Hello, and welcome to the CEVA Fourth Quarter and Year-end 2016 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded..

I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor and Public Relations. Please go ahead. .

Thank you. Good morning, everyone, and welcome to CEVA's Fourth Quarter and Annual 2016 Earnings Conference Call. I'm joined today by Gideon Wertheizer, Chief Executive Officer of CEVA; and Yaniv Arieli, Chief Financial Officer of CEVA.

Gideon will cover the business aspects and the highlights of the quarter and year, and provide general qualitative data. Yaniv will then cover the financial results for the fourth quarter and year and also provide guidance for the first quarter of 2017 and general data for the full year. I will start with the forward-looking statement..

our financial guidance for the first quarter of 2017, including the degree of confidence in guidance and general market outlook and revenue drivers for 2017; expectation of a favorable licensing environment including for vision and imaging, LTE IoT services, Bluetooth and 5G; optimism about the licensing pipeline and customer ramp-up schedule; and our ability to capitalize on LTE migration..

the ability of CEVA signal processing IPs for smarter connected devices to continue to be strong growth drivers for us; our success in penetrating new markets, specifically in non-baseband 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 3G, LTE and 5G networks, Bluetooth 5 and the IoT space; customer ramp-up schedules and the impact on royalty revenues; the effect of intense industry competition and consolidation; global chip market trends 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..

With that said, I would now like to turn the call over to Gideon. .

Thanks, Richard. Good morning, everyone, and thanks for joining us today. 2016 was an outstanding year for CEVA, with all-time record high revenue of $72.7 million, up 22% year-over-year with great momentum in terms of customers' adoptions and deployment of our advanced technologies.

This evidences our successful transformation into a leading one-stop shop IP house for wireless broadband and Internet of Things-related technologies. This impressive execution could not otherwise have been achieved without the relentless work and the perseverance of our 280 employees worldwide.

I would like to take this opportunity to thank them for all this great performance..

For the fourth quarter, we delivered another quarter with strong financial results, reaching a record-high total revenue, a record-high royalty revenue and record-high non-GAAP EPS.

The licensing environment continues to be robust with $8.3 million in revenue reported for the quarter, derived for 15 deals concluded, of which 14 were for non-handset baseband application and 4 of which were with first-time customer that recently joined our more than 60 active customers. Geographically, 4 of the agreements were in the U.S.

and 11 were in Asia, including Japan..

The fourth quarter was particularly strong for our vision product line with 8 deals concluded with customers targeting next-generation smartphone, automotive ADAS, smart surveillance camera, mirrorless camera and more. We are also extremely happy that ON Semi, a Tier 1 image sensor provider in the automotive ADAS space joined our customer base.

We are looking forward to collaborate with ON Semi empowering intelligence camera that surround the car..

Our vision portfolio, which incorporate our leading XM4, XM6 DSP with a comprehensive list of vision algorithm and our reputable CDNN2, deep learning software, continues to set new milestones in innovations and customer engagements. We now have more than 30 design wins for imaging and vision technologies. .

Royalty revenue derived from third quarter shipments was strong, due to combination of LTE and Bluetooth shipment growth on seasonal tailwinds as well as from one-time catchup payment of approximately $1.1 million from a handset baseband customer for prior quarters.

Overall, royalties which [ph], $12.9 million, up 60% year-over-year and the highest quarterly royalty revenue in the company's history..

Let me take the next few minutes to provide you with a summary of the underlying drivers for our business last year and the perspective for 2017. On licensing, 2016 -- in 2016, we concluded 49 licensing agreement, 45 of which were for non-handset baseband application and use cases.

And the balance of 4 deals were with large incumbents in the handset baseband space. 17 of the agreements signed in 2016 were with first-time CEVA customer. These design wins align very well with our diversification strategy beyond cellular baseband [ph] and the market we target. .

Our non-handset baseband category contain technologies and product for imaging and vision, LTE, IoT, WiFi, Bluetooth, audio and base stations.

Those technologies are centerpiece in every IoT device, and enable devices to become smarter via processing of advanced algorithm, such as deep learning, machine vision and voice assistance, and be wirelessly connected via long-range wireless, such as LTE and 5G, or via short-range wireless, such as Bluetooth and WiFi connectivity.

