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Form 8-K CEVA INC For: Aug 09

August 9, 2022 9:16 AM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported): August 9, 2022
 
CEVA, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation)
 
000-49842
(Commission File Number)
77-0556376
(I.R.S. Employer Identification No.)
   
   
15245 Shady Grove Road, Suite 400, Rockville, MD 
(Address of Principal Executive Offices)
20850
(Zip Code)
 
(240)-308-8328
(Registrant’s Telephone Number, Including Area Code)
 
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.001 per share
CEVA
The NASDAQ Stock Market LLC
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Security Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 

 
ITEM 2.02.   RESULTS OF OPERATIONS AND FINANCIAL CONDITION
 
On August 9, 2022, CEVA, Inc. (the “Company”) announced its financial results for the quarter ended June 30, 2022. A copy of the press release, dated August 9, 2022, is attached and filed herewith as Exhibit 99.1. On the same day, the Company will hold a conference call to discuss its financial results for the second quarter of 2022. A copy of the script of the conference call is attached hereto as Exhibit 99.2. This information, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.
 
In addition to the disclosure of financial results for the quarter and year ended June 30, 2022 and 2021 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release and script also included non-GAAP operating income, net income and diluted earnings per share (EPS) figures for the referenced periods.
 
Non-GAAP operating income for (1) the second quarter of 2022 excluded: (a) equity-based compensation expenses, (b) the impact of the amortization of acquired intangibles associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies and (c) costs associated with the Intrinsix acquisition and (2) the second quarter of 2021 excluded: (i) equity-based compensation expenses, (ii) the impact of the amortization of acquired intangibles associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies and (iii) costs associated with the Intrinsix acquisition.
 
Non-GAAP net income and diluted earnings per share for (1) the second quarter of 2022 excluded (a) equity-based compensation expenses, (b) the impact of the amortization of acquired intangibles, net of taxes, associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, (c) costs associated with the Intrinsix acquisition and (d) loss, net of taxes, associated with the remeasurement of marketable equity securities; and (2) the second quarter of 2021 excluded (i) equity-based compensation expenses, (ii) the impact of the amortization of acquired intangibles associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies and (iii) costs associated with the Intrinsix acquisition.
 
The Company believes that the reconciliation of financial measures in the press release and script is useful to investors in analyzing the results for the quarters ended June 30, 2022 and 2021 because the exclusion of the applicable expenses may provide a more meaningful analysis of the Company’s core operating results and comparison of quarterly results. Further, the Company believes it is useful for investors to understand how the expenses associated with the application of FASB ASC No. 718 are reflected on its statements of income. The reconciliation of financial measures should be reviewed in addition to and in conjunction with results presented in accordance with GAAP, and are intended to provide additional insight into the Company’s operations that, when viewed with its GAAP results and the accompanying reconciliation, offer a more complete understanding of factors and trends affecting the Company’s business. The reconciliation of financial measures should not be viewed as a substitute for the Company’s reported GAAP results.
 
 

 
ITEM 9.01.   FINANCIAL STATEMENTS AND EXHIBITS.
 
  (d) Exhibits.
     
 
99.1
 
 
99.2
 
 
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
 
 

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
CEVA, INC.
Date:         August 9, 2022 
By:
/s/Yaniv Arieli
   
Yaniv Arieli
   
Chief Financial Officer
 
 

Exhibit 99.1

logo.jpg

 

 

CEVA, Inc. Announces Second Quarter 2022 Financial Results

 

Total revenue of $33.2 million, up 9% year-over-year

Licensing, NRE and related revenue of $22.1 million, up 42% year-over-year

Base station & IoT royalties of $7 million, up 6% year-over-year, highlighting resilience in a challenging macroeconomic environment

 

Rockville, MD, August 9, 2022 CEVA, Inc. (NASDAQ: CEVA), the leading licensor of wireless connectivity and smart sensing technologies and co-creation solutions, today announced its financial results for the second quarter ended June 30, 2022.

