pressures, the COVID-19 pandemic and other global economic factors.
The net losses we incur may fluctuate significantly from quarter to quarter and may increase as a result of geopolitical and market fluctuations, inflation, economic slowdown and/or recessionary pressures, COVID-19 or any future pandemic and other global economic factors.
If some investors do find our common stock less attractive, there may be a less active trading market for our common stock and our stock price may be reduced or become more volatile. 51 Table of Contents We will remain an emerging growth company, and will be able to take advantage of the foregoing exemptions, until the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering or such earlier time that we otherwise cease to be an emerging growth company, which will occur upon the earliest of (i) the last day of the first fiscal year in which our annual gross revenue are $1.235 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which will occur as of the end of any fiscal year in which (x) the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) we have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (z) we have filed at least one annual report pursuant to the Exchange Act.
We will remain an emerging growth company, and will be able to take advantage of the foregoing exemptions, until the last day of our fiscal year following the fifth anniversary of the closing of our initial public offering or such earlier time that we otherwise cease to be an emerging growth company, which will occur upon the earliest of (i) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which will occur as of the end of any fiscal year in which (x) the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter, (y) we have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (z) we have filed at least one annual report pursuant to the Exchange Act. 52 Table of Contents Risks Related to Ownership of Our Common Stock An active and liquid trading market for our common stock may not be sustained.
We do not expect that this executive order will impact us; however, further government escalation of restrictions related to Chinese investors and dealings in securities could harm certain shareholders. 47 Table of Contents Additionally, on October 7, 2022, the Bureau of Industry and Security issued new export controls related to the Chinese semiconductor manufacturing, advanced computing, and supercomputer industries.
We do not expect that this executive order will impact us; however, further government escalation of restrictions related to Chinese investors and dealings in securities could harm certain shareholders. Additionally, on October 7, 2022, the U.S. Department of Commerce's Bureau of Industry and Security issued export controls related to the Chinese semiconductor manufacturing, advanced computing, and supercomputer industries.
Our executive officers, directors and stockholders affiliated with our directors also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information. 53 Table of Contents Our executive officers, directors and principal shareholders, including in particular K.
Our executive officers, directors and stockholders affiliated with our directors also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information. 54 Table of Contents K.
We seek to protect our proprietary technology and innovations, particularly those relating to the design of our products, through patents, trade secrets and other IP rights. As of December 31, 2022, we had 129 total allowed or issued patents, pending patent applications and non-expired provisional patent applications worldwide.
We seek to protect our proprietary technology and innovations, particularly those relating to the design of our products, through patents, trade secrets and other intellectual property rights. As of December 31, 2023, we had 154 total allowed or issued patents, pending patent applications and non-expired provisional patent applications worldwide.
It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.
As part of CPRA, a new California data protection agency is authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.
Our failure to manage the risks and challenges associated with our international business and operations could harm our business. 29 Table of Contents Downturns or volatility in general economic conditions, including as a result of political and economic conditions in the countries in which we conduct business, the current COVID-19 pandemic or any other outbreak of an infectious disease, could harm our business.
Our failure to manage the risks and challenges associated with our international business and operations could harm our business. Downturns or volatility in general economic conditions, including as a result of geopolitical and macroeconomic conditions in the countries in which we conduct business, the recent COVID-19 pandemic or any other outbreak of an infectious disease, could harm our business.
Significant portions of our anticipated future revenue, therefore, will likely depend upon our success in attracting new customers, or continuing or expanding our relationships with existing customers. However, revenue recognized from licensing arrangements vary significantly from period to period, depending on the number and size of deals closed during a quarter, and is difficult to predict.
Still, significant portions of our anticipated future revenue depend upon our success in attracting new customers, or continuing or expanding our relationships with existing customers, and revenue recognized from licensing arrangements varies from period to period, depending on the number and size of deals closed during a quarter, and is difficult to predict.
A decline in end-user demand can affect our customers’ demand for our products, the ability of our customers to obtain credit and otherwise meet their payment obligations and the likelihood of customers canceling or deferring existing orders. Our business could be harmed by such actions.
A decline in end-user demand can affect our customers’ demand for our products, the ability of our customers to obtain credit and otherwise meet their payment obligations and the likelihood of customers canceling or deferring existing orders.
Risks Related to Ownership of Our Common Stock An active and liquid trading market for our common stock may not be sustained. Our common stock is currently listed on the Nasdaq Stock Market under the symbol “AIP”. The price for our common stock may vary and an active or liquid market in our common stock may not be sustained.
Our common stock is currently listed on the Nasdaq Stock Market under the symbol “AIP”. The price for our common stock may vary and an active or liquid market in our common stock may not be sustained.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive office is located in Campbell, California. We currently lease offices in the United States in Campbell, California and Austin, Texas which consists of approximately 16,300 square feet of space. We also lease space in France, China, Japan and South Korea. We lease all our facilities and do not own any real property.
Biggest changeItem 2. Properties Our principal executive office is located in Campbell, California. We currently lease offices in the United States in Campbell, California and Austin, Texas which consists of approximate ly 15,500 square fe et of space. We also lease space in France, China, Japan and South Korea. We lease all our facilities and do not own any real property.
Mine Safety Disclosures Not applicable. 57 Table of Contents Part II
Mine Safety Disclosures Not applicable. 59 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePrior to that date, there was no public trading market for our common stock. Holders of Record As of February 21, 2023, there were 345 stockholders of record of our common stock.
Biggest changePrior to that date, there was no public trading market for our common stock. Holders of Record As of February 13, 2024, there were 376 stockholders of record of our common stock.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2022.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after December 31, 2023.
