Arteris (NASDAQ:AIP) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
Arteris Inc. reported record-breaking results for Q2 2026, with annual contract value plus royalties reaching $99.5 million, a 44% increase year-over-year. Revenue for the quarter was $24.1 million, up 46% from the previous year.
The company saw strong growth across multiple verticals, particularly in enterprise computing and automotive sectors. Notable wins included partnerships with a major hyperscaler and a leading U.S. semiconductor design house.
Arteris completed its ATM program, raising $72 million to support investments in system IP products and potential acquisitions. The company anticipates non-GAAP profitability by the end of 2026.
Operational highlights include the deployment of Arteris technology in Li Auto's autonomous driving chips and an expanded partnership with ARM for semiconductor cybersecurity assurance.
Outlook for Q3 includes expected revenues of $24 to $25 million and ACV royalties of $99 to $103 million. Full-year 2026 revenue guidance was raised to $95 to $98 million, reflecting strong market conditions in the semiconductor industry.
Nick Hawkins, the outgoing CFO, reported an increase in cash and equivalents to $123 million and announced his retirement. Saurabh Sinha will succeed him as CFO starting September 2026.
Full Transcript
OPERATOR
Good afternoon, everyone, and welcome to the Arteris second quarter 2026 earnings call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris, with all rights reserved. For opening remarks and introductions, I would like to turn the call over to Erika Mannion at Sapphire Investor Relations. Please go ahead.
Erika Mannion, Sapphire Investor Relations
Thank you, and good afternoon. With me today from Arteris are K. Charles Janac, Chief Executive Officer, and Nick Hawkins, Chief Financial Officer. Charlie will begin with a brief review of the business results for the second quarter ended June 30, 2026. Nick will review the financial results for the second quarter 2026, followed by the company's outlook for the third quarter and the full year of 2026. We will then open the call for questions. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws.
These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results to differ materially from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appear in the press release Arteris issued today and in the documents and reports filed by Arteris from time to time with the Securities and Exchange Commission.
Please note during this call we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share, and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended June 30, 2026. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value and remaining performance obligations, please see the press release for the quarter ended June 30, 2026. These key performance indicators are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors. Listeners who do not have a copy of the press release for the quarter ended June 30, 2026 may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the second quarter 2026 earnings presentation, which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to Charlie.
K. Charles Janac, President and Chief Executive Officer
Thank you, Erika, and thanks to everyone for joining us on our call today. Arteris's second quarter of 2026 produced multiple record-breaking results. We reached another record annual contract value plus royalties exiting the quarter at $99.5 million, representing a 44% year-on-year increase. We achieved record revenue, royalties, and RPO backlog. License deal flow in the quarter was driven by several large deals with existing and new customers. These wins spanned all key verticals, led by growth in enterprise computing and automotive, followed by aerospace and defense, communications, consumer electronics, and industrial markets for varieties of semiconductors including chiplets, systems-on-chip (SoCs), application-specific integrated circuits (ASICs), field-programmable gate arrays (FPGAs), and microcontrollers. Further to our diversification strategy, no single customer made up more than 10% of our revenue in the first half of 2026. Our customer design activity was healthy again in the quarter, with a trailing twelve months to June 30, 2026. Our customers reported a 21% higher number of design starts year over year.
Rapidly evolving high-performance computing (HPC) workloads continue to drive demand for more complex chips and chiplets across data centers, smart edge devices, and physical AI systems. This, in turn, is increasing the demand for Arteris products that help deliver the underlying high-performance, efficient, safe, and secure data movement essential to semiconductors in the AI era. In the second quarter of 2026, the majority of our customers' design starts supported AI or HPC use cases as part of the device, and this trend is continuing.
Data center chip and chiplet development continues to be a key revenue driver for Arteris. Over the past four quarters, enterprise computing has made up an average of 29% of Arteris ACV royalties, with AI infrastructure representing some of the biggest deals in the second quarter. As an example, one of the world's largest hyperscale cloud companies has chosen to adopt and standardize on Arteris for its infrastructure silicon system IP. Arteris technology will enable the high-performance and energy-efficient semiconductor data movement for the next generation of data centers.
