CEVA - NASDAQ

Good day and welcome to the CEVA Inc. First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today’s event is being recorded. I would now like to send a conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead.

Thank you. Good morning everyone and welcome to CEVA's first quarter 2025 earnings conference call. Joining me today are Amir Panush, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone 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 our strategy and growth opportunities, market positioning, trends and dynamics, including with respect to significantly expanding market share in wireless communication IP and to momentum in diversifying our royalty customer base; expectations regarding demand for and benefits of our technologies and revenues; expectations regarding technology innovations, including timelines to revenue generation, our sales pipeline, and backlog; and our financial goals and guidance regarding future performance. CEVA assumes no obligation to update any forward-looking statements or information which speaks as of their respective dates. We will also be discussing certain non-gap financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filing section of our investor's relations website. With that said, I'd like to turn the call over to Amir who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?

Thank you, Richard. Welcome everyone and thank you for joining us today. In the quarter, we delivered solid progress in our licensing business, reinforcing our long-term growth strategy, and expanding our customer engagement across all of our targeted use cases, connect, sense, and infer, enabling edge AI. Royalty revenue fell short of expectations due to the combination of soft low-cost smartphone shipments and an industrial customer who had a slower product ramp up than in the prior year. However, by implementing cost control measures, we mitigated some of the revenue impact and achieved profitability close to non-GAAP EPS consensus. Importantly, our design wins this quarter, not only strengthen our long-standing partnerships with key connectivity customers, but also expanded our footprint with new customers, embracing our sensing and edge AI IPs, laying a strong foundation for future growth. Total revenue for the quarter came in at $24.2 million, up 10% year-over-year. Licensing revenue was $150 million with 11 bills concluded in the quarter, including a number of notable strategic games, which I will elaborate on now in the context of the three use cases that underpin our business. Connectivity serves as the foundational pillar of edge AI, enabling seamless communication between devices and data centers. For this use case, we have solidified our market leadership position by securing several strategic agreements with multiple key Bluetooth and Wi-Fi customers, reinforcing our position in the long-term. One of our current highest volume customers who has a well-established global customer base and who is already shipping in volume single and multi-protocol combos' chips based on Bluetooth and Wi-Fi 6 IP has selected our Wi-Fi 7 IP for its next-generation products, demonstrating the trust and long-term partnership with us. In addition to this customer, we also signed a new long-term Wi-Fi 6 deal with another high-volume customer, a Bluetooth 6 Wi-Fi 6 combo deal with a top 10 MCU vendor and next-generation Bluetooth deals with two of our leading audio customers as they continue to expand their connectivity offerings based on CEVA's market-leading technology. The second pillar enabling Edge AI is the sensing use case, which includes inputs and outputs that help devices better understand their surroundings and deliver enhanced user experiences, such as improved audio performance. For this use case, we secured multiple deals, most notably an agreement for our RealSpace spatial audio software, which will be integrated into professional headsets and other audio devices from a leading PC OEM. This marks a significant milestone as it validates the quality and robustness of our spatial audio software solution. After sensing data about the environment, inferencing such data enables devices to better interpret their environment and proactively suggest appropriate courses of action. For this use case, we signed an important deal for our high-performance NeuPro-M, Edge AI, NPU with Nextchip, a Korean automotive semiconductor for their next-generation ADAS solutions. Let me explain a bit more about this use case and why we were selected. The overall performance and safety of ADAS systems continue to rapidly advance thanks to cutting-edge advancements in AI, such as vision transformers. Vision transformers are a way for AI to analyze an image holistically as opposed to traditional convolution neural networks that analyze images pixel by pixel. This brings significant benefits and superior performance for ADAS vision systems, including object recognition, segmentation and free space detection in complex scenes. The NeuPro-M support for vision transformers, coupled with its ability to process multiple video streams and AI models, all in parallel, make it ideal for next-generation ADAS systems. We are currently engaged in multiple discussions related to AI inferencing using our NeuPro NPU family, including several automotive players for their next-generation platforms that require processors upgrades to support these latest AI advancements and techniques. In royalties, while overall revenue declined for the reasons previously mentioned, shipment volume remains strong, and we remain very positive about the long-term potential of our royalty business. Also, we have several notable achievements that highlight other royalty drivers for the business. In this regard, I'm pleased to share that we received the first royalty report from a leading US OEM using our technology in their in-house 5G model. As I discussed on our last earnings calls, we anticipate this customer will significantly expand our market share in wireless communication IP and generate a meaningful long-term royalty stream in the years to come. Additionally, our Wi-Fi royalties grew 183% year-over-year from a 12% increase in unit shipments. This growth was driven by a favorable product mix shift towards Wi-Fi 6, which commands a higher royalty ASP compared to previous generations. This is a strong indicator that our Wi-Fi 6 customers are continuing to gain traction, particularly in the consumer and industrial IoT markets. All in all, our first quarter licensing performance and continued momentum in diversifying our royalty customer base reinforce the success of our transformation into a highly diversified IP powerhouse. We serve a broad range of end markets with a portfolio of high-value products and solutions that enable any smart edge device to connect, send and infer data. As a reminder, success in the IP licensing business is measured over a horizon of several years. The innovations and technologies, our engineers are designing today will reach commercial products and begin to generate royalties within three to five years. This long cycle view underpins how we think and manage our business and shape our strategy focus on accumulated and sustained value creation over time. Our priorities remain clear. Continue innovating for our customers, deepen our technology leadership and building a strong future loyalty stream, while managing expenses with discipline. I'm confident in our ability to navigate the short-term volatility, while focusing on our mission to be the IT partner of choice for companies, building smart edge devices that connect and infer data. Now, I will turn the call over to Yaniv for the financials.