 

Total revenue for the second quarter of 2022 was $33.2 million, a 9% increase compared to $30.5 million reported for the second quarter of 2021. Second quarter 2022 licensing, non-recurring engineering (NRE) and related revenue was $22.1 million, an increase of 42% when compared to $15.5 million reported for the same quarter a year ago. Royalty revenue for the second quarter of 2022 was $11.1 million, a decrease of 26% when compared to $14.9 million reported for the second quarter a year ago. Second quarter 2021 royalty revenue included revenue of approximately $3.3 million following the resolution of a disagreement on royalty rates with a customer. Carving out the $3.3 million amount, royalty revenue for the second quarter of 2022 was down 4% when compared to the second quarter of 2021.

 

During the quarter, twenty-two IP license and NRE agreements were concluded, targeting a wide variety of smart and connected markets, including Wi-Fi 6 enabled-IoT devices, AI-driven sensors, wireless audio and satellite communications. Five of the agreements were with first-time customers. Geographically, eleven of the deals signed were in China, five in the U.S., three in APAC, and three in Europe.

 

Gideon Wertheizer, CEO of CEVA, stated: “We delivered solid second quarter results against a challenging macroeconomic backdrop. Our wireless connectivity IP continues to drive our licensing business, as it is a cornerstone of the IoT market. We continue to capitalize on our strength in wireless to make inroads to a new customer base and add value via our co-creation business proposition. In royalties, our base station & IoT category was $7 million, highlighting our resilience, as 5G RAN rollout in China and the rest of the world moves forward and our Bluetooth, Wi-Fi and cellular IoT customers leverage our IP to gain market share.”

 

GAAP operating loss for the second quarter of 2022 was $0.3 million, as compared to a GAAP operating income of $1.6 million for the same period in 2021. GAAP net loss for the second quarter of 2022 was $1.1 million, as compared to GAAP net income of $0.3 million reported for the same period in 2021. GAAP diluted loss per share for the second quarter of 2022 was $0.05, as compared to a GAAP diluted income per share of $0.01 for the same period in 2021.

 

Non-GAAP operating income for the second quarter of 2022 was $4.6 million compared to $6.3 million reported for the second quarter of 2021. Non-GAAP net income and diluted earnings per share for the second quarter of 2022 were $4.3 million and $0.18, respectively, and $5.1 million and $0.22 reported for the second quarter of 2021.

 

1

 

Non-GAAP operating income for the second quarter of 2022 excluded: (a) equity-based compensation expenses of $3.3 million, (b) the impact of the amortization of acquired intangibles of $1.3 million associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, and (c) $0.3 million of costs associated with the Intrinsix acquisition. Non-GAAP operating income for the second quarter of 2021 excluded: (a) equity-based compensation expenses of $2.9 million, (b) the impact of the amortization of acquired intangibles of $0.9 million associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, and (c) $1.0 million of costs associated with the Intrinsix acquisition.

 

Non-GAAP net income and diluted EPS for the second quarter of 2022 excluded: (a) equity-based compensation expenses of $3.3 million, (b) the impact of the amortization of acquired intangibles of $1.3 million associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, (c) $0.3 million of costs associated with the Intrinsix acquisition and (d) $0.5 million loss, net of taxes, associated with the remeasurement of marketable equity securities. Net income and diluted EPS for the second quarter of 2021 excluded: (a) equity-based compensation expenses of $2.9 million, (b) the impact of the amortization of acquired intangibles of $0.9 million associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, and (c) $1.0 million of costs associated with the Intrinsix acquisition.

 

Yaniv Arieli, Chief Financial Officer of CEVA, stated: “Forty-two percent year-over-year growth in licensing, NRE and related revenues in the second quarter reflects our strength in the wireless space and the potential for further royalty revenue growth, as these new customers reach production. During the quarter, the company repurchased approximately $4.5 million of its common stock under its existing share repurchase program and ended the quarter with cash and cash equivalent balances, marketable securities and bank deposits of approximately $146 million.”

 

CEVA Conference Call

On August 9, 2022, CEVA management will conduct a conference call at 8:30 a.m. Eastern Time to discuss the operating performance for the quarter.

 

The conference call will be available via the following dial in numbers:

 

 

U.S. Participants: Dial 1-844-435-0316 (Access Code: CEVA)

 

International Participants: Dial +1-412-317-6365 (Access Code: CEVA)

 

The conference call will also be available live via webcast at the following link: https://app.webinar.net/Wq3Dd84dpw6. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.