This possesses an opportunity in tens of billions of units in the coming years, for which we can address multiple royalty billing code per device.

In addition, our product line for the base station market, along with our long-standing relationship with Tier 1 OEM, expose us to lucrative business model in the infrastructure market and uniquely position CEVA as an end-to-end technology provider for the 4G and 5G mobile broadband space..

As we look into 2017, we are expecting continuation of the favorable licensing environment, driven by the following market dynamics. First, the growing adoptions of advanced computer vision and machine-learning algorithms in smartphones, IP security camera, ADAS and new camera modalities such as action camera, 360-degree camera, VR and AR.

Our XM4 and XM6 DSP platform offer higher performance, lower power consumption and are accompanied with value-add software and newer-network framework that significantly reduces the barrier-to-entry into those new markets and applications. .

Second, the emergence of LTE IoT services. LTE IoT is a composition of multiple low bit rate LTE standard among which are Cat-NB1 and Cat-M1 aim to enable billions of very low-power wirelessly connected devices to communicate with each other and with the cloud..

The LTE IoT usage model is applicable for broad markets such as automotive, smart meter, wearables and smart home. According to the recent Ericsson Mobility Report, it is expected that cellular IoT will exceed 1.5 billion devices in 2021, at 27% CAGR between 2016 and 2021. .

CEVA is already engaged with customers in this space. In particular, in relations to China Mobile, who is taking an early lead in proliferating devices and services around LTE IoT.

Our latest DSP CEVA X1 addresses the LTE IoT modem workload extremely efficiently as well as being able to process value-added applications such as voice, GPS and sensor fusion. .

Third, the acceleration of Bluetooth design resulting from the new Bluetooth 5 standard. Bluetooth 5 represent a quantum industry shift for Bluetooth, offering up to 4x longer range and 2x higher data rate versus its predecessor, Bluetooth 4.2.

Developers can take advantage of it for new use cases in wearables, smart home, beacons and audio over Bluetooth's low energy..

Also, in conjunction with audio, we believe that Apple AirPod, its new Bluetooth-based earbud will drive other handset OEM to follow and to displace the wired earbuds equipped with every smartphone sale with Bluetooth-based earbud.

Our leading Bluetooth offering, along with our unique expertise in audio over BLE, put us in an excellent position to benefit from the volumes expected..

We already have 1/2 dozen Bluetooth 5 design wins and expect our first Bluetooth 5 customer to announce its product very shortly. .

Fourth, we are expecting 5G design and licensing activities to expedite. While the standard is about 2 years out, operators are looking to deploy pre-standard product as early as 2018.

5G offers unified network supporting multiple services, among which are 20 gigabit per second peak data rates for mobile broadband, low latency for mission-critical use cases in autonomous driving and medical, and large capacity for the billion IoT devices expected to be connected to the 5G network.

Our CEVA-XC and CEVA-X product line offer our customer multiple and scalable options to address these market opportunities..

Turning to royalty. 2016 was an extraordinary strong year with remarkable 49% annual royalty revenue growth, on the back of almost 1.1 billion CEVA-enabled product shipment. In handset, approximately 865 million phones were sold with CEVA IP, of which 510 million were smartphone and the balance was feature phone.

LTE annual shipment were in particular strong, reaching a new record high for us of 226 million units and representing a 223% unit growth on a year-over-year basis.

Our diverse technology for baseband processing allows us to address customer needs for all different market segment, starting with the field [ph] sizable market of locals feature phone, widely used in India and other emerging economies, going through 3G and LTE midrange smartphone and all the way to flagship models..

We also experienced accelerated growth in shipments, in the second half of the year, in regard to our non-handset product with 26% year-over-year unit growth, reaching 210 million units and more than 71 million of them just in first quarter of 2016..

Looking into 2017 on handset baseband. Per ABI Research the market is forecasted to growth annually by 6% to exceed 2.1 billion handset shipment. We expect continued migration to LTE, which benefit us as the piece carries higher royalty ASP. India, in particular, is expected to be strong in LTE migration.

In the third quarter, last year, 7 out of 10 smartphone shipped with LTE enabled according to IDC India. .