There has been no material change in the planned use of proceeds from our IPO as described in our Final Prospectus for the IPO dated as of October 26, 2021 and filed with the SEC pursuant to Rule 424(b)(4) on October 28, 2021. Issuer Purchases of Equity Securities None. 58 Table of Contents Item 6. [Reserved] 59 Table of Contents
There has been no material change in the planned use of proceeds from our IPO as described in our Final Prospectus for the IPO dated as of October 26, 2021 and filed with the SEC pursuant to Rule 424(b)(4) on October 28, 2021. Issuer Purchases of Equity Securities None. 60 Table of Contents Item 6. [Reserved] 61 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear ended December 31, 2022 2021 (in thousands) Total revenue $ 50,378 $ 37,864 Cost of revenue (1) 4,281 3,731 Gross profit 46,097 34,133 Operating expenses: Research and development (1) 41,167 30,812 Sales and marketing (1) 17,419 11,726 General and administrative (1) 16,367 13,360 Total operating expenses 74,953 55,898 Loss from operations (28,856) (21,765) Interest expense (89) (105) Interest and other income (expense), net 1,425 (474) Loss before income taxes and loss from equity method investment (27,520) (22,344) Loss from equity method investment, net of tax (284) — Provision for (benefit from) income taxes (417) 1,040 Net loss $ (27,387) $ (23,384) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2022 2021 (in thousands) Cost of revenue $ 562 $ 218 Research and development 5,865 3,495 Sales and marketing 2,123 579 General and administrative 3,142 1,218 Total stock-based compensation expense $ 11,692 $ 5,510 66 Table of Contents The following table summarizes our results of operations as a percentage of total revenue for each of the periods indicated: Year Ended December 31, 2022 2021 (as a percentage of total revenue) Total revenue 100 % 100 % Cost of revenue 8 10 Gross profit 92 90 Operating expenses: Research and development 82 81 Sales and marketing 35 31 General and administrative 32 36 Total operating expenses 149 148 Loss from operations (57) (58) Interest expense — — Interest and other income (expense), net 3 (1) Loss before income taxes and loss from equity method investment (54) (59) Loss from equity method investment, net of tax (1) — Provision for (benefit from) income taxes (1) 3 Net loss (54) % (62) % Comparison of the Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, Change 2022 2021 $ % (in thousands) Licensing, support and maintenance $ 46,012 $ 34,731 $ 11,281 32 % Variable royalties 3,140 2,647 493 19 Other 1,226 486 740 152 Total $ 50,378 $ 37,864 $ 12,514 33 % Revenue from licensing, support and maintenance increased $11.3 million during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Biggest changeYear ended December 31, 2023 2022 (in thousands) Total revenue $ 53,666 $ 50,378 Cost of revenue (1) 5,077 4,281 Gross profit 48,589 46,097 Operating expenses: Research and development (1) 45,128 41,167 Sales and marketing (1) 20,659 17,419 General and administrative (1) 17,944 16,367 Total operating expenses 83,731 74,953 Loss from operations (35,142) (28,856) Interest expense (211) (89) Other income (expense), net 3,558 1,425 Loss before income taxes and loss from equity method investment (31,795) (27,520) Loss from equity method investment, net of tax 3,397 284 Provision for (benefit from) income taxes 1,677 (417) Net loss $ (36,869) $ (27,387) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 (in thousands) Cost of revenue $ 556 $ 562 Research and development 7,324 5,865 Sales and marketing 2,712 2,123 General and administrative 3,943 3,142 Total stock-based compensation $ 14,535 $ 11,692 68 Table of Contents The following table summarizes our results of operations as a percentage of total revenue for each of the periods indicated: Year Ended December 31, 2023 2022 (as a percentage of total revenue) Total revenue 100 % 100 % Cost of revenue 9 8 Gross profit 91 92 Operating expenses: Research and development 84 82 Sales and marketing 38 35 General and administrative 33 32 Total operating expenses 155 149 Loss from operations (64) (57) Interest expense — — Other income (expense), net 7 3 Loss before income taxes and loss from equity method investment (57) (54) Loss from equity method investment, net of tax 6 1 Provision for (benefit from) income taxes 3 (1) Net loss (66) % (54) % Comparison of the Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, Change 2023 2022 $ % (in thousands) Licensing, support and maintenance $ 48,273 $ 46,012 $ 2,261 5 % Variable royalties 5,158 3,140 2,018 64 % Other 235 1,226 (991) (81) % Total $ 53,666 $ 50,378 $ 3,288 7 % Revenue from licensing, support and maintenance increased $2.3 million during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Interest and other income (expense), net: Interest and other income (expense), net consists primarily of interest income earned on our cash and cash equivalents and available-for-sale investments, gains and losses from foreign currency exchange, gain on deconsolidation of subsidiary, realized gains and losses from available-for-sale investments as well as deferred income.
Other income (expense), net: Other income (expense), net consists primarily of interest income earned on our cash and cash equivalents and available-for-sale investments, gains and losses from foreign currency exchange, gain on deconsolidation of subsidiary, realized gains and losses from available-for-sale investments as well as deferred income.
Loss from equity method investment: Loss from equity method investment consists of our proportionate share of net income (losses) from our equity method investee. Provision for (benefit from) income taxes: Our income tax provision consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and includes foreign non-recoverable withholding taxes.
Loss from equity method investment: Loss from equity method investment consists of our proportionate share of net losses from our equity method investee. Provision for (benefit from) income taxes: Our income tax provision consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and includes foreign non-recoverable withholding taxes.
Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was $37.5 million primarily attributable to $35.0 million of purchases of available-for-sale securities, $1.1 million of payments for business combination, net of $0.3 million of cash acquired, purchases of property and equipment of $1.1 million, and $0.5 million of payments related to investment in our equity method investee, see Note 15 to our consolidated financial statements.