Large-scale compute must adapt quickly for rapidly evolving software workloads that require ASICs, SoCs, and chiplets with interconnect that can support the throughput, bandwidth, and power requirements, making Arteris the obvious choice for scale-up and scale-out architectures. Another example of Arteris's progress in data center applications was a large win with one of the top U.S. semiconductor design houses building custom ASICs for various hyperscalers, where Arteris FlexNoC Smart NoC IP is increasingly being used with the underlying data movement in chiplets and multi-die chips to support high-end scale-up AI compute.
Additionally, we announced that Speedata, developer of the purpose-built analytics processing unit (APU), has deployed Arteris in its Callisto processor that runs large-volume analytics processing for applications which require high-bandwidth-capable chips, often in data centers. Physical AI—from automotive to aerospace and defense, and along with industrial applications such as robotics—continues to experience strong and growing demand for Arteris products and solutions.
Here, performance, energy, safety, security, and proven reliability are essential for foundational semiconductors. Li Auto, a leader in China's new energy vehicle market, has successfully deployed its in-house designed autonomous driving chips in their newest SUV model. Multiple chips designed with Arteris are used in each vehicle and run 2,560 trillion operations per second, or TOPS, to effectively and safely perform autonomous driving and other advanced driving tasks.
As customers take deliveries of these vehicles, we are starting to see initial royalty contributions. Another example is SiEngine, a provider of advanced automotive chips, selecting Arteris for its next-generation SoC platforms for the intelligent cockpit and advanced driver assistance applications and AI cockpit-drive fusion solution with high performance and functional safety requirements. On the product side, we're seeing equally strong momentum with customer adoption of new technologies.
Following the acquisition of Cycuity earlier this year, which provides semiconductor cybersecurity assurance, we recently announced an expanded partnership with Arm. The Cycuity Hardware Security Assurance technology is already in use by Arm during the design phase of selected CPUs. Moving forward, Arm engineering teams are expanding their adoption of Cycuity technology across additional next-generation processors to help identify and mitigate potential security weaknesses and vulnerabilities, supporting the delivery of robust and resilient CPUs.
We are honored to be supporting the Arm leadership in the application of cybersecurity hardware assurance for safer CPU hardware. We see similar cybersecurity hardware assurance opportunities with other IP suppliers, semiconductor companies, and system houses building silicon for applications ranging from AI infrastructure to mission-critical applications where cybersecurity is rapidly moving from a should to a must technology, accelerated by rapid development in frontier AI models and growing sets of required standards and regulations.
On the NoC IP front, the number of FlexNoC Smart NoC customers continues to grow as customers are increasingly seeing the value in automation and wire-length efficiency which helps reduce power the Arteris Smart NoC IP offers. In the first half of 2026, we closed multiple seven-figure deals for FlexNoC with major semiconductor customers. On the ecosystem front, we announced a collaboration with ICLink by imec, which is imec's service provider for high-end ASICs and silicon photonics.
Arteris technology will be deployed as part of their ongoing efforts to accelerate and simplify the development of next-generation HPC chiplets and ASIC chips. Our customers continue to innovate in exciting, high-growth areas. All of these require a combination of high performance, energy efficiency, safety, and security. Overall, Arteris continues to be in a strong position to support growing semiconductor applications in the AI era across data centers, edge devices, and physical AI systems, helping customers to innovate and develop their next generation of silicon chips and chiplets with our technology.
I'm happy also to announce that we have completed our ATM program, raising $72 million to support our ability to invest in industry-leading system IP products, global customer support, and additional potential acquisitions. As previously announced, Nick Hawkins will be retiring following a distinguished tenure as our CFO. Nick helped lead Arteris through its successful IPO, built an excellent finance organization, delivered at or above financial guidance on nearly all financial metrics, and was instrumental in achieving a positive free cash flow operation while laying the foundation for near-future non-GAAP profitability.
I'm very grateful for his leadership and contribution to Arteris over the years and wish him the best in the next chapter of his life. I am pleased to share that Saurabh Sinha will join Arteris as our new CFO starting on September 8, 2026. Saurabh comes to us from AVA Technologies, where he was instrumental in taking the company public on Nasdaq and in managing financial operations, capital allocation, and investor relations. We expect a smooth transition and remain focused on executing our strategy, meeting our customers' growing needs, and delivering shareholder value.
With that, I want to again thank Nick for having been an invaluable partner, and I'll turn it over to him one last time to discuss our financial results in more detail.