We are also monitoring the recent initiative of Reliance Jio, a Tier 1 operator in India to launch LTE feature phone, based on Spreadtrum chip. This benefit Jio, in terms of spectrum efficiencies and standardization around LTE chip rather than our data chips.

Feature phone currently have 56% market share in India and any migration to LTE will benefit us in terms of ASP..

On the nonhandset baseband, we are set to benefit from the deployment of our Vision processor in smartphones to enable differentiated camera features such as night vision, digital video stabilization, zoom and more. The ASUS ZenFone 3 zoom, a midrange smartphone which was announced at CES, is enabled by our Vision DSP.

More smartphones and skills featuring our Vision DSP are set to be introduced shortly. .

We also expect ramp up during 2017 of multiple DSLR camera, smart surveillance camera and automotive ADAS dash camera. .

In the Bluetooth and the WiFi segment, we expect another growth year in unit shipment as new devices, as use cases, reach the market, particularly in fitness, [indiscernible] and health care applications..

In conclusion, 2016 was a great year for CEVA with outstanding financial performance and strong execution and customer engagement. Our strong competency developed over the year, as a result of our disciplined investment, enable us to innovate and put us at the forefront of technologies required for smart and connected devices.

We are determined to continue strengthening our competencies and working closely with our customer to capitalize on the numerous opportunity in front of us in the smart of connected world..

Finally, I'd like to take this opportunity and thank again for our employees, suppliers and investor for their support, and wish you all happy and prosperous year..

With that said, I'll now turn the call over to Yaniv, who will outline financials and guidance. .

Thank you, Gideon. I'll start by reviewing the results of our operations for the fourth quarter of 2016. Revenue for the fourth quarter was $21.2 million, as previously announced. This would also be our fourth consecutive quarterly all-time high record revenue achievement. This was 32% higher on a year-over-year basis and 19% higher sequentially..

Revenue breakdown is as follows. Licensing and related revenue was $8.3 million, reflecting 39% of our total revenue, 3% higher as compared to the fourth quarter of 2015 and above our plans and expectations.

Royalty revenue was $12.9 million, reflecting 61% of total revenue, an impressive increase of 60% on a year-over-year basis, and the eighth successive quarter that we delivered year-over-year royalty growth.

Fourth quarter royalties include a one-time catch-up payment of approximately $1.1 million from a handset baseband customer relating to prior quarters. Quarterly gross margin was 92% on U.S. GAAP basis and 93% on non-GAAP basis. Non-GAAP quarterly gross margin excluded approximately $67,000 of equity-based compensation expenses..

Our total operating expenses for the quarter were just below the midrange of our guidance at $13.4 million. OpEx also included aggregated equity-based compensation expense of approximately $1.5 million and $0.3 million for the amortization of acquired intangibles of Rivierawaves.

Our total OpEx for the quarter including these 2 items were $11.6 million, at the midrange of our guidance. .

U.S. GAAP net income and diluted EPS for the quarter were significantly up 126% and 118% to $5.2 million and $0.24, respectively. This compares to net income and diluted EPS of only $2.3 million and $0.11 for the fourth quarter a year ago..

Our non-GAAP net income and diluted EPS for the fourth quarter of 2016 increased 98% and 88% year-over-year to $7 million and $0.32, respectively. Non-GAAP net income and diluted EPS for the fourth quarter of '15 was $3.6 million and $0.17, respectively.

These figures for the fourth quarter of '16 and '15 exclude equity-based compensation expenses, net of taxes of $1.5 million and $1.2 million, respectively, and the impact of amortization of acquired intangibles of Rivierawaves, net of taxes of $0.3 million and $0.2 million for these 2 quarters in both years..

Other related data. Shipped units by CEVA licensees during the fourth quarter of '16 were at all-time high. It's 343 million units, up 24% sequentially and 35% from the fourth quarter shipments of 2015.

Of the 343 million units shipped, 271 million units or 79% were for handset baseband chips, reflecting a sequential increase of 24% from 218 million units of handset baseband shipped and 34% increase from 202 million shipped a year ago..

Nonhandset volume shipments also increased 20% sequentially and 41% year-over-year. The increase is due to a record high quarterly Bluetooth shipments in Q3 and continued ramp up of audio and voice products powered by our DSP..