Thank you, Amir. Good morning. I'll now start by reviewing the results of our operations for the first quarter of 2025. Revenue for the first quarter increased 10% to $24.2 million as compared to $22.2 million from the same quarter last year. A revenue breakdown is as follows; licensing and related revenues increased 32% to $15 million, reflecting 62% of our total revenues, and compared to $11.4 million for the first quarter of 2024. Royalty revenue decreased 14% to $9.2 million, reflecting 38% of our total revenue, down from $10.7 million for the same core last year. Quarterly gross margins came in 1% lower than forecasted and guided, 86% on GAAP and 87% on non-GAAP. If you recall, we discussed the allocation of design activities for the strategic customer in the satellite modem space. So some R&D costs for these efforts are presented in the cost of revenue and not in the R&D expense line. Total gross operating expenses for the first quarter was at the low end of our guidance range at $25.1 million. Total non-GAAP operating expenses for the first quarter, excluding equity-based compensation expense, amortization of intangible and deal costs of $20.7 million, below the low end of our guidance and similar to last year's level. GAAP operating loss for the first quarter was $4.4 million, down from GAAP operating loss of $5 million in the same quarter a year ago. Non-GAAP operating margins income were 1% of revenue and $0.3 million, compared to operating loss margin of 4% and operating loss of $0.8 million recorded for the first quarter of 2024, respectively. Expense monitoring contributes to partially offset lower than expected total revenues. Financial income was $2.1 million, compared to $1.3 million income for the first quarter of 2024, significantly higher than our estimates than prior year. This is due to a significant increase in value of the euro versus the US dollar for the first quarter of over 7%, impacting the value of our euro dominated assets especially French tax receivables. GAAP and down GAAP taxes were approximately $1 million, slightly lower than our guidance and affected by the geography of the revenue recognized for deals and the royalty revenues. GAAP net loss for the first quarter was $3.3 million and diluted loss per share was $0.14 as compared to a net loss of $5.4 million and diluted loss per share of $0.23 for the first quarter of 2024. Non-GAAP net income and diluted earnings per share for the first quarter of 2025 was $1.4 million or $0.06, respectively as compared to a net loss of $1.3 million and diluted loss per share of $0.05 reported for the same period last year. With respect to other related data. Shipped units by CEVA licensees during the first quarter of 2025 were 420 million units, up 13% from the first quarter 2024 reported shipments. Of the 420 million units reported, 49 million or 12% were for mobile handset modems. 337 million units were for consumer IoT markets, up 19% from 284 million units in the first quarter of 2024. 