Nick Hawkins, Chief Financial Officer
Thank you, Charlie. Good afternoon everyone. As Charlie mentioned, this is my final earnings call for Arteris and I am delighted to be handing over the reins to Saurabh next month. I have absolute confidence that he will continue the solid financial stewardship of the company and he will be supported by our exceptional global finance team. This has been a great and enjoyable journey and together we have delivered many remarkable achievements that have benefited our stockholders and our people.
As I review our second quarter results for 2026 today, please note I will be referring to GAAP as well as non-GAAP metrics. Please also note that a reconciliation of GAAP to non-GAAP financials is included in today's earnings release which is available on our website. Also, as a reminder, I'll be referring to the 2Q 2026 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab.
We had a strong second quarter, beating the top end of our guidance for revenue and ACV royalties. Non-GAAP operating income was impacted by unexpectedly high employer payroll taxes related to French employee RSU vesting which totaled $1.7 million in the quarter and this increased expense was driven by a much higher stock price during the June quarter. Turning to Slide 5 of the presentation, total revenue for the second quarter was $24.1 million, up 46% year over year and above the top end of our guidance range.
Notably trailing 12 month royalties was $8.6 million, 65% higher year over year, setting a new record high. Royalties continue to show strong growth driven by a healthy mix of customers across all of our verticals and with exciting new royalty streams coming online every quarter. At the end of the second quarter ACV royalties was $99.5 million, up 44% year over year, above the top end of our guidance range. Once again a new record high. Remaining performance obligations, or RPO, which is our contracted future revenue, at the end of the second quarter totaled 100, another all time high for Arteris.
We expect just over half our RPO at the end of the second quarter will be recognized as revenue in the 12 months starting July 1st, 2026. Non-GAAP gross profit in the quarter was $21 million, representing a gross margin of 87%. GAAP gross profit in the quarter was $20.5 million, representing a gross margin of 85%. A reminder that our 2026 gross margin now reflects the inclusion of subcontractor costs as cost of revenue for certain cybersecurity government contracts.
Now moving to Slide 6, non-GAAP operating expense in the quarter was $25.5 million. Our OpEx was slightly above trend as a result of the RSU-driven payroll taxes that I mentioned earlier together with higher commissions resulting from a very strong deal flow quarter. As a reminder, our long term operating leverage model is to limit our OpEx growth rate to approximately half our revenue growth rate. We continue to believe that our investments into product development and customer success will help to accelerate our top line growth in coming years.
Total GAAP operating expense for the second quarter was $34.4 million which included acquisition-related expenses of $2.2 million. Non-GAAP operating loss in the quarter was $4.6 million. GAAP operating loss for the quarter was $13.9 million. Non-GAAP net loss in the quarter was $4.7 million, or diluted net loss per share of $0.10. GAAP net loss in the quarter was $14.1 million, or diluted net loss per share of $0.30. Moving to Slide 7 and turning to the balance sheet and cash flow.
We ended the quarter with $123 million in cash, cash equivalents and investments and we have no financial debt. The overall $81.6 million increase in cash, cash equivalents and investments in the quarter was driven by the successful ATM execution which raised approximately $72 million of net proceeds at an average price of over $35, coupled with $8.6 million positive free cash flow in the second quarter which brought the trailing twelve month free cash flow to positive $6.8 million.
I would now like to turn to the outlook for the third quarter and the full year 2026 and refer now to Slide 8 for the sake of clarity. NGOI guidance for the third quarter and the full year takes into account the higher run rate of French employer payroll taxes on RSU vesting. For the third quarter we expect ACV royalties of $99 to $103 million, revenue of $24 to $25 million, non-GAAP operating loss of $3 to $1 million. As a reminder, we are no longer guiding quarterly free cash flow.
As we look forward to the full year 2026, we are seeing continued strength in semiconductors and signs of an upward trend cycle in the market. Consequently, we are raising our full year revenue guidance for the full year 2026. Our guidance is as follows. ACV royalties to exit 2026 at $102 to $106 million, revenue of $95 to $98 million, an increase of $3.5 million from prior guidance and representing a 37% year over year increase at the midpoint. Non-GAAP operating loss of between $10 to $7 million.
Non-GAAP free cash flow of positive $5 to positive $9 million, unchanged from prior guidance. We're seeing a strong start to the third quarter with momentum and increasing customer engagement leading us to believe that we will see continued strength in the second half of the year, building on our strong revenue growth coupled with carefully focused expense discipline that is delivering operating leverage. We continue to believe that Arteris is on a path to profitability and we expect to report a non-GAAP operating profit for a period as early as the fourth quarter in the current year.