The quarterly handset baseband royalty ASP was flat sequentially but increased 23% on a year-over-year basis due to higher volume mix of smartphone as compared to feature phones. Our overall quarterly corporate blended ASP was about flat sequentially but increased 18% year-over-year due to this product mix..

Some other interesting annual data. Our annual smartphone shipments, both 3G and LTE, increased 72% on a year-over-year basis, and grew by north of 200 million units to reach a record high 510 million phones. While feature phone shipments decreased by about 100 million units to reach 356 million phones for the year.

Our total shipments grew respectively by 17% year-over-year to reach 1.1 billion devices, which equals to approximately 34 CEVA-powered devices sold each second in 2016. These unit shipments represented significantly annual royalty revenue increase of 49% year-over-year, reaching an all-time record high of over $40 million for the year..

Annual handset baseband royalty ASP was up, the second year in a row, over 30% due to more favorable mix of smartphones. And our annual blended ASP across all our products on an annual basis was up 27% to $0.038 per unit. .

As for the balance sheet items. As of December 31, 2016, CEVA's cash, cash equivalent, balances, marketable securities and bank deposits were approximately $156 million. In 2016, we paid $2.2 million as part of our last contractual commitments from acquiring Rivierawaves.

Our DSOs for the fourth quarter was a bit above normal at 65 days, but down from the prior quarter, and after we received the September 30, 2016, outstanding payments that we discussed about at the last conference call..

Regarding our share buyback program. In 2016, we only purchased during the first quarter of the year, approximately 180,000 shares for an average price of $19 per share and for approximately $3.4 million. We have approximately 300,000 shares left in the program.

And we have, overall, concluded north of 5.7 million shares for an aggregated $87 million throughout our buyback program lifespan..

During the fourth quarter, we generated $12.5 million of cash from operations. Depreciation was about $400,000. Fixed -- purchase of fixed assets were about $360,000. And in end of last year, our headcount was 278 people, of which 220 were engineers..

Overall, post fiscal year 2015 financial achievements, we continue to demonstrate excellent and new enhanced milestones in 2016, leveraging on revenue growth, new customers and markets as well as disciplined expense control. In addition to growth in total revenue, we generated non-GAAP operating income increase of 87%.

We generated non-GAAP EPS increase of 75%. And we had a solid annual free cash flow from operations of $14.5 million. Backlog at year-end is at its new record high. The deal pipeline is robust, and royalty momentum appears to continue in our favor..

Now for the guidance. I'll start with some general data in relation to the full year. On licensing, as Gideon described, we are experiencing healthy demand across the entire range of products we offer.

While licensing revenue can be lumpy due to the timing of deal closures, we believe we have the fundamentals to increase our annual licensing revenue guidance up from the $32 million level that we experienced in the last 2 years to a new higher range of $34 million to $36 million for this year. .

On royalties, we believe that 2017 will be another growth year. In handset baseband, we are forecasting growth with a higher mix of smartphones versus feature phones, primarily driven by the expansion of 4G LTE in India and other emerging markets, and the introduction of new flagship smartphones in the second half of the year..

In nonhandset baseband, we are forecasting noticeable growth in royalty revenue, as our vision customers are expected to ramp production and as our now strong presence in the Bluetooth market continues. Overall, we forecast 10% to 20% annual growth in royalty revenues at this stage..

On OpEx.

With our increased confidence in our licensing revenue, which is reflected in our guidance and in line with Gideon's remarks earlier concerning our disciplined investment to innovate and to reinforce our leadership, we plan to increase our investment in R&D, in vision, LTE for Internet of Things, 5G and next-generation Bluetooth product lines.

Our OpEx increase has been mainly associated with headcount, employee-related costs that typically begin with a new calendar year, outsourcing cost and EDA tools for these new product lines. The increase will be in the region of $5 million for the year.

This should be -- it should be noted that approximately 1/3 of this growth is attributed to lower government grants for our R&D efforts. Equity-based compensation expenses is also forecasted to be higher this year, due to ongoing employee-related retention efforts..

Before I deliver our guidance for the first quarter of 2017, I would like to note that we have already managed to conclude a large portion of our licensing business for the quarter.