 

For those who cannot access the live broadcast, a replay will be available by dialing +1-877-344-7529 or +1-412-317-0088 (access code: 6812163) from one hour after the end of the call until 9:00 a.m. (Eastern Time) on August 16, 2022. The replay will also be available at CEVA's web site www.ceva-dsp.com.

 

Forward Looking Statement

This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions.  Forward-looking statements include Mr. Wertheizer’s statements regarding the Company’s wireless connectivity IP driving its licensing business and the Company’s ability to capitalize on strength in wireless to make inroads to a new customer base and add value via the Company’s co-creation business proposition and Mr. Arieli’s statements regarding the potential for future royalty revenue growth. The risks, uncertainties and assumptions that could cause differing CEVA results include: the scope and duration of the COVID-19 pandemic; the extent and length of the restrictions associated with the COVID-19 pandemic and the impact on customers, consumer demand and the global economy generally; the ability of CEVA DSP cores and other technologies to continue to be strong growth drivers for us; our success in penetrating new markets, including in the base station and IoT markets, and maintaining our market position in existing markets; our ability to diversify the company's royalty streams, the ability of products incorporating our technologies to achieve market acceptance, the maturation of the connectivity, IoT and 5G markets, the effect of intense industry competition and consolidation, global chip market trends, including supply chain issues as a result of COVID-19 and other factors, the possibility that markets for CEVA's technologies may not develop as expected or that products incorporating our technologies do not achieve market acceptance; our ability to timely and successfully develop and introduce new technologies; our ability to successfully integrate Intrinsix into our business; and general market conditions and other risks relating to our business, including, but not limited to, those that are described from time to time in our SEC filings. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

 

2

 

About CEVA, Inc.

CEVA is the leading licensor of wireless connectivity and smart sensing technologies and co-creation solutions for a smarter, safer, connected world. We provide Digital Signal Processors, AI engines, wireless platforms, cryptography cores and complementary software for sensor fusion, image enhancement, computer vision, voice input and artificial intelligence. These technologies are offered in combination with our Intrinsix IP integration services, helping our customers address their most complex and time-critical integrated circuit design projects. Leveraging our technologies and chip design skills, many of the world’s leading semiconductors, system companies and OEMs create power-efficient, intelligent, secure and connected devices for a range of end markets, including mobile, consumer, automotive, robotics, industrial, aerospace & defense and IoT.

 

Our DSP-based solutions include platforms for 5G baseband processing in mobile, IoT and infrastructure, advanced imaging and computer vision for any camera-enabled device, audio/voice/speech and ultra-low-power always-on/sensing applications for multiple IoT markets. For sensor fusion, our Hillcrest Labs sensor processing technologies provide a broad range of sensor fusion software and inertial measurement unit (“IMU”) solutions for markets including hearables, wearables, AR/VR, PC, robotics, remote controls and IoT. For wireless IoT, our platforms for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6 (802.11n/ac/ax), Ultra-wideband (UWB), NB-IoT and GNSS are the most broadly licensed connectivity platforms in the industry.

 

CEVA is a sustainable and environmentally conscious company, adhering to our Code of Business Conduct and Ethics. As such, we emphasize and focus on environmental preservation, recycling, the welfare of our employees and privacy – which we promote on a corporate level. At CEVA, we are committed to social responsibility, values of preservation and consciousness towards these purposes.

 

Visit us at www.ceva-dsp.com and follow us on Twitter, YouTube, Facebook, LinkedIn and Instagram.

 

 

For More Information Contact:

Yaniv Arieli

CEVA, Inc.

CFO

+1.650.417.7941

[email protected]

Richard Kingston

CEVA, Inc.