With that, I will turn the call back to the operator for the Q and A portion of the call.
OPERATOR
Thank you, ladies and gentlemen. If you'd like to ask a question, please press star 1 on your telephone keypad. If you'd like to retry a question, press star 2. One moment please for your first question. Your first question comes from Kevin Garrigan from Jefferies. Please go ahead.
Kevin Garrigan, Analyst at Jefferies
Yeah, hey Charlie and Nick, congrats on the great results and Charlie, great working with you and hope you enjoy retirement. Hey, can you talk more about the expanded partnership with ARM with Cycuity? Should we think about it as a licensing deal and then get royalties? And did that displace a competing solution or was this a greenfield opportunity?
K. Charles Janac, President and Chief Executive Officer
So it is a greenfield opportunity. There isn't actually a whole lot of commercial solutions for what Cycuity does. Essentially what ARM is using it for is to identify potential weaknesses in the high end and mid range CPU designs. Right. And basically they are essentially taking a leadership position about making the designs that they deliver to their customers essentially have significant amount of hardware security assurance. So it's a greenfield opportunity.
There's opportunities for expansion and we think that other processor type companies should be taking the lead of ARM in deploying cybersecurity hardware assurance solutions. And I would also like to thank ARM that they allow us to announce it because Cycuity has a significant number of very impressive customers. But people tend to be secretive about security. So ARM was very, very nice to let us announce it.
Nick Hawkins, Chief Financial Officer
Hey Kevin, this is Nick. I just want to chip in. You said that Charlie was retiring. I know that was a slip of the tongue and you know that it's actually me who's retiring, but I just want everybody else who might be listening to this call to know that Charlie's not retiring.
Kevin Garrigan, Analyst at Jefferies
It's been a long week so far. And then so I guess you know, just kind of going off that. Does the addition of Cycuity allow you to negotiate a higher royalty rate with customers?
K. Charles Janac, President and Chief Executive Officer
No. So Cycuity at least so far has been a non-royalty-bearing sort of software EDA type model. In the future there are opportunities between the network on chip and security to actually not only identify weaknesses, cybersecurity weaknesses, but also to fix them. So there might be some opportunities there, but right now it's a non-royalty-bearing product.
Kevin Garrigan, Analyst at Jefferies
Okay, perfect. Thanks guys. And Nick, enjoy retirement.
Nick Hawkins, Chief Financial Officer
Thank you, Kevin. Been a delight working with you for the last several years.
OPERATOR
Your next question comes from Josh Bacalter from TD Cowen. Please go ahead.
Josh Bacalter, Analyst at TD Cowen
Hey guys, thanks for taking my questions and let me echo the congrats to Nick on retirement and say thank you for all the work over the years. And also Charlie, thank you for staying with us. Maybe to start you called out the U.S. design house win on an ASIC platform I think using for chiplets and multi-die offerings. Can you elaborate on is this a new customer and maybe speak to what type of applications and maybe timeline to materiality for this revenue contribution.
Thank you.
K. Charles Janac, President and Chief Executive Officer
It's not a new customer, but it was a very small customer, a relatively small customer prior to this. But essentially the hyperscalers are employing a number of different business models. They buy commercial chips from Intel and maybe ARM in the future. They are building accelerators themselves and they're also working with partners to build chips to their specification. And this, you know, a large semiconductor company, one of their strong business product lines is that they build chips for hyperscalers and they have, after an extensive evaluation, decided to use Arteris for fulfilling those designs.
Josh Bacalter, Analyst at TD Cowen
Thanks for that, Charlie. Data center hyperscaler application. Got it. Okay, thank you for that, Charlie. And then maybe to follow up, I thought the Li Auto announcement was interesting as well, especially given it's for an in-house autonomous driving chip. Any way you can size this opportunity and maybe how big China auto is overall within your royalty portfolio, how big it can be over the next couple of years. Thank you.
K. Charles Janac, President and Chief Executive Officer
I think I'll defer to Nick on the royalty question. But we have a strong presence in the China automotive market and also with China automotive OEMs. And so Li Auto is just one of the opportunities that we are pursuing or have pursued and this has been underway for a while and they are starting to ship their system in a car, in actually real world cars. But as far as the royalty percentage in China, Nick, do you want to take that one?