And although we have not yet received the number of royalty reports due to the Chinese New Year holiday, we believe we have good visibility to project the royalty revenue for the quarter. And as such, we are guiding Q1 with high level of confidence..

Now for the guidance for Q1. Revenue for the first quarter is expected to be in the range of $20.5 million to $21.5 million. Gross margin is expected to be approximately 92% on GAAP basis and 93% on non-GAAP basis, excluding equity-based compensation expenses. .

Overall, OpEx should be higher in the first quarter compared to the rest of the year, due to the timing of the Israeli R&D grant programs for this year. Q1 '17 OpEx is expected to be in the range of $14.5 million to $15.5 million.

And of the expected total operating expenses for the quarter, $1.9 million is expected to be attributed to equity-based compensation expenses and $0.3 million for amortization of acquired intangibles. So our non-GAAP OpEx is expected to be in the range of $12.4 million to $13.4 million for the first quarter. .

Net interest income is expected to be approximately $500,000. Tax rate for the first quarter is expected to be a bit lower than the norm and the following quarters as well at approximately 11% for non-GAAP and 14% for GAAP. .

Share count for the first quarter, approximately 22.5 million shares, and that will bring us to U.S.

GAAP fully diluted earnings per share in the range of $0.18 to $0.20 per share and non-GAAP EPS forecasted, excluding the aggregate $1.9 million of equity-based compensation expenses, net of taxes and the amortization expenses of $0.3 million, non-GAAP EPS is expected to be in the range of $0.27 to $0.29 per share..

Operator, you could now open our Q&A session, please. .

[Operator Instructions] Our first question comes from Matt Ramsay of Canaccord Genuity. .

This is Logan Bender dialing in for Matt. A couple quick questions. Looking to 2017, licensing growth is diversifying in the pipeline really nicely, but the growth will primarily be driven by baseband in the near term.

So how should we think about the moving parts of the 2017 LTE unit growth with a full year of Intel and Apple and some strength in China with Leadcore, but a bit of uncertainty at Samsung with the road map there? So can you talk a little bit about that, please?.

Sure. So as we mentioned in the prepared remarks and as we have looked at the business in the last 2 years, today we divide our handset business into 2 segment, the feature phone and the smartphone. Smartphones increased dramatically last year from 300 million to 500 million units.

And within those 500 million units, we were able to triple our LTE content from 70 million, if you remember back in 2015, to north of 220 million in last year, 2016. When we look into 2017 first, we believe that those 500 million smartphones will continue to grow for us.

And if I -- we open up specifically the breakdown of LTE or 4G within those smartphones, at this point of time, we believe that those 220 million LTEs should grow north of 300 million for the year. So that would be again the positive contributor both from LTE, the higher ASPs, the -- our biggest -- bigger market share as we go along.

And that's the positive momentum that we see on the handset space. .

Okay, great. Then a really quick question about some of the royalty trends, some positive news there.

Is there anything else? Any more granularity we can add to the royalty and the trends into 2017, with the LTE royalty gradually kind of coming down? So could we get a little bit more there, anything else?.

Yes, I mean, in our prepared remark, we spoke about the non-handset category of product. And we mentioned specifically 2 product that we believe will get into noticeable production this year, I should say this. One is the vision, and that's a very interesting trend because it's a smart -- it's associated with smartphones.

We see OEMs and a few semiconductors like Rockchip that are not the SOC companies but they find the space in the smartphone to provide the chip that its main purpose is to enhance the still and the video quality.

And as you know, if you take the iPhone 7 Plus with the dual sensors, so these are the things that people are looking to add into the 2017 model. So vision is an area that we see growth. This is something that we didn't have in 2016. The other area is Bluetooth. And specifically, Bluetooth 4.2 and Bluetooth 5 power the second half of the year.

This is something, again, in 2016, the first half was kind of a pause because there was a transition to more advanced Bluetooth technology. So we're going to see a unit grow in 2017. And then, now really, the end of the year, we expect to see base station, and this is a lucrative business, as I mentioned. .

The next question comes from Joseph Wolf of Barclays. .

Just a housekeeping item of sorts, but also towards the new products and the non-handset.