VP Market Intelligence, Investor & Public Relations

+1.650.417.7976

[email protected]

 

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CEVA, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) – U.S. GAAP

U.S. dollars in thousands, except per share data

             
   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 
   

Unaudited

   

Unaudited

   

Unaudited

   

Unaudited

 

Revenues:

                               

Licensing, NRE and related revenues

  $ 22,123     $ 15,535     $ 44,516     $ 29,932  

Royalties

    11,072       14,922       23,070       25,927  
                                 

Total revenues

    33,195       30,457       67,586       55,859  
                                 

Cost of revenues

    6,825       3,693       13,229       6,074  
                                 

Gross profit

    26,370       26,764       54,357       49,785  
                                 

Operating expenses:

                               

Research and development, net

    19,538       17,457       39,748       35,050  

Sales and marketing

    2,723       2,893       5,646       6,195  

General and administrative

    3,635       4,159       7,271       7,039  

Amortization of intangible assets

    750       667       1,500       1,243  
                                 

Total operating expenses

    26,646       25,176       54,165       49,527  
                                 

Operating income (loss)

    (276 )     1,588       192       258  

Financial income , net

    413       356       695       392  

Remeasurement of marketable equity securities

    (685 )           (1,816 )      
                                 

Income (loss) before taxes on income

    (548 )     1,944       (929 )     650  

Income tax expense

    575       1,629       1,890       3,965  
                                 

Net Income (loss)

  $ (1,123 )   $ 315     $ (2,819 )   $ (3,315 )
                                 

Basic net income (loss) per share

  $ (0.05 )   $ 0.01     $ (0.12 )   $ (0.15 )

Diluted net income (loss) per share

  $ (0.05 )   $ 0.01     $ (0.12 )   $ (0.15 )

Weighted-average shares used to compute net income (loss) per share (in thousands):

                               

Basic

    23,174       22,823       23,139       22,685  

Diluted

    23,174       23,140       23,139       22,685  

 

4

 

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

U.S. Dollars in thousands, except per share amounts

             
   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 
   

Unaudited

   

Unaudited

   

Unaudited

   

Unaudited

 

GAAP net income (loss)

  $ (1,123 )   $ 315     $ (2,819 )   $ (3,315 )

Equity-based compensation expense included in cost of revenues

    344       119       683       262  

Equity-based compensation expense included in research and development expenses

    2,006       1,743       4,001       3,428  

Equity-based compensation expense included in sales and marketing expenses

    340       367       673       785  

Equity-based compensation expense included in general and administrative expenses

    613       677       1,335       1,629  

Amortization of intangible assets, net of taxes, related to acquisition of Intrinsix in 2021 and Hillcrest Labs business, investments in NB-IoT and Immervision technologies

    1,282       851       2,564       1,537  

Costs associated with the Intrinsix acquisition

    325       1,005       651       1,005  

Income associated with the remeasurement of marketable equity securities, net of taxes.

    527             1,398        

NRE revenues associated with the purchase price allocation (PPA) related to Intrinsix acquisition

                42        
                                 

Non-GAAP net income

  $ 4,314     $ 5,077     $ 8,528     $ 5,331  

GAAP weighted-average number of Common Stock used in computation of diluted net income (loss) and earning per share (in thousands)

    23,174       23,140       23,139       22,685  

Weighted-average number of shares related to outstanding stock-based awards (in thousands)

    820       343       795       739  

Weighted-average number of Common Stock used in computation of diluted earnings per share, excluding the above (in thousands)

    23,994       23,483       23,934       23,424  
                                 

GAAP diluted earnings (loss) per share

  $ (0.05 )   $ 0.01     $ (0.12 )   $ (0.15 )

Equity-based compensation expense, net of taxes

  $ 0.14     $ 0.13     $ 0.28     $ 0.27  

Amortization of intangible assets, net of taxes, related to acquisition of Intrinsix and Hillcrest Labs business, investments in NB-IoT and Immervision technologies

  $ 0.06     $ 0.04     $ 0.11     $ 0.07  

Costs associated with the Intrinsix acquisition

  $ 0.01     $ 0.04     $ 0.03     $ 0.04  

Income associated with the remeasurement of marketable equity securities, net of taxes.

  $ 0.02           $ 0.06        

Non-GAAP diluted earnings per share

  $ 0.18     $ 0.22     $ 0.36     $ 0.23  

 

5

 

 

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

U.S. Dollars in thousands, except per share amounts

             
   

Three months ended

   

Six months ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 
   

Unaudited

   

Unaudited

   

Unaudited

   

Unaudited

 

GAAP Operating Income (loss)

  $ (276 )   $ 1,588     $ 192     $ 258  

Adjustments:

                               