Nick Hawkins, Chief Financial Officer
Sure, absolutely, Charlie. Hi Josh. So yeah, so Li Auto is a mid-sized Chinese EV company. So their volumes can be meaningful and they are growing. So we're delighted that they have started to send checks so rapidly. This is a feature of the Chinese automotive market. As far as how far it can go, the jury's out on that. We'll have to wait and see. But typically, if you go back to any automotive royalty stream that we've seen in the past, typically you see a ramp over the first three years.
Not necessarily totally even, but there is a ramp over the first three years and then it plateaus for a large number of years. You'll know that, for example, the Chinese automotive market has swung very heavily towards EVs as part of their electrification strategy as a country. So this is something that we're watching very carefully and I'm sure my successor, Saurabh, will be keeping a close watching eye on that.
Josh Bacalter, Analyst at TD Cowen
Thank you both.
Nick Hawkins, Chief Financial Officer
You're welcome.
OPERATOR
Your next question comes from Martin Yang from Oppenheimer. Please go ahead.
Martin Yang, Analyst at Oppenheimer
Good afternoon. Thank you for taking the question. First, Nick, hope you have a very satisfying retirement. It's been a pleasure working with you through different companies over the years. My first question is on OpEx. So the change in the annual guidance relating to profitability, is the bulk of that change related to the payroll tax increase? Is there any additional OpEx increase?
Nick Hawkins, Chief Financial Officer
Yeah, Martin. So yeah, you're absolutely right. The majority of that decrease in NGOI guidance, the $2 million decrease, is, as you rightly say, the French employer payroll taxes on RSU vesting. We had a—maybe we should have seen this coming, but we didn't—we had a very large spike in the stock price during the June quarter. And it's a tax that's levied based on the prevailing price at the date of vesting and so completely exogenous to us, outside of our control.
There are a couple of other things. We have had, as you saw, a lot of success and we're guiding up on the revenue front. Some of that—a good portion of that—is coming from security, and a lot of that is coming from government work. And government work, as you know, carries a much lower gross margin than traditional organic work or even the commercial business that security has. So those are the two big levers that have led us to that. There is also an element of this which is, again, a victim of our own success because our deal flow is so strong.
This also affected the second quarter. Our sales commissions and FAE commissions are significantly higher than we thought when we had a lower guide on revenue.
Martin Yang, Analyst at Oppenheimer
Thanks, Nick. Next question. Regarding royalty and cadence of royalty: this quarter, royalty has a very slight dip. Can you maybe give us the outlook on how the royalty revenue would trend into the second half or into '27? Thanks.
Nick Hawkins, Chief Financial Officer
Yeah, yeah, great observation, Martin. So I would characterize it more that the upward trajectory is slightly slower than in a sequential quarter base than it was last quarter, and indeed the quarter before. There are a couple of things to bear in mind for that. One is that royalties do go through slight ups and downs. We remember we saw a down in the March quarter of 2024 when Mobileye—I think it was '24; somebody correct me if I got that wrong—but it was the March quarter when Mobileye had an overstuffed channel and they had to reduce their inventory levels in the channel, and so they shipped significantly less in the March quarter and then also in the June quarter. So these things can happen. There was one of our customers—I obviously can't mention who—who had some logistical and supply chain issues and that held back one quarter's worth of shipments. But that's come back on stream. So it's a pause. The growth rate—if you look at the last 12 months over the prior year, last 12 months at June 30—that's still up 67%. And that is still, even with that little dip, well above our long-term CAGR that we've socialized with the Street.
You did ask about '27 as well. I'm sorry, I didn't.
Martin Yang, Analyst at Oppenheimer
Right. A longer-term trajectory.
Nick Hawkins, Chief Financial Officer
So this is another great question. Our long-term guide on royalties CAGR is high 30s to low 40s percent. That's what we've said in the past. Now clearly we are traveling at a faster rate than that today. We are—as Amber just mentioned—we're 67% up on a trailing 12-month basis. Now, I don't want you to assume that that rate can carry on ad infinitum. So I'm sticking at the moment—now Saurabh, when he joins, may come to a different view—but right now I think it's safe to stick with the high 30s to low 40s percent CAGR.
And we can revisit that if we see this level of robustness in royalties and success. Then we can revisit that in the coming quarters.
Martin Yang, Analyst at Oppenheimer
Thank you. I appreciate the color.
Nick Hawkins, Chief Financial Officer
Of course.
OPERATOR
Your next question comes from Suji Da Silva from Roth Capital. Please go ahead.