Net cash used in investing activities for the year ended December 31, 2022 was $37.5 million primarily attributable to $35.0 million of purchases of available-for-sale securities, $1.1 million of payments for business combination, net of $0.3 million of cash acquired, purchases of property and equipment of $1.1 million, and $0.5 million of payments related to investment in our equity method investee, see Note 15 to our consolidated financial statements.
The design license and the regular two-way interaction between the design tool, RTL , and the application engineering support services give the customer the intended benefit from the arrangement, which is the ability to commercialize their design.
The design license and the regular two-way interaction between the design license tool, RTL, and the Application Engineering Support Services give the customer the intended benefit from the arrangement, which is the ability to commercialize their design.
Further, although technical support and software updates is a distinct performance obligation, it is accounted for as if it were part of a single performance obligation that includes the licenses, RTL and application engineer support services because the technical support and updates are provided in practice for the same period of time and have the same time-based pattern of transfer to the customer as the combined design license, RTL, and application support services.
Further, although technical support and software updates is a distinct performance obligation, it is accounted for as if it were part of a single performance obligation that includes the licenses, RTL and Application Engineer Support Services because the technical support and updates are provided in practice for the same period of time and have the same time-based pattern of transfer to the customer as the combined design license, RTL, and Application Engineer Support Services.
Flexible Spending Accounts Some customers enter into a non-cancelable Flexible Spending Account (FSA) agreements whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of our products or services.
Flexible Spending Accounts Some customers enter into a non-cancelable flexible spending account agreements (FSA Agreements) whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of our products or services.
A decline in the fair value of the available-for-sale securities is recognized directly to net income (loss) if judged to be other than temporary. Interest earned on investments in debt securities, realized gains and losses and impairment losses, if any, on investments in debt securities are included in interest and other income (expense), net in the consolidated statements of loss.
A decline in the fair value of the available-for-sale securities is recognized directly to net income (loss) if judged to be other than temporary. Interest earned on investments in debt securities, realized gains and losses and impairment losses, if any, on investments in debt securities are included in other income (expense), net in the consolidated statements of loss.
Further, because the average selling prices (ASPs) of our products may decline over time, we consider new license agreements and new product launches to be critical to our future success and anticipate that for our newer products, we are and will remain highly dependent on market demand timing and revenue from new license agreements.
Further, because the average selling prices of our products may decline over time, we consider new license agreements and new product launches to be critical to our future success and anticipate that for our newer products, we are and will remain highly dependent on market demand timing and revenue from new license agreements.
FAEs provide assistance to the customer’s engineering team in translating their desired SoC architecture into inputs for NoC IP configuration, assistance in optimizing the NoC configuration, answers to customer questions by the online support system or phone, constructive reviews of the progress achieved by the customer’s development team and provision of advice on how to best use the licensed IP, performance of design reviews before customer project RTL freeze and tape-out to ensure the customer used the licensed IP configuration tooling as intended so that the RTL output meets customer requirements and expectations.
FAEs provide assistance to the customer’s engineering team in translating their desired SoC architecture into inputs for NoC IP configuration, assistance in optimizing the NoC configuration, answer to customer questions by the online support system or phone, constructive reviews of the progress achieved by the customer’s development team and provision of advice on how to best use the licensed IP, performance of design reviews before customer project RTL freeze and tape-out to ensure the customer used the licensed IP configuration tooling as intended so that the RTL output meets customer requirements and expectations.
Revenue allocated to the software license is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term.
Revenue allocated to the software license is generally recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term.
In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. As of December 31, 2022 and 2021, we recorded a full valuation allowance against our U.S. federal, state, and certain foreign jurisdiction deferred tax assets.
In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. As of December 31, 2023 and 2022, we recorded a full valuation allowance against our U.S. federal, state, and certain foreign jurisdiction deferred tax assets.
We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. In instances where foreign licensees withhold and remit taxes to local authorities in accordance with local laws and regulations, we recognize and present revenue on a gross basis, and include the withholding tax in income tax expense.
We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions. In instances where foreign licensees withhold and remit taxes to local authorities in accordance with local laws and regulations, we recognize and present revenue on a gross basis, and includes the withholding tax in income tax expense.
We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized. 65 Table of Contents Results of Operations The following table summarizes our GAAP results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.
We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized. 67 Table of Contents Results of Operations The following table summarizes our GAAP results of operations for the periods presented. The results below are not necessarily indicative of results to be expected for future periods.
Customers typically start shipping their products containing our interconnect IP solutions between one to five years following completion of their product design, known as mass production, at which point we start to receive royalties; this lasts for up to seven years depending on the market segment.
Customers typically start shipping their products using our interconnect IP solutions between one to five years following completion of their product design, known as mass production, at which point we start to receive royalties; this lasts for up to seven years depending on the market segment.
CAEs are part of the product development team providing detailed requirements for engineering projects, working very closely with a customer’s chief technology officer, and similar staff, and their marketing department, and performing quality assurance testing of customer products prior to shipment to their customers.
CAEs are part of the product development team providing detailed requirements for engineering projects, working very closely with a customer’s chief technology officer and the marketing department, and performing quality assurance testing of customer products prior to shipment to their customers.
The Interconnect Solutions IP, RTL, and the application engineering support services serve to fulfill our commitment to the customer, as they represent inputs to a single, combined performance obligation that commences upon the later of the agreement effective date or transfer of the software license.
The Interconnect Solutions IP, RTL, and the Application Engineering Support Services serve to fulfill our commitment to the customer, as they represent inputs to a single, combined performance obligation that commences upon the later of the arrangement effective date or transfer of the software license.
If we expect to sell a debt security within one year, we will classify the investment as a short-term investment regardless of its stated maturity date. 75 Table of Contents The available-for-sale securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss).
If we expect to sell a debt security within one year, we will classify the investment as a short-term investment regardless of its stated maturity date. The available-for-sale securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss).