Stock compensation

    3,303       2,906       6,692       6,104  

Amortization of intangible assets

    1,282       851       2,564       1,612  

Aquisition related cost - Intrinsix

    325       1,005       651       1,005  

Purchase price allocation (PPA) for the Intrinsix acquisition

                42        

Total non-GAAP Operating Income

  $ 4,634     $ 6,350     $ 10,141     $ 8,979  

 

6

 

 

CEVA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(U.S. Dollars in thousands)

             
   

June 30,

   

December 31,

 
   

2022

      2021 (*)
   

Unaudited

   

Unaudited

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 19,289     $ 33,153  

Marketable securities and short-term bank deposits

    118,759       121,708  

Trade receivables, net

    16,013       14,644  

Unbilled receivables

    11,949       12,805  

Prepaid expenses and other current assets

    7,562       6,670  

Total current assets

    173,572       188,980  

Long-term assets:

               

Bank deposits

    8,052        

Severance pay fund

    8,604       10,175  

Deferred tax assets, net

    20,629       15,850  

Property and equipment, net

    7,610       6,765  

Operating lease right-of-use assets

    7,767       8,827  

Investment in marketable equity security

    1,103       2,919  

Goodwill

    74,777       74,777  

Intangible assets, net

    12,272       14,607  

Other long-term assets

    5,021       5,759  

Total assets

  $ 319,407     $ 328,659  
                 

LIABILITIES AND STOCKHOLDERS EQUITY

               

Current liabilities:

               

Trade payables

  $ 2,241     $ 1,464  

Deferred revenues

    4,546       8,661  

Accrued expenses and other payables

    22,113       22,041  

Operating lease liabilities

    2,689       3,274  

Total current liabilities

    31,589       35,440  
                 

Long-term liabilities:

               

Accrued severance pay

    9,182       10,551  

Operating lease liabilities

    4,329       5,130  

Other accrued liabilities

    592       806  

Total liabilities

    45,692       51,927  
                 

Stockholders’ equity:

               

Common stock

    23       23  

Additional paid in-capital

    237,379       235,386  

Treasury stock

    (11,691 )     (13,790 )

Accumulated other comprehensive loss

    (4,525 )     (372 )

Retained earnings

    52,529       55,485  

Total stockholders’ equity

    273,715       276,732  

Total liabilities and stockholders’ equity

  $ 319,407     $ 328,659  

 

(*) Derived from audited financial statements

 

7

Exhibit 99.2

 

CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
logosml.jpg

 

CEVA, INC.

Second Quarter 2022 Financial Results Conference Call

Prepared Remarks of Gideon Wertheizer, Chief Executive Officer and
Yaniv Arieli, Chief Financial Officer

August 9, 2022

8:30 A.M. Eastern

 

 

Good morning everyone and welcome to CEVA’s second quarter 2022 earnings conference call. I’m joined today by Gideon Wertheizer, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the second quarter and provide general qualitative data. Yaniv will then cover the financial results for the second quarter and also provide guidance for the third quarter and full year 2022.

 

I will start with the forward-looking statements.          

 

Forward Looking Statements

 

Please note that today’s discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include statements regarding market trends and dynamics, including anticipated growth in the wireless component of the global semiconductor market, our and our customers’ gains in market share and the future of 5G and Wi-Fi; our market position and strategy, including the strength of our technology offerings and efforts with respect to our co-creation business proposition; impacts of global economic uncertainty and COVID on our business, including royalties; demand for and benefits of our technologies; and expectations and financial guidance regarding future performance, including for the full year and third quarter of 2022. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include: the scope and duration of the pandemic, including continued restrictions in China; the extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand and the global economy generally; the ability of CEVA’s IPs for smarter, connected devices to continue to be strong growth drivers for us; our success in penetrating new markets and maintaining our market position in existing markets; the ability of new products incorporating our technologies to achieve market acceptance; the speed and extent of the expansion of the 5G and IoT markets; our ability to execute more base station & IoT license agreements; the effect of intense industry competition and consolidation; global chip market trends, including supply chain issues as a result of COVID-19 and other factors; and our ability to successfully integrate Intrinsix into our business. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that said, I will now hand the call over to Gideon.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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Gideon

 

Thank you, Richard. Good morning everyone and thank you for joining us today. CEVA produced solid second quarter financial results despite the challenging macroeconomic backdrop and disruptions in production schedules because of the lockdown in major cities in China. Our strength in wireless, a space that according to a recent study from McKinsey will be responsible for 25% of growth in the global semiconductor market over the next eight years, continues to drive our business and enables us to expand our footprint in the growing markets of 5G, wearables, hearables, automotive, aerospace and defense and more.

