Good day, and welcome to the CEVA, Inc. First Quarter 2022 Earnings Conference Call. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

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

Thank you, Betsy, and good morning, everyone. Welcome to CEVA's first 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 the highlights from the first quarter and provide general qualitive data.

Yaniv will then cover the financial results for the first quarter and also provide guidance for the second quarter and full year 2022. I'll start with the 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 our market position and strategy, including efforts with respect to 5G and edge AI innovation, demand for and benefits of our technologies, expectations