34 million units were for Industrial IoT markets, up 26% from 27 million in the first quarter of 2024. Bluetooth shipments were 233 million units in the quarter, up 15% from 202 million in the first quarter of 2024. Cellular IoT shipments were 48 million units, up 31% year-over-year. Wi-Fi shipments were 35 million units, up 12% from 31 million units a year ago. Wi-Fi royalties however were up 183% year-over-year due to a strong contribution from Wi-Fi 6 shipments, which carry a higher ASP than older Wi-Fi 4 and Wi-Fi 5 standards. Overall, royalties were below our expectations primarily due to slower smartphone shipped units for the low-cost smartphone markets and an industrial customer who had a slower product ramp-up than a year ago. As for the balance sheet items, as of the end of March, CEVA’s cash and cash equivalent balances, marketable securities and bank deposits were approximately $158 million. Our DSO for the first quarter of 2025 was 54 days, similar to our prior quarters. During the first quarter, we used $7 million cash from operating activities, on-going depreciation and amortization was $0.9 million, and purchase of fixed assets was $0.3 million. At the end of the first quarter, our headcount was 435 people, of whom 354 were engineers. Now for the guidance. As we discussed in our prepared remarks, our licensing business continues to perform well with robust interest in our edge AI portfolio and continued expansion of our wireless leadership. In royalties, we highlighted a US smartphone OEM that reported its first 5G modem royalties to us in the quarter and the ASP uplift in Wi-Fi 6 as our customers' volume shipments increase. As for the global macro environment and tariffs, while we don’t see any direct impact from tariffs, the indirect impact on consumer demand, among other factors, has increased the uncertainty about the year. Given these evolving dynamics, as well as our lower than anticipated revenues for the first quarter, we are adopting a more cautious outlook for the rest of the year, lowering 2025 revenue guidance from a high-single digits range to a low-single digits range for growth over 2024 annual revenues. On the expense side, we are lowering our overall expense levels—COGS, revenues and OPEX from the other – from the range of 2% to 6% over 2024 to in-line with 2024 or $96 million to $100 million with non-GAAP OPEX slightly lower than 2024. Based on these changes, we anticipate a double-digit percentage increase, non-GAAP operating income, non-GAAP operating margins, non-GAAP net income, and fully diluted non-GAAP EPS relative to 2024, but at a lower percentage than our earlier guys. Specifically for the second quarter of 2025. On Royalties we expect sequential growth due to the seasonality and expansion of the CEVA powered 5G smartphone modem in the second quarter and beyond. Total revenue is forecasted to be $23.7 million to $27.7 million. Ceva's margin is expected to be similar to the first quarter we just reported. We forecast approximately 86% on non-GAAP basis and 87% on non-GAAP basis excluding an aggregate of $0.1 million for equity-based compensation expenses of $0.1 million the amortization of acquired in. GAAP OpEx for the second quarter of 2025 is expected to be in the range of $25.1 million to $26.1 million. And the anticipated total operating expenses for the first quarter $4.5 million is expected to be attributed to equity-based compensation expense $0.2 million for amortization is acquired intangibles and $0.1 million for costs associated with business acquisitions. Non-GAAP OpEx is expected to be similar to the first score level and in the range of $20.3 million to $21.3 million also lower than the second quarter in 2024 OpEx level. Net interest income is expected to be approximately $1.3 million. Taxes for the second quarter expected to be approximately $1.2 million and the share count for the second quarter is expected to be 25.6 million shares. Danielle, you could open the Q&A session please.