 

Revenue for the second quarter came at $33.2 million, up 9% on a year-over-year basis. The licensing environment continues to be strong, delivering $22.1 million in quarterly revenue at the back of 22 licensing agreements, with customers targeting a multitude of wirelessly connected devices, AI driven sensors, satellite communications and more. We also signed a strategic agreement for our Bluebud wireless audio technology in the wearables space, which I will touch on later. Asia continues to be a major driver for our business, but our activities and the scope of engagements with U.S.-based customers is picking up.

 

Royalty revenue came in at $11.1 million, down 26% on a year-over year basis. Second quarter 2021 royalty revenue included revenue of approximately $3.3 million following the resolution of a disagreement on royalty rates with a customer. Carving out the $3.3 million amount, royalty revenue for the second quarter of 2022 was down only 4% versus the second quarter of 2021. In handsets, global economic uncertainty, and the impact of COVID measures in China, are causing consumers to adopt a cautionary approach with their disposable income which adversely impacts handset shipments, particularly in the low and mid tiers.

 

Our base station & IoT royalty category showed resilience as 5G RAN rollouts continue in China and into countries with low 5G penetration rate to date. Our cellular IoT and Bluetooth customers continued to gain market share, with both categories delivering year-over-year unit growth.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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Let me spend the next few minutes to highlight recent dynamics in the wireless space and how we are addressing them. Unarguably, wireless continues to be a cornerstone in the proliferation of intelligent IoT products that bring together wireless connectivity, sensors and AI into highly efficient SoCs. At the back of this trend, CEVA has become the wireless anchor to more than 300 semiconductor companies as they shape the Intelligent IoT eco system. By being at the forefront of wireless standards and offering it under the IP business model, CEVA lowers the entry barriers for embedding wireless connectivity in SoCs and enabling many semi’s to come out with more cost-effective and power-efficient chips than the repurposed smartphone connectivity chips that Qualcomm, Broadcom and Mediatek are selling into these markets. In that sense, our leading wireless IP, along with the critical role wireless technologies play in IoT SoCs, opens up opportunities for us to elevate our business engagements from a delivery of just the “IP core” toward a proposition where we co-create with the customer its own wireless system. We are already experiencing very good interest with this business proposition and see this as a vehicle to grow our revenue base.

 

In the quarter, we concluded a comprehensive agreement along the co-creation business model with a U.S.-based customer. This agreement was driven by a top tier OEM, who will deploy our Bluebud integrated wireless & audio IP platform across multiple SKUs for smartwatches, hearables and other wearables devices. The wearables market is the second largest market after mobile in terms of volume, and recent devices offer high-quality 3D audio, AI-based noise cancellation, voice recognition and IMU-based contextual awareness. These are technologies that CEVA offers to customers in addition to our processors and hardware IP technologies.

 

Another discussion that we are having with our wireless customers these days is about the co-existence of 5G and Wi-Fi and whether one will eclipse the other. Our view is that they will continue to co-exist, and in many use cases they are in fact complementary to each other. 5G offers robustness in the form of security and low latency with its Ultra Reliable Low Latency (URRLC) standard. Deploying Wi-Fi networks on the other hand is simpler as the IT departments are more familiar with it than with 5G. At the Mobile World Congress (MWC) event earlier this year, an event that is historically dedicated to cellular, there were a number of major Wi-Fi 7 announcements, indicating that the cellular industry understands that 5G and Wi-Fi co-existence will continue to play an important role. CISCO, a long-term and dominant Wi-Fi player, commented at MWC that 5G and Wi-Fi must co-exist in private networks. These market dynamics and our strength in both 5G and Wi-Fi IPs, provide us with significant potential to expand our relationships with new customers by offering them a one stop shop for both technologies.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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In summary, we are satisfied with our financial performance in the second quarter at a back of a challenging and uncertain macro environment. Our IP portfolio is primed to address the most exciting and crucial technology trends. Our ability to step up and partner with customers for their wirelessly connected SoC designs through our co-creation business model is compelling. We will continue to focus on driving our strategic vision of enabling semis to make their products smart and wirelessly connected.