As a result of the foregoing, revenue may fluctuate significantly from period to period and any increase or decrease in such revenue may not be indicative of future period-to-period increases or decreases. Technological Development and Market Growth We believe our growth has been and will continue to be driven by technology trends in our end markets.
As a result of the foregoing, revenue may fluctuate significantly from period to period and any increase or decrease in such revenue may not be indicative of future period-to-period increases or decreases. 63 Table of Contents Technological Development and Market Growth We believe our growth has been and will continue to be driven by technology trends in our end markets.
When we do not receive actual sales data from the customer prior to the finalization of its financial statements, royalty revenues are recognized based on our estimation of the customer’s sales during the quarter. Our deployment solutions product and CSRCompiler product arrangements provide customers the right to software licenses, software updates and technical support.
When we do not receive actual sales data from the customer prior to the finalization of our financial statements, royalty revenues are recognized based on our estimation of the customer’s sales during the quarter. Our SIA solutions product and CSRCompiler product arrangements provide customers the right to software licenses, software updates and technical support.
Services performed on a fixed price basis are recognized over time, generally using costs incurred or hours expended to measure progress. Multiple Performance Obligations Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately, if they are distinct.
Services performed on a fixed price basis are recognized over time, generally using costs incurred or hours expended to measure progress. 74 Table of Contents Multiple Performance Obligations Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately, if they are distinct.
The cost of securities sold is based on the specific-identification method. Equity Method Investments We use the equity method to account for our investments in companies which we do not control but are deemed to have the ability to exercise significant influence over operating and financial decisions of the investee.
The cost of securities sold is based on the specific-identification method. 76 Table of Contents Equity Method Investments We use the equity method to account for our investments in companies which we do not control but are deemed to have the ability to exercise significant influence over operating and financial decisions of the investee.
For additional details, see the section titled “Risk Factors—Our business has been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic.” Key Performance Indicators We use the following key performance indicators to analyze our business performance and financial forecasts and to develop strategic plans, which we believe provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.
For additional details, see the section titled “Risk Factors—Our business has been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease.” Key Performance Indicators We use the following key performance indicators to analyze our business performance and financial forecasts and to develop strategic plans, which we believe provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.
However, we continue to provide technical support and software updates throughout the license term even if the customer does not renew these services in subsequent years, making the license term and support and maintenance term co-terminus. 64 Table of Contents Revenues that are derived from the sale of a licensee’s products that incorporate our IP are classified as royalty revenues.
However, we may continue to provide technical support and software updates throughout the license term even if the customer does not renew these services in subsequent years, making the license term and support and maintenance term co-terminus. Revenues that are derived from the sale of a licensee’s products that incorporate our IP are classified as royalty revenues.
We incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for additional G&A personnel, directors and officers insurance, investor relations, and professional services.
We incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for additional G&A personnel, directors’ and officers’ insurance, investor relations, and professional services.
Consequently, the RTL and application engineer support service cannot be used on its own or together with any other design license as we do not allow the use of the RTL or provide application engineer support services separately from the design license.
Consequently, the RTL and Application Engineer Support Services cannot be used on their own or together with any other design license as we do not allow the use of the RTL or provide Application Engineer Support Services separately from the design license.
For example, U.S. export regulations, including regulations announced October 7, 2022 that impose broad end-use and other restrictions on doing business with certain customers and facilities in China that develop or produce semiconductor chips or manufacturing equipment, may limit or adversely impact our ability to license or support our products to entities in or doing business with certain advanced AI or “supercomputer” design companies, foundries and manufacturers of assemblies and components in China.
For example, U.S. export regulations, including regulations announced October 7, 2022 and further amended effective November 17, 2023, that impose broad end-use and other restrictions on doing business with certain customers and facilities in China that develop or produce semiconductor chips or manufacturing equipment, may limit or adversely impact our ability to license or support our products to entities in or doing business with certain advanced AI or “supercomputer” design companies, foundries and manufacturers of assemblies and components in China.
Professional Services Our agreements often include service elements (other than maintenance and support services). These services include training, design assistance, and consulting.
Professional Services Our agreements may include service elements (other than maintenance and support services). These services include training, design assistance, and consulting.
Cost of revenue: Cost of revenue relates to costs associated with our licensing agreements and support and maintenance, including applicable FAE personnel-related costs such as stock-based compensation, travel, and allocated overhead. We expect cost of revenue as a percentage of revenue to modestly decline over time due to productivity improvements of our FAE processes.
Cost of revenue: Cost of revenue relates to costs associated with our licensing agreements and support and maintenance, including applicable FAE personnel-related costs such as stock-based compensation, travel, amortization of developed technology acquired intangibles and allocated overhead. We expect cost of revenue as a percentage of revenue to modestly decline over time due to productivity improvements of our FAE processes.
We expect RPO to fluctuate up or down from period to period for several reasons, including amounts, timing, and duration of customer contracts, as well as the timing of billing cycles for each contract. Our RPO was $57.7 million and $60.5 million as of December 31, 2022 and 2021, respectively.
We expect RPO to fluctuate up or down from period to period for several reasons, including amounts, timing, and duration of customer contracts, as well as the timing of billing cycles for each contract. Our RPO was $72.7 million and $57.7 million as of December 31, 2023 and 2022, respectively.
Judgment is also required to determine the standalone selling price for each distinct performance obligation. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables (billed or unbilled), contract assets, or contract liabilities (deferred revenue) on our consolidated balance sheet.
Judgment is also required to determine the standalone selling price for each distinct performance obligation. 75 Table of Contents Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in contract assets (unbilled receivables), or contract liabilities (deferred revenue) on our consolidated balance sheets.
Customers cannot benefit from the design license on its own or together with other readily available resources as no other RTL or application engineer support service exists in the marketplace that a customer could use with the design license.
Customers cannot benefit from the design license on its own or together with other readily available resources as no other RTL or Application Engineer Support Services providers exist in the marketplace that a customer could use with the design license.