Thank you. We will now begin question-and-answer session. [Operator Instructions] The first question comes from Kevin Cassidy from Rosenblatt Securities. Please go ahead.

Yes. Thanks for taking my question. Congratulations on the AI NPU ADAS win, but can you say whether was this just a win with the tier one supplier or does the tier one supplier have a program at an automotive OEM that's secured?

Kevin, thanks for the question. First this is a very important design for us with the new poem. This is really validating the technology and the maturity to go all the way into ADAS Automotive market segment and we believe that also will propel significant additional design as we go into in the rest of the year specifically to your question. This is with the ones they already have secure so-called OEM customers but it's not going to go into only one specific OEM but that it will be part of the next generation platform that will go into.

Okay. Great. Congratulations and you showed great increase with the transition to Wi-Fi 6 with Wi-Fi 7 designs being one now is there a similar I guess increase in ASPs with Wi-Fi 7 or is it even greater than the transition from 5 to 6?

Yes. Thanks for the question Kevin. So a few things here to unpack and talk about the whole licensing quarter and the impact for us moving forward in the long term. So first we are really happy to see multiple of our customers that have licensed the previous generation now adding either Bluetooth Wi-Fi or the combination and we have two new deals of the Bluetooth Wi-Fi 6 combination this quarter. But also we are very happy to see one of our high volume customers of Wi-Fi 4 that is already migrating to Wi-Fi 6 now licensing Wi-Fi 7 for us. Again, great testimony to see how our customers trust our technology and although we keep expanding our leadership position in the marketplace specifically for illustrated from the numbers this quarter. While the volume shipments grew by about 12% year-over-year, the revenue grew by more than 180% and this is really contributed to the transition from Wi Fi 4 to Wi Fi 6. So, with that migration we will see a major uplift in the average ASP. On top of that s customers will migrate in volume production to Wi-Fi 7, we expect to see another uplift. But of course this is that those design and production and volume will come later in the future years. And so already through 2025 and as we talked also 2026 and beyond, we will see tremendous so-called increase in volume as well as average ASP for Wi-Fi, the transition to Wi-Fi 6. And on top of that, Wi-Fi 7 will generate another uplift.

Okay great. Thank you.

Thank you, Kevin.

Sorry, David, one last comment. Just to remind everyone, we talked about two other customers that are already going -- ramping right now in 2025 based on our Vision AI DSP technology. So not only we are winning designs, but also we'll see a royalty ramp this year.

In the automotive...

Sure. So it's a good question. I think this is a concern that's around many, many companies in the technology space. We haven't seen such decisions in the first quarter or postponing deals or decisions because of the macro. Obviously, this is a concern that is out there, and this is why we're taking -- we decided to take a more cautious approach for the rest of the year. In theory, things like that can happen. When we guide and we have guided last couple of quarters, we don't break out the licensing and the royalties as we don't have the crystal ball ahead of the beginning of the quarter. But the level that we just reported and if you look at the Q3, Q4 of last year, the average of the first and second quarter of last year, this is a decent -- more or less, plus/minus, this is a decent range level that we want to continue with our licensing activity. Obviously, if things look better, then maybe we could pick up the pace. And if there will be some concerns by different players in the industry because of macro, not necessarily tariffs directly, but just macro overall, may be some decisions in licensing made so now, we've not seen that happening per se.

Thank you, David.

The next question comes from Chris Reimer from Barclays. Please go head.

Yeah. Hi. Thanks for taking my question. I'm sorry if this was asked already. I was cut off earlier and didn't hear the first part of the question. I'm just wondering about the gross margin and this one design customer that you mentioned. Can you give us an idea of maybe what percent? Yes. Can you give us an idea of what percent that actually is of the overall? And how long how much longer do you expect to continue with the extra allocation there?