As you announce some of the -- or as you get deployed in some of these vision product, that is going to be reported in the non-handset business? And is that accretive to ASPs versus the handset LTE business that you're selling right now? Or how does that fit into the ASP mix?.

So yes, it is going to be reported in the non-handset stuff. As we grow, we probably -- maybe could open it up and give a little more color, but I'm sure we'll give some milestones as we start counting those units. ASP is probably twice as high in vision than the average of the company or up to twice as high, I would say.

So it's a nice incremental add-on. We just need to look for those unit volumes. Not all of them are handsets, some are and those specifically could be higher volume. Some could be consumer devices, DSLR cameras and the like, so you don't sell tens of millions of them. So we have to just count the units as they start hitting the markets.

And hopefully, that's -- and we are planning for that segment to be an interesting growth driver in royalties for the first time this year. .

Okay.

And I guess, as you look at the -- you gave guidance, if I heard you correctly for 10% to 20% royalty revenue growth for the year, but the number that you gave for the -- if I'm -- is that correct?.

Yes, that's correct. .

But the LTE number you just gave is like 36% growth.

So was that a conservative number? What are the puts and takes as we think about that revenue number with some of the opportunities here, which all seem to -- which, generally speaking, seem to be pointing towards higher ASPs? Or is the Bluetooth growth at lower ASP going to affect -- going to be good for unit growth but less so for royalty growth?.

Yes, that's always the million-dollar question, sort of the mix between all these product lines, one are very high ASPs, the other could be much higher volume but could be $0.005 to $0.01 in the lower ASPs.

So it's always difficult for us especially in the beginning of the year to have and manage to guide and build a model from all these moving pieces. We are trying to do it sort of bottoms-up. So we are looking at growth with the higher ASPs. We're looking at growth with more units and lower ASPs.

At the end of the day, maybe the average ASP does not move that much, it moves a little bit. It depends again what will be the stronger contributor.

But overall, from a dollar perspective, and when we add some of the new markets, which are not only handset, at least at this start of the year, we're looking at 10% to 20% growth in dollar contribution of royalties and another around 10% growth in the licensing part of our business, which is not a common practice for us from just organic efforts. .

Okay. And then finally, could you -- are there any -- there's a lot of articles right now about the Alexa product, which would seem to be a product that you guys could be in.

Are there any flagship consumer products where CEVA has been designed in that we can talk about? And as you look at some of these devices and some of the auto and the vision, or specifically in the auto market, are the design wins that you have right now integrated product in the manufacture of the auto? Or are they still mainly add-on accessories that customers buy afterward? And does the relationship with ON put you into sort of that long-term design cycle where we won't see revenues for a few years but we'll have a design win before that?.

Okay, Joseph, it's Gideon. Let me answer you. You basically asked 2 questions. The category -- the Alexa product is a -- it's a class of product that is called voice assistant. Now the idea with Alexa and as well as with Google is that they enable an interface to their cloud and open up for everybody to develop all sort of product.

So I should say that in the quarter, we signed our first deal to this class of product. This is associated not with Amazon, it's associated with Alibaba. As you can imagine, in China, you have similar trend and in much larger scale. So yes, we are involved in the voice assistant area, and we have already customer in this respect.

Yes, that your question about the voice assistant. With regard to the ADAS area, we mentioned the deal with Sony and we have other deals. This is not an add-on accessory. We do have another customer that is in the after -- what is called aftermarket. This is what you refer add-on accessory.

ON Semi and the other customers that we have are targeting to the ADAS and autonomous driving, what people are calling level 2 and above. 2 and 3 are the near-term and 4 and 5, these are the fully autonomous, and this is still a way to go. But we are speaking here on product.

And certainly, the core collaboration with ON Semi will give us even more credibility and entry point into the mainstream of the market. Also at CES, we announced few other players like Rockchip and Novatech, which are also players in the aftermarket devices that is associated with your question. So the design wins are there.

We need to see now the volume production kick in. .

Our next question comes from Gary Mobley of Benchmark. .

Got a question about the continuation of the increase in deferred revenue. So here we sit the end of the fiscal year at $6.3 million, and if I'm not mistaken, that's a 50% sequential increase over what was a pretty substantial increase in Q3.