Nature of Products and Services Our revenue is derived from licensing intellectual property, licensing software, support and maintenance services, professional services, training services, and royalties. Design Solutions Interconnect solutions product agreements provide customers the right to software licenses, services, software updates and technical support.
Nature of Products and Services Our revenue is primarily derived from licensing intellectual property, licensing software, support and maintenance services, professional services, training services, and royalties. Design Solutions Interconnect Solutions product arrangements provide customers the right to software licenses, services, and support and maintenance.
Income Taxes We account for income taxes under the asset and liability method. Under this method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences are expected to reverse.
Under this method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences are expected to reverse.
In addition, total ACV and trailing twelve months royalties and other revenue was $52.4 million and $50.0 million as of December 31, 2022 and 2021, respectively. We monitor ACV to measure our success and believe the increase in the number shows our progress in expanding our customers’ adoption of our platform.
In addition, total ACV and trailing twelve months variable royalties and other revenue was $56.1 million and $52.4 million as of December 31, 2023 and 2022, respectively. We monitor ACV to measure our success and believe the increase in the number shows our progress in expanding our customers’ adoption of our platform.
Products incorporating our IP are used to carry most of the important data inside complex SoCs for sophisticated applications, including automotive, enterprise computing, communications, consumer electronics, and industrial markets . As of December 31, 2022, we had 245 full-time employees and offices in eight locations in the United States, France, China, South Korea and Japan.
Products incorporating our IP are used to carry most of the important data inside complex SoCs for sophisticated applications, including automotive, enterprise computing, communications, consumer electronics, and industrial markets. As of December 31, 2023, we had 243 em ployees and offices in eight locations in the United States, France, China, South Korea and Japan.
Further, a meaningful percentage of our revenue is generated through royalty payments. Because the time between a new license agreement win and the customer’s end product being sold can be substantial, with sales of the end product being subject to a number of factors outside our control, our revenue from royalties is difficult to predict.
Because the time between a new license agreement win and the customer’s end product being sold can be substantial, with sales of the end product being subject to a number of factors outside our control, our revenue from royalties is difficult to predict.
Our interconnect IP and NoC interface IP customers confirmed a total of 82 and 86 design starts during each of the years ended December 31, 2022 and 2021, respectively. We believe that the number of Confirmed Design Starts is an important indicator of the growth of our business and future royalty revenue trends.
Our interconnect IP and NoC interface IP customer base started a total of 95 and 82 design starts during each of the years ended December 31, 2023 and 2022, respectively. We believe that the number of Confirmed Design Starts is an important indicator of the growth of our business and future royalty revenue trends.
Total fixed fees include licensing, support and maintenance and other fixed fees under IP licensing or software licensing agreements but excludes variable revenue derived from licensing agreements with customers, particularly royalties. ACV was $49.2 million and $47.4 million as of December 31, 2022 and December 31, 2021, respectively.
Total fixed fees include licensing, support and maintenance and other fixed fees under IP licensing or software licensing agreements but exclude variable revenue derived from licensing agreements with customers, particularly royalties. ACV was $50.9 million and $49.2 million as of December 31, 2023 and 2022, respectively.
As of December 31, 2022, we had $68.2 million in cash and cash equivalents and short-term investments of which $4.2 million was held by our foreign subsidiaries.
As of December 31, 2023, we had $41.2 million in cash and cash equivalents and short-term investments of which $2.6 million was held by our foreign subsidiaries.
We record a contract asset when revenue is recognized prior to the right to invoice. We record deferred revenue when we invoice customers and revenue is not yet recognized. For time-based software agreements, customers are generally invoiced in single or annual amounts, although some customers are invoiced more frequently over-time.
We record a contract asset when revenue is recognized prior to the right to invoice and we have an unconditional right to invoice and receive payment. We record deferred revenue when we invoice customers and revenue is not yet recognized. Customers are generally invoiced in single or annual amounts, although some customers are invoiced more frequently over time.
Research and development (R&D) expenses: R&D expenses consist primarily of salaries and associated personnel-related costs, facilities expenses associated with research and development activities, third-party project-related expenses connected with the development of our intellectual property which are expensed as incurred, and stock-based compensation expense and other allocated costs.
Such costs include costs associated with office facilities, depreciation of property and equipment, certain support function personnel costs and other expenses. 66 Table of Contents Research and development (R&D) expenses: R&D expenses consist primarily of salaries and associated personnel-related costs, facilities expenses associated with research and development activities, third-party project-related expenses connected with the development of our intellectual property which are expensed as incurred, and stock-based compensation expense and other allocated costs.
The primary drivers of the changes in operating assets and liabilities were a $16.3 million increase in deferred revenue, $2.8 million increase in accrued expenses and other liabilities, $0.5 million decrease in accounts receivables and $0.4 million increase in accounts payable, partially offset by $4.4 million increase in prepaid expenses and other assets.
The drivers of the changes in operating assets and liabilities were a $4.9 million increase in accounts receivable, a $1.3 million increase in prepaid expenses and other assets, and a $0.4 million decrease in accounts payable, offset by a $6.0 million increase in deferred revenue, and a $2.5 million increase in accrued expenses and other liabilities.
Impact of Operating Globally We believe our products’ global footprint provides us the opportunity to enter new markets and accelerate our growth. For 2022, 59.3% of our revenue was derived from sales to customers outside of the United States and 28.8% of our revenue was derived from customers located in China.
Impact of Operating Globally We believe our products’ global footprint provides us with the opportunity to enter new markets and accelerate our growth. For 2023, 65.4% of our revenue was derived from sales to customers outside of the United States and 31.1% of our revenue was derived from customers located in China.