Sure. So last year, we talked about a few designs with 5G Advanced solutions, very high-end, very sophisticated to many new use cases. Some of them are satellites, some are base stations. And not necessarily those new customers and those new spaces know how to deal with the modem and how to build the right use case that they need. And one of the advantages that we could offer is some customization and some help in the design activity of changing or adapting from an off-the-shelf type of modem to something that fits their use case in a more efficient way. So we have a group of engineers that are dedicated to that project. It's usually a couple of quarters, anywhere between one to two year types of project. And if you look at an example in the first quarter of last year, when we recorded 90% gross margin, about $2.2 million, the following quarter was $2.5, $2.6 million. That's probably clean a quarter without any effort and probably a million dollars or more above that. This is some of the allocation just from R&D. It doesn't change the overall cost of the company. It just records some of these efforts for a specific customer. This is one of the advantages for us in very advanced technologies like 5G Advanced to win new business, because if not, they would not have taken that risk of such a new and complicated design. And for quarters you could see 1% or 2% lower margins, but this is still an IT business model with a nine-years-plus of plus or minus percent gross margins Every once in a while, if you have these activities, you will have a$1 and $1.5 million. And when that is done and the services are done, then we bring them back to the R&D line and focus those costs on new technologies on new technologies and future developments.

The other thing I will add on top of that is that all this customization and enhanced features that we are building, it's all our IP, and we intend and can leverage that to other customers as well. So while there is so-called a short-term potential one or like a percentage of the gross margin at the end of the day, this is all helping us to secure those sockets, very high-end sockets and driving long-term royalties as well as advance the technology overall.

Great, thanks. That's really great color. And just touching on shipments you mentioned the slowness in the smartphone and that the customer would begin ramping up. So given your reduced outlook, is there any other area you're concerned about, or is it just an overall proactive conservatism?

There are two aspects to that question. One, as Amir explained -- the low-cost smartphone, one a bit slower for the beginning of the year. We believe it's just a timing issue. And we believe to see a ramp-up in the second quarter and therefore, Q3 and Q4, we have seen that trend for many years. The extent of how the year starts and as we said, the falloff from Q4 to Q1 varies from year-to-year, but Q1 is usually lowest for many -- for a long, long period of time, and then it kicks in with the highest number than volumes and royalties for us by the fourth quarter. The other new design win, other design win that's really going into production, as we all know, didn't have a full quarter. So we'll see much more of that being reported to us and sold on a three-month full quarter basis in the second quarter. And that's here to stay for the foreseeable future. So we're looking -- we're very excited about this opportunity. For sure, Q2 is going to have higher numbers. And this is why we guided sequential growth from Q1 to Q2, and that should continue throughout the rest of the year with new bots coming out later in the year. So I think this is the way to look at it from a handset perspective. From all the other market segments that we talked about the consumer IT, Wi-Fi, Bluetooth, Cellular IP, a very nice start for the year on the volume perspective and also the Wi-Fi ASP. And so, if we didn't have that timing issue and we could have posted a very nice start to the year but the rest of the consciousness is just due to the market conditions.

Yes, I'll unpack it a little bit further and more colors. So as we look at Q1, we are very happy to see a very solid licensing execution, and with that we're really solidifying our leadership in wireless communication as well as penetrating more and winning in the AI space. And so we are extremely encouraged by the licensees we got in Q1. On the royalty that came below expectation due to the two customers that we mentioned in the prepared remarks but with that said, on the mobile handset one with that customers we expect the revenue to pickup nicely through the years and to basically what we have seen in 2024. As well as, of course, the demand on top of the new customers overall gaining market share, so that's in the mobile. So this is a very strong payment for us this year. The other one is on Wi-Fi 6 that we have talked about for a while both volume ramp as well as ASP to the make sense ASP increase and for those two payments and overall the portfolio that we have in IP to licensing and more of perspective for the year. With that said, considering Q1 came show to our expectation on the top line as well as just the macroeconomics that have changed quite a bit since our last call, three months ago, we believe it's prudent to take a more cautious approach for the rest of the year and with that we basically guided down still a growth here but we guided down the expectation for the revenue growth. So all in all, in terms of our technologies and our ability to growth and success both in 2025 and in the long run, we are very confident about that, but we cannot ignore overall the market sentiment out there and that we have a Q1 that was lower than our expectation on top line with that we reduce the guidance for the growth here but a single-digit.

Got it. Thanks a lot for the color. That's it for me.