And so I'm wondering if that has to do with the subscription-like license deals that we talked about last quarter? Or if there were additional subscription-like license deals concluded in the fourth quarter? And then as well any other contributing factors, that spike in deferred revenue and backlog?.

No. That's a quick answer, because I think you answered your own question quite remarkably well. It mostly has to do with the subscription. The deal that we signed back in Q3. And the other 2 deals that we talked about last quarter are more work related. So sometimes we get the payments ahead of revenue recognition.

But this is exactly the reason that here and there, we have these little bit of interesting or different deals. And of course, that helps us also with our guidance, with our confidence that we talked about Q1 in general. And the licensing for the year, which is not trivial for us, it was -- at least in the past was not.

And that gives us a stronger confidence. But the reasons are exactly as you described. .

Okay. Just a housekeeping question.

What kind of tax rate would you expect for the full year '17?.

In non-GAAP, a bit lower than the last year, probably around 12%, up to 13%. First quarter is going to be a bit lower than that, and it gradually increases over the quarters. .

Okay. So I'm having a hard time sort of dumbing down the royalty expectation for 2017 to be in a range of 10% to 20% growth. And I say that because if you're going to get to 700 million, 900 million non-mobile handset baseband royalty units by 2018, we have to see something offsetting that.

And so I'm wondering if you're standing by that 700 million or 900 million royalty forecast for non-mobile handset for 2018? Or any change to that range as we sit here today? Your comments and any insight would be helpful. .

Yes, I could start. Yes, it's a good question. I think we're today trying to give qualitative data for 2017. We don't have the model like that 700 million to 900 million. It's not a model but was more of a wishful internal targets for us. I think we're not yet giving out a model for next year from a volume perspective nor from a dollar perspective.

This is something that we will probably do throughout the year and maybe for 2018, maybe for 2019, a little bit longer term when we get a little bit more facts. And I think what we're waiting for are 2 things.

One is the nonhandsets really to see those units and dollars flow in and the volumes to -- in order to substantiate those 700 million to 900 million units.

Or on the other hand, the dollar figures, especially in 2018 from the base station market, which maybe are small units in the overall mix of that 700 million, but in the dollar perspective, it's much, much more significant. So I don't think at this point, we're giving any specific numbers of how many hundreds of millions we want to power in 2 years.

But I think throughout the year, we'll try to give a little bit more color and maybe even move out a year, a little bit further out, and as we get more confident from the volume perspective, less from the dollar perspective. .

Yes, Gary, I think what we are expecting to see 2017 set the precedence for what we're going to see in 2018, what will be the contributor. So certainly, vision, and I mentioned, I think somebody else asked me about smartphone, this is a market that expected to take volume direction. And Yaniv mentioned base stations.

And of course, the Bluetooth 5, and I mentioned the Apple AirPod-type of product, which we are very optimistic about, the trend of moving from wired thereabout to Bluetooth thereabout. So these are products that could -- that are basically -- could be done in designs today and could be in high volume in 2018.

Yes, we think -- I mean, so we have good understanding and stand behind our forecast for 2018 in light of the fact that what -- we already see those elements going in or flourishing in 2017. .

Our next question comes from Matt Robison of Wunderlich. .

Yaniv, nice to see the cash flow and especially since it looks like you've got some room to continue it with further DSO reduction, especially if your quarter is already largely in place on the licensing side. Hopefully, it's front-loaded a bit.

I wanted to first ask, you mentioned this ramp of non-baseband this year, that would normally imply lower ASPs, but some of this vision stuff, my understanding is it's higher ASPs. Do you expect that the royalty ASP to go up or stay about the same or go down in '17? And then, Gideon, you mentioned base station.

I really wasn't thinking about base station being a factor until 2018.

Do you think that's going to come in this year? And then the other, lastly, what should we think about in terms of timing for the vision and other application-oriented functions to start to show up this year?.

Hi, Matt. Let me start with the first one. When we said at the beginning that we were not sure what the mix is. It may end up more or less the same. Again, depends on the volume. We ended 2016 with a record-high Bluetooth device. It's 50 million in the last quarter and another 21 million from these other devices, mainly audio related.