 

With that said, let me handover the call to Yaniv for the financials.

 

Yaniv

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Thank you, Gideon. I’ll start by further reviewing the results of our operations for the second quarter of 2022.

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Revenue for the second quarter was $33.2 million, up 9% compared to $30.5 million for the same quarter last year. The revenue breakdown is as follows:

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Licensing, NRE and related revenue was $22.1 million, reflecting 67% of total revenues, up 42% as compared to $15.5 million in second quarter of 2021.

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Royalty revenue was $11.1 million, reflecting 33% of total revenues, down 26% from $14.9 million in second quarter of 2021. Second quarter 2021 royalties included revenue of approximately $3.3 million following the resolution of a disagreement on royalty rates with a customer. After carving out the $3.3 million, royalty revenue for the second quarter of 2022 was down only 4% versus the second quarter of 2021.

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Base station & IoT royalty revenue contributed $7 million in the quarter, flattish from the first quarter and up 6% year-over-year, despite the impact of the lockdown in major cities in China on some of our Chinese customers and the overall challenging macroeconomic environment.

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Quarterly gross margin was 79% on a GAAP basis and 82% on a non-GAAP basis. Slightly better on GAAP and in line with our non-GAAP expectations. Non-GAAP quarterly gross margin excluded approximately $0.3 million of equity-based compensation expenses and $0.5 million of amortization of other assets associated with the Intrinsix acquisition and Immervision investment.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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Total operating expenses for the second quarter were $26.6 million, below both the lower-end of our guidance of $27.1 million and the first quarter expenses of $27.5 million, mainly due to an improved FX environment and the timing of Israeli Innovation Authority grants received. OPEX also included (a) aggregate equity-based compensation expense of approximately $3.0 million, (b) amortization of acquired intangible assets associated with the Hillcrest Labs business and investments in NB-IoT of $0.8 million and (c) $0.3 million of costs associated with the Intrinsix acquisition. Total operating expenses for the second quarter, excluding equity-based compensation expenses, amortization of intangible assets and Intrinsix deal related costs were $22.6 million, also well below the low-end of our guidance of $23 million and first quarter expenses of $23.4 million, due to the same reasons I just stated.

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On the tax front, we continue to implement the tax regulations in France named the “IP box tax regime,” enabling our corporate tax rate to be lower than the statutory 25% on specific types of revenues. We also recorded a benefit related to the true-up of the French 2021 tax return, which was partially off-set by higher withholding tax expenses associated with their future utilization in our Israeli subsidiary.

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GAAP other income included a $0.5 million net loss from the remeasurement of marketable equity securities of Cipia, formerly Eyesight Technologies, a leading provider of in-cabin sensing solutions for the automotive industry, that went public on the Tel-Aviv Stock Exchange in the fourth quarter of 2021. As we explained in the past, we will continue to adjust our investment quarterly up and down based on the market valuation of the shares.

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GAAP net loss for the quarter was $1.1 million, and diluted loss per share was 5 cents, compared to net income of $0.3 million and diluted EPS of 1 cent for the second quarter of 2021.

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Non-GAAP operating income was $4.6 million, down from $6.3 million reported for the second quarter of 2021.

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Non-GAAP net income and diluted EPS for the second quarter of 2022 was $4.3 million and 18 cents, respectively, and excluded: (a) equity-based compensation expenses of $3.3 million, (b) the impact of the amortization of acquired intangibles of $1.3 million associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, (c) $0.3 million of costs associated with the Intrinsix acquisition and (d) $0.5 million loss, net of taxes, associated with the remeasurement of marketable equity securities. Net income and diluted EPS for the second quarter of 2021 were $5.1 million and 22 cents, respectively, and excluded: (a) equity-based compensation expenses of $2.9 million, (b) the impact of the amortization of acquired intangibles of $0.9 million associated with the acquisition of the Intrinsix and Hillcrest Labs businesses and investments in NB-IoT and Immervision technologies, and (c) $1.0 million of costs associated with the Intrinsix acquisition.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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Other related data

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Shipped units by CEVA licensees during the second quarter of 2022 were 433 million units, down 18% sequentially and down 4% from the second quarter 2021 reported shipments.