The primary reason for the acquisition was to integrate our technologies in order to accelerate and simplify the SoC assembly design flow and enhance innovation in both SoC IP integration software and the highly configurable on-chip interconnect IP that implements chip architectures.
Magillem is a leading provider of design flow and content management software solutions for the complex chip market. The primary reason for the acquisition was to integrate our technologies in order to accelerate and simplify the SoC assembly design flow and enhance innovation in both SoC IP integration software and the highly configurable on-chip interconnect IP that implements chip architectures.
Remaining Performance Obligations We define Remaining Performance Obligations (RPO) as the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and contracted amounts that will be invoiced and recognized as revenue in future periods. The RPO amount is intended to provide visibility into future revenue streams.
Remaining Performance Obligations We define Remaining Performance Obligations (RPO) as the amount of contracted future revenue that has not yet been recognized, including deferred revenue, billed and unbilled cancelable and non-cancelable contracted amounts. The RPO amount is intended to provide visibility into future revenue streams.
We enter into licensing agreements with customers that typically range from two to three years and generally consist of delivery of a design license that grants the customer the right to use our IP to design a contractually defined number of products and stand-ready support services that provide the customer a significant benefit from our RTL as well as ongoing access to application engineer support services to perform certain verifications including benchmark performance, simulations and ultimately, through the RTL, instantiate designs into silicon over the design term.
We enter into licensing arrangements with customers that typically range from two to three years and generally consist of delivery of a design license that grants the customer the right to use the IP to design a contractually defined number of products, a right to access the benefits of its proprietary software tool (RTL), and support and maintenance services that provide the customer a significant benefit from ongoing access to Corporate Application Engineers (CAE) and Field Application Engineers (FAE) (collectively, Application Engineer Support Services) to perform certain verifications including benchmark performance, simulations and ultimately, through the RTL, instantiate designs into silicon over the design term.
For 2021, 56.9% of our revenue was derived from sales to customers outside of the United States. In particular, we derived 27.1% of our revenue in 2021 from customers located in China. While we believe operating internationally has beneficially impacted our results of operations, we are subject to inherent risks attributed to operating in a global economy.
For 2022, 59.3% of our revenue was derived from sales to customers outside of the United States and 28.8% of our revenue was derived from customers located in China. While we believe operating internationally has beneficially impacted our results of operations, we are subject to inherent risks attributed to operating in a global economy.
Financing Activities For the year ended December 31, 2022, net cash used in financing activities was $4.2 million, primarily attributable to payments to tax authorities for shares withheld from employees of $2.1 million, payments of contingent consideration for business combination of $1.6 million, principal payments under vendor financing arrangements of $1.1 million, partially offset by proceeds from exercise of stock options of $0.9 million.
For the year ended December 31, 2022, net cash used in financing activities was $4.2 million, primarily attributable to payments to tax authorities for shares withheld from employees of $2.1 million, payments of contingent consideration for business combination of $1.6 million, principal payments under vendor financing arrangements of $1.1 million, partially offset by proceeds from exercise of stock options of $0.9 million. 72 Table of Contents Contractual Obligations Our principal commitments consist of obligations under our operating leases for office space and data center hosting space and vendor finance arrangements.
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis, which are estimated considering multiple factors including observable industry pricing practices and internal pricing strategies and objectives. Standalone selling prices of software licenses are typically estimated using the residual approach.
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis, which are estimated considering multiple factors including observable industry pricing practices and internal pricing strategies and objectives. Standalone selling prices of professional services are typically estimated based on observable transactions when these services are sold on a standalone basis.
Our obligations as of December 31, 2022 under our vendor finance arrangements are described in Note 11 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 70 Table of Contents Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Our obligations as of December 31, 2023 under our vendor finance arrangements are described in Note 11 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make certain estimates, judgments, and assumptions.
The support services, including access to application engineering support services and the benefits of the RTL, are integral and fundamental to the customer’s ability to derive its intended benefit from the IP.
Application Engineer Support Services are integral and fundamental to the customer’s ability to derive its intended benefit from the IP.
The support services, including access to application engineering support services and the benefits of the RTL, are integral and fundamental to the customer’s ability to derive its intended benefit from the IP.
Application Engineer Support Services are integral and fundamental to the customer’s ability to derive its intended benefit from the IP.
For a majority of our royalty revenues, we receive the actual sales data from its customers after the quarter ends and account for it as unbilled receivables.
For a majority of our royalty revenues, we receive the actual sales data from our customers after the quarter ends and account for it as unbilled receivables. In such instances, we recognize royalty revenues based on our estimation of the customer’s sales during the quarter.
Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, and trade names from a market participant perspective, useful lives, and discount rates.
These estimates are based on information obtained from management of the acquired companies, our assessment of this information, and historical experience. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology, and trade names from a market participant perspective, useful lives, and discount rates.
Goodwill and Intangible Assets We perform our goodwill and other indefinite-lived intangible assets impairment tests annually or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value below its carrying value.
Goodwill and Intangible Assets We test our goodwill and other indefinite-lived intangible assets for impairment during the last day of the third fiscal quarter each year or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value below its carrying value.
Besides application engineer support services, support and maintenance services also consist of a stand-ready obligation to provide technical support and software updates over the support term. Generally, the first-year of technical support and software updates are bundled with and into the license fee with a customer option to renew additional years of support throughout the license term.
Generally, the first-year of technical support and software updates are bundled with and into the license fee with a customer option to renew additional years of support throughout the license term.
Standalone selling prices of professional services are typically estimated based on observable transactions when these services are sold on a standalone basis. 72 Table of Contents Transaction price Revenue is recognized when, or as, control of a promised product or service transfers to a client, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those products or services.
Transaction price Revenue is recognized when, or as, control of a promised product or service transfers to a client, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those products or services.