Suji Da Silva, Analyst at Roth Capital
Hi, Charlie. Hi, Nick. Congrats on the results here. And Nick, best of luck with the transition. Certainly, on the deal activity—very strong in the quarter—maybe you can talk about the areas that you're seeing the strongest growth outside of your core auto and AI data center, just to understand where some of these areas might be inflecting earlier.
K. Charles Janac, President and Chief Executive Officer
Yeah, I mean it's been a pretty broadly distributed sort of growth and deal flow. The data center has sort of taken the lead, I would say, because there's a lot of investment in data center, and we think that some of that is going to perhaps change a little bit. But I think AI is going to be everywhere and as the cost of AI comes down a bit, people are just going to need more and more chips. So we think that whatever happens with the data center investment is not going to have a major effect on us.
But we're also seeing strong action in microcontrollers, automotive. We have some embedded FPGA business. The space business continues reasonably well. So we're pretty happy. And I think we've announced on the earnings that for the first half—for the first time for six months—no one was more than 10% of our license revenue in the first half of 2026. So we're well distributed, I think.
Nick Hawkins, Chief Financial Officer
Can I just add a couple of things to that, Suji—thanks for your kind words. We will no doubt stay in touch. But the two other areas that are of interesting note in terms of strong deal flow: one was security. Security had a very solid quarter, and there are some consequences to that. You probably saw a $2.2 million GAAP opex charge that went through in the quarter because we had a more robust view in terms of the likelihood of them hitting their full earn-out target, which is obviously good news.
And secondly, we're seeing some very interesting strength in some of the memory players, and that is obviously ultimately data-center related, but there has been some solid deal flow from them.
Suji Da Silva, Analyst at Roth Capital
Very interesting. And then my other question is: you talked about data center AI generally and an ASIC customer in particular. Maybe, Charlie, you can talk about where those customers were hitting a breaking point, where they cut over to you guys, and what they were using in the past. Was it an in-house solution? Just to understand the cutover and maybe the reasons for it. Thanks.
K. Charles Janac, President and Chief Executive Officer
So the hyperscalers are a specific type of customer. Their goal is not to make everything in house. So our observation is that they keep buying from Intel, they keep buying from AMD, they keep buying some of the new Arm chips, but they're also building. They understand the workloads that they're dealing with through the data center better than anyone else, and sometimes they're reluctant to even share the information about how those workloads behave and what those specifications are.
So they're doing a lot of that workload acceleration ASIC work in house, and sometimes they outsource that to large companies—unfortunately, the one that we got a very large deal in the quarter wants to remain confidential. So they're doing a combination of buying commercial chips, making stuff in house, and also going to design partners—usually large design partners. And they, I think, are going to keep on doing that. So there's no goals on their side to go one way or the other.
They just want to maintain a balance between those three approaches. Okay, thanks, Charlie. Thanks, Nick.
OPERATOR
Ladies and gentlemen, as a reminder, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from Maddie Depaola from Rosenblatt. Please go ahead.
Maddie Depaola, Analyst at Rosenblatt Securities
Hey, guys. Calling on behalf of Kevin Cassidy. Thanks for taking my question. How do you expect physical AI products' production cycle to compare to data center and automotive life cycles for driving royalty revenue?
K. Charles Janac, President and Chief Executive Officer
So to us, the physical AI chips look very much like automotive because you need functional safety and you need security. Because when mechanized systems interact with human beings, those scenarios have to be handled right. So the functional safety and now the cybersecurity assurance capability we have are going to play very well in the physical AI space. But the design cycles, we think, will be significantly faster in robotics than they will in automotive.
But because you have functional safety and security involved, those design cycles will be slower than you see in data center, where basically in a data center people come up with a workload and that workload may be worth a billion or two in revenue, and they want a chip extremely fast. So you're going to have the fastest cycles be the data center workload accelerators. The physical AI will be somewhere in the middle and the automotive will be among the longest design cycles.
OPERATOR
Okay, thank you. And there are no further questions at this time. I will turn the call back over to Charlie for closing remarks.
K. Charles Janac, President and Chief Executive Officer
Well, thank you for joining us on our call today. We really appreciate your interest in Arteris. We're very excited about our business and we look forward to meeting and updating you on our business progress in the quarters ahead.
OPERATOR
So thank you very much, ladies and gentlemen. This concludes today's conference call. You may now disconnect. Thank you.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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