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Of the 433 million units shipped, 83 million units, or 19%, were for handset baseband chips, reflecting a sequential decrease of 17% from 100 million units of handset baseband chips shipped during the first quarter of 2022 and a 40% decrease from 138 million units shipped year over year. Our base station and IoT product shipments were 349 million in the quarter, down 19% sequentially and up 11% year-over-year.

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Of note, Bluetooth shipments were up 35% year over year to 255 million units, and cellular IoT shipments were up 12% year over year to 20 million units.

 

As for the balance sheet items

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As of June 30, 2022, CEVA’s short and long-term cash and cash equivalent balances, marketable securities and bank deposits were approximately $146 million. With last quarter’s share price levels, we activated our buyback program by repurchasing approximately 136,000 shares during the quarter for approximately $4.5 million. As of today, 362,000 shares are available for repurchase.

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Our DSO for the second quarter of 2022 are a bit higher than the last two quarters due to the lockdown in China that caused slower collections, and came in at 42 days for the quarter compared to 32 days in the prior one.

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During the second quarter, we used $8.1 million of cash from operations; depreciation and amortizations were $2.0 million and purchase of fixed assets was $1.2 million.

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At the end of the second quarter, our headcount was 492 employees, of which 411 are engineers, slightly higher than a total of 487 employees at the end of March 2022.

 

As for the guidance

As evidenced from the first half of the year our licensing, NRE and related revenues were strong. Also, as Gideon explained, our technology offerings and co-creation business proposition resonate well with customers, and present new opportunities to grow our revenues. On royalties, despite the challenges in the macro environment, we continue to expand in the base station and IoT segment through the gradual rollout of 5G base stations enabled by our technologies and see continued share gains in wearable, hearable and IoT products at large. With that said, we are monitoring the implications of the economic uncertainty that we experienced in the second quarter associated with our handset royalties as we get closer to the holiday season and as COVID restrictions in China are being lifted.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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Specifically for the third quarter of 2022

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Gross margin is expected to be slightly better than the second quarter, approximately 81% on a GAAP and 84% on a non-GAAP basis, excluding an aggregate of $0.3 million of equity-based compensation expenses and $0.5 million of amortization of other assets associated with the Intrinsix acquisition, NB-IoT and Immervision businesses and assets.

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OPEX for the third quarter of 2022 is forecasted to be slightly higher than the first quarter of 2022. GAAP-based OPEX is expected to be in the range of $27.6 million to $28.6 million. Of our anticipated total operating expenses for the third quarter, (a) $3.4 million is expected to be attributable to equity-based compensation expenses, (b) $0.8 million to the amortization of acquired intangible assets associated with the Hillcrest Labs assets and (c) $0.3 million of costs associated with the Intrinsix acquisition. Non-GAAP OPEX is expected to be in the range of $23.1 million – $24.1 million.

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Net interest income is expected to be approximately $0.4 million.

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Taxes for the third quarter of 2022 are expected to be similar to the first quarter, approximately 25%-27% non-GAAP tax rate or $1.7 million. Taxes generated from the new 10% significant lower tax rate (on specific revenue sources) for our French activities, off-set by tax expenses associated with withholding and their future utilization in our Israeli subsidiary.

-         Share count for the third quarter of 2022 is expected to be 24.2 million shares for non-GAAP EPS calculations.

 

Operator: You can now open the Q&A session

 

Wrap Up: Richard

 

Thank you for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the Current Report on Form 8-K and accessible through the investor section of our website at https://investors.ceva-dsp.com.

 

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CEVA, Inc. Q2 2022 Financial Results Conference Call - Prepared Remarks:: August 9, 2022
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With regards to upcoming events, we will be participating in the following conferences:

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Oppenheimer 25th Annual Technology, Internet & Communications Conference, being held virtually tomorrow, August 10th

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Rosenblatt Securities’ Technology Summit - Age of AI Conference, August 23rd and 24th

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Jefferies 2022 Semiconductor, IT Hardware and Communications Infrastructure Summit, August 30th and 31st in Chicago

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Jefferies Israel Tech Trek which will take place September 21st and 22nd in Tel Aviv.

 

Further information on these events and all events we will be participating in can be found on the investors section of our website.

 

Thank you and goodbye

 

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