FAE reviews of the customer’s design are generally mandatory and consist of an understanding of the customer requirements and analysis of the adequacy of the contemplated IP considering the customer’s desired architecture and design goals and objectives, taking into consideration bandwidth, coherence/non-coherence, latency, clock and timing, areas, and any and all constraints, as identified and specific to the design under review.
FAE reviews of the customer’s design are mandatory and consist of an understanding of the customer requirements and analysis of the adequacy of the contemplated IP considering the customer’s desired architecture and design goals and objectives, taking into consideration bandwidth, coherence/non-coherence, latency, clock and timing, areas, and any and all constraints, as identified and specific to the design under review. 73 Table of Contents Besides Application Engineer Support Services, support and maintenance services also consist of a stand-ready obligation to provide technical support and software updates over the support term.
Provision for (benefit from) income taxes Year Ended December 31, Change 2022 2021 $ % (in thousands) Provision for (benefit from) income taxes $ (417) $ 1,040 $ (1,457) (140) % The provision for (benefit from) income taxes for the year ended December 31, 2022 was a benefit of $0.4 million, compared to an expense of $1.0 million for the year ended December 31, 2021.
Provision for (benefit from) income taxes Year Ended December 31, Change 2023 2022 $ % (in thousands) Provision for (benefit from) income taxes $ 1,677 $ (417) $ 2,094 * * Not meaningful The provision for (benefit from) income taxes for the year ended December 31, 2023 was as expense of $1.7 million, compared to a benefit of $0.4 million for the year ended December 31, 2022.
Revenue allocated to the software license is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term.
For the majority of these contracts, there are no termination rights and the transaction price is non-refundable. Revenue allocated to the software license is generally recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term.
Although we expect most of our employees to return to physical offices, the nature and extent of that return is uncertain and differs among jurisdictions such as China where restriction against returning to offices remain largely in effect.
Although we expect most of our employees to return to physical offices, the nature and extent of that return is uncertain and differs among jurisdictions.
For the year ended December 31, 2022, we generated revenue of $50.4 million, net loss of $27.4 million and net loss per share – basic and diluted of $0.84. As of December 31, 2022, we had Annual Contract Value (as defined below) of $49.2 million.
For the year ended December 31, 2023, we generated revenue of $53.7 million, net loss of $36.9 million and net loss per share, basic and diluted of $1.03. As of December 31, 2023, we had Annual Contract Value (as defined below) of $50.9 million.
Although we have experienced, and may continue to experience, some impact on certain parts of our business as a result of governmental restrictions and other measures to mitigate the spread of COVID-19, our results of operations, cash flows and financial condition were not materially adversely impacted the year ended December 31, 2022.
Although we have experienced, and may continue to experience, some impact on certain parts of our business as a result of governmental restrictions and other measures to mitigate the spread of COVID-19, our results of operations, cash flows and financial condition were not materially adversely impacted the year ended December 31, 2023. 64 Table of Contents We are unable to accurately predict the full impact that COVID-19 or any future pandemics will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of any future pandemics and containment measures.
The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates are based on information obtained from management of the acquired companies, our assessment of this information, and historical experience.
Business Combinations We allocate the purchase price to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.
During periods of slower growth or industry contractions, our sales generally suffer due to a decrease in customers’ Confirmed Design Starts or in sales of our customers’ products. 62 Table of Contents COVID-19 Impact While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions and emergence of new variants, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown.
During periods of slower growth or industry contractions, our sales generally suffer due to a decrease in customers’ Confirmed Design Starts or in sales of our customers’ products. COVID-19 Impact The duration and extent of the COVID-19 pandemic already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown.
As a result of these restrictions, we may face challenges to maintain our revenue and our revenue may decrease.
As a result of these restrictions, our customers may experience changes to or delays in their design projects, and we may face challenges to maintain our revenue and/or our revenue may decrease.
For the year ended December 31, 2021, net cash used in operating activities was $0.8 million, primarily due to our net loss of $23.4 million, adjusted for non-cash charges of $7.1 million and $15.5 million changes in operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $5.5 million and depreciation and amortization of $1.5 million.
For the year ended December 31, 2023, net cash used in operating activities was $15.7 million, primarily due to our net loss of $36.9 million, adjusted for non-cash charges of $19.2 million and $1.9 million changes in operating assets and liabilities.
The cash outflow was offset by proceeds of $0.2 million from principal portion of our related party loan, Net cash used in investing activities was $1.4 million for the year ended December 31, 2021, primarily attributable to purchases of property and equipment and payments of deferred consideration related to the Magillem acquisition.
The cash outflow was offset by proceeds of $0.2 million from principal portion of our related party loan. Financing Activities For the year ended December 31, 2023, net cash used in financing activities was $2.9 million, primarily attributable to payments of contingent consideration for business combinations and principal payments under vendor financing arrangements.
For example, in recent periods we have structured certain agreements with customers that include substantial up front licensing payments. As a result of how these contracts are structured and the revenue is recognized, our revenue in the year ended December 31, 2022 may not be comparable to future periods if we do not enter into similar contractual agreements.
As a result of how these contracts are structured and the revenue is recognized, our revenue in the year ended December 31, 2023 may not be comparable to future periods if we do not enter into similar contractual agreements. Further, a meaningful percentage of our revenue is generated through royalty payments.
Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references in this report to “we,” “us,” “our,” the “Company,” and “Arteris” refer to Arteris, Inc. and its subsidiaries.
Please also see the section under the heading “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references in this report to “we,” “us,” “our,” the “Company,” and “Arteris” refer to Arteris, Inc. and its subsidiaries. Overview We are a leading provider of semiconductor system IP, including interconnect and other intellectual property, (collectively, System IP) technology.
We believe this increase in SoC complexity is creating a significant opportunity for sophisticated System IP solutions which incorporate NoC interconnect IP, IP deployment software and NoC interface IP (consisting of peripheral data transport IP and control plane networks connected to NoC interconnect IPs). Our IP deployment solutions, which were significantly enhanced by our acquisition of Magillem Design Services S.A.