And it depends how fast with all these new products that Gideon mentioned where it will take us by the end of the year. LTE will add higher ASPs, vision will add higher ASPs, but these may be offset by lower ASPs from connectivity and audio.

I don't think the target for us is to increase or decrease the average ASP of the company, but just to be able to tackle many more markets and get royalty revenues from many more customers, which was not the common practice for us, 3, 4 or even 2 years ago, where still the bulk of it is coming from handsets.

So I would, for now maybe keep it flat, maybe slightly higher, but not too much. And we'll see how we go with the quarterly ASPs. .

Just a quick answer to your base station. So far what we see is a good progress with our base station customer. And we think that by the end of the year, we will start production. The exact amount, we don't know yet, but this is going very well, I should say. .

And the last question for today comes from Suji Desilva of Roth Capital. .

As we look at the licensing pipeline in 2017, you talked about strong diversification in '16.

Do you expect similar new customer interest in '17 to continue to diversify in a similar magnitude or fashion?.

Yes, I mentioned the 4 end-care product that will drive in our opinion the 2017 licensing, 3 of them are nonhandset, these are vision, Bluetooth 5 and LTE IoT, which is in China. It is going very well, very fast traction there. And in the baseband side, the way we see it is and we see today is 5G. People are starting pulling the trigger on 5G designs.

They understand that it could happen eventually. And these release are usually long cycle. So we had, last year, a 5G customer. And I'm putting aside the base station, because in base station, we already have the customers for 5G. But in terms of handset and what is called user equipment, this is now moving. .

Okay, great. That's helpful. And then you talked about vision being a nearer-term opportunity.

What -- how would you size the unit opportunity there? And how you talk about the relative ASP of vision for you guys?.

Yes, sure. Let's start, the ASP should be probably up to twice the average of the company's ASP, anywhere from 1.5x to 2x, that would be sort of an average norm in high volume. We have few sockets in handsets, which we may set along next to a Qualcomm Snapdragon for example.

If we talk about a handset, it's going to be in few SKUs that could be in the millions, 10 million, 20 million, if it's a high runner, if it's a good seller-type of phone. We have 2 or 3 different DSLR cameras. If you look at an annual basis, these are probably up to 1 million or if it's a super camera, slightly more, but in hundreds of thousands.

And we have few of them, so that ramps up or potentially ramps up to, again, higher volume. And the third is the surveillance. Surveillance is a bigger market opportunity. But it's the first time for us.

So again, we need to -- as soon as we are designed in the product, you will see that they're richer than the month -- quarterly reports, if you look at new products. We'll show it in our IR presentations of course.

And we'll count the units as we go along, because I don't think that ahead of time, we have a clear crystal ball how much our customers are planning to shift or at least in the internal part, because this is a relatively new product with us inside.

So one step at a time, but we are forecasting quite a few millions of dollars, both from the unit volume as well as the dollar contribution, and we'll add them up as we go along. .

And then maybe, lastly, on the vision part.

Can you talk about the competitive landscape in the sense of why this functionality wouldn't necessarily be integrated into an application processer? Why you think it's a sustainable opportunity there for you guys?.

No, the vision, it's a developed area. And right now, if you take the smartphone, which is now getting a boost in terms of -- and I think it started because of iPhone 7 Plus came out with dual sensor, and it showed the benefit. What makes us optimistic is that the next step should be neural network.

Right now, people are speaking on this on roadmap terms, but we have the product and a clear advantage, I mentioned in my prepared remark our software on top of it. I think today in the software side, for neural network, other than Nvidia, no one is having similar core [ph] comprehensiveness in neural network that we are having.

And I think this is where we don't think -- we have an edge versus competitors that are more trying to put just in hardware core and less software. And our approach is a more comprehensive one, where we combine hardware and software. .

And this concludes our question-and-answer session. I would now like to turn the conference back over to Richard Kingston for any closing remarks. .

Thank you. Thank you all for joining us today and for your continued interest and support of CEVA. We will be attending the following upcoming events and invite you to meet us there.

We will be at Mobile World Congress in Barcelona from February 27 to March 2, and we will be attending the 29th Annual Roth Conference in Dana Point, California, March 13 to March 15. Please visit the Investors section of our website for further information on these events and other events we will be attending. Thank you, and goodbye. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day..