Thank you, Chris.

There's a follow-up question from Kevin Cassidy from Rosenblatt. Please go ahead.

Yes. Thanks for taking my follow-up, and just as far as the customer behavior goes, investors got into a bit of a panic we'll say about DeepSeek and this other low cost and say smaller LLMs that are coming into the market. Can you say how that's changing your demand for your NPU IP?

Yes. Thanks for the question. Actually this is the transition is great for us for AI we've seen the success and the growth mostly on the cloud for now for several years and that of course will keep growing very nicely in the coming few years but the transition from running the models on the cloud in case of infants really running the model on time, the transition from the cloud to the edge, hasn't really a big numbers started yet. Now it's really happening. It's the beginning of 2024 and now moving into the next few years. Models like DeepSeek and actually what we see right now also from the other Western large LLM companies that are building those models they are all coming with more optimized LLM models that can be runway more efficiently on edge devices. So we believe that we will see a major transition where smartphones, PC, tablets, automotive systems, other smart edge devices will integrate more and more AI or NPU capabilities and we'll be able to run much more efficiently those models, because they will be smaller and more optimized and with that lower latency and lower power. So actually DeepSeek coming with this technology and what's coming now in the Western world as well extremely encouraging to enable our future growth in the marketplace.

Okay great. Thanks for…

And with that we are looking to support those models of course.

Right, yes

The next question comes from Suji Desilva from ROTH Capital. Please go ahead.

Hi Amir. Hi Yaniv. Can you talk about maybe with the given all the macro and tariff uncertainty, if you're seeing any impact in the licensing environment, if you're seeing any programs that were underway being pushed or if the activity remains unimpacted so far.

Thanks Suji for the question. So just to clarify, we don't see direct impact of tariff in terms of paying taxes [indiscernible] pay taxed, and licensing technology. The indirect demand -- in Q1 we've seen very strong demand and we have been able to close both a good number of deals as well as very strategic deal for us. We have very good pipeline for Q2 and the rest of the year. We haven't seen the pipeline decrease. But overall, when we talk with customers, we would say on average, people are a little bit more cautious out there and just say more than anything most customers say, we don't know what we don't know and we need to see how things will shape up and I think that's overall what we hear out there. So, with that of course, one and what we said the more prudent with the cautious outlook guided lower for the year. But when we go and specifically talk with customers and work on programs that are in the making, we haven't seen any impact.

I appreciate the candid response there. And then looking at your Royalty units and Wi Fi, are those wins ramping and tracking to follow the success, the share success you've had with Bluetooth? Is there any impact there as well or are those programs coming to market?

I think actually on that we are extremely encouraged and we have licensed to tens of customers our Wi Fi 6 technology and many, many of them are renting volume production and on average, we are really encouraged by our customers able to integrated technology, take it to PayPal and volume production. So we are actually directly on track to what we want to achieve in terms of the Wi Fi ramp in the coming few years. And now of course with that there will be the transition to Wi Fi as well. Although I would say the competitive landscape is such that we are really becoming not only the de facto IP supplier for Bluetooth, but as well as for Wi Fi and we get Wi Fi 6 and then transition to Wi Fi 7.

Okay, very good. Thanks Amir. Thanks everybody.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Richard Kingston for closing remarks.

Thank you, Danielle. Thank you everybody. As a reminder, the prepared remarks of 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. With regards to upcoming events, we will be participating in the following conferences, the JPMorgan 53rd Annual Global Technology Media and Communications Conference, May 13 and 14 in Boston, Oppenheimer 26th annual Israeli Conference, May 18 in Tel Aviv, the Stiefel Boston Cross Sector one on one conference, June 3rd and 4th in Boston, the Rosenblatt Fifth Annual Technology Summit, The Age of AI on June 10th being held virtually, 15th annual Roth London conference, June 24th and 25th in London and the Northland Growth Conference 2025 on June 25th also being held virtually. For information on these events and all events, we will be participating in can be found on the investor section of our website. Thank you and goodbye.