We believe this increase in SoC complexity has created a significant opportunity for sophisticated System IP solutions that incorporate NoC interconnect IP, SoC Integration Automation software (SIA) (formerly IP deployment software) and NoC interface IP (consisting of peripheral data transport IP and control plane networks connected to NoC interconnect IPs).
Contractual Obligations Our principal commitments consist of obligations under our operating leases for office space and data center hosting space and vendor finance arrangements. Information regarding our non-cancelable lease commitments as of December 31, 2022 can be found in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Information regarding our non-cancelable lease commitments as of December 31, 2023 can be found in Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The preparation of consolidated financial statements requires us to make certain estimates, judgments, and assumptions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. Our estimates and related judgments and assumptions are continually evaluated based on available information and experiences. However, actual amounts could differ from those estimates.
We believe our customers derive a significant benefit from our engineer support services, which consist of our proprietary software tool (RTL), ongoing access to Corporate Application Engineers (CAE) and Field Application Engineers (FAE) that perform certain verifications including benchmark performance, simulations and ultimately, through RTL, instantiate designs into silicon over the design term.
We enter into licensing arrangements with customers that typically range from two to three years and generally consist of delivery of a design license that grants the customer the right to use the IP to design a contractually defined number of products, a right to access the benefits of its proprietary software tool (RTL), and support and maintenance services that provide the customer a significant benefit from ongoing access to Corporate Application Engineers (CAE) and Field Application Engineers (FAE) (collectively, Application Engineer Support Services) to perform certain verifications including benchmark performance, simulations and ultimately, through the RTL, instantiate designs into silicon over the design term.
Revenue Recognition We recognize license revenues as we transfer control of deliverables (software and services) to our customers in an amount reflecting the consideration to which we expect to be entitled.
The following are the critical accounting policies requiring estimates, judgments, and assumptions that we believe have the most significant impact on our consolidated financial statements. Revenue Recognition We recognize license revenues as we transfer control of deliverables (software and services) to our customers in an amount reflecting the consideration to which we expect to be entitled.
We record an unbilled receivable when revenue is recognized and it has an unconditional right to invoice and receive payment. 73 Table of Contents We capitalize sales commission as costs of obtaining a contract when they are incremental and, if they are expected to be recovered, amortized in a manner consistent with the pattern of transfer of the good or service to which the asset relates.
We capitalize sales commission as costs of obtaining a contract when they are incremental and, if they are expected to be recovered, amortized in a manner consistent with the pattern of transfer of the good or service to which the asset relates. Income Taxes We account for income taxes under the asset and liability method.
Cost of revenue Year Ended December 31, Change 2022 2021 $ % (in thousands) Cost of revenue $ 4,281 $ 3,731 $ 550 15 % The increase in cost of revenue during the year ended December 31, 2022 was primarily due to higher FAE employee-related stock-based compensation expense, primarily related to new grants in 2022. 67 Table of Contents Operating expenses Year Ended December 31, Change 2022 2021 $ % (in thousands) Research and development $ 41,167 $ 30,812 $ 10,355 34 % Sales and marketing 17,419 11,726 5,693 49 General and administrative 16,367 13,360 3,007 23 Total operating expenses $ 74,953 $ 55,898 $ 19,055 34 % Research and development expenses R&D expenses increased, $10.4 million, or 34%, to $41.2 million for the year ended December 31, 2022 from $30.8 million for the year ended December 31, 2021.
Cost of revenue Year Ended December 31, Change 2023 2022 $ % (in thousands) Cost of revenue $ 5,077 $ 4,281 $ 796 19 % The increase in cost of revenue during the year ended December 31, 2023 was primarily due to higher FAE employee-related expenses. 69 Table of Contents Operating expenses Year Ended December 31, Change 2023 2022 $ % (in thousands) Research and development $ 45,128 $ 41,167 $ 3,961 10 % Sales and marketing 20,659 17,419 3,240 19 General and administrative 17,944 16,367 1,577 10 Total operating expenses $ 83,731 $ 74,953 $ 8,778 12 % Research and development expenses R&D expenses increased $4.0 million, or 10%, to $45.1 million for the year ended December 31, 2023 from $41.2 million for the year ended December 31, 2022.
Our annual average customer retention rate, was 98% from December 31, 2021 to December 31, 2022. 63 Table of Contents Confirmed Design Starts We define Confirmed Design Starts as when customers confirm their commencement of new semiconductor designs using our interconnect IP and notify us.
Confirmed Design Starts We define Confirmed Design Starts as when customers confirm their commencement of new semiconductor designs using our interconnect IP and notify us.
This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies.
The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIf the volume of our international operations increases and foreign currency exchange rates change, the impact to our consolidated statements of operations could be significant and may affect the comparability of operating results. The impact from foreign currency remeasurement during the year ended December 31, 2022 and 2021 was approximately $0.1 million and $0.6 million, respectively.
Biggest changeIf the volume of our international operations increases and foreign currency exchange rates change, the impact to our consolidated statements of operations could be significant and may affect the comparability of operating results. The impact from foreign currency remeasurement during the year ended December 31, 2023 and 2022 was approximately $0.4 million and $0.1 million, respectively.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. 76 Table of Contents Foreign Currency Exchange Risk Operating in international markets involves exposure to possible volatile movements in currency exchange rates.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. 77 Table of Contents Foreign Currency Exchange Risk Operating in international markets involves exposure to possible volatile movements in currency exchange rates.
We do not believe a 10% increase or decrease in foreign exchange rates would have resulted in a material impact to our operating results. 77 Table of Contents
We do not believe a 10% increase or decrease in foreign exchange rates would have resulted in a material impact to our operating results. 78 Table of Contents

Other AIP 10-K year-over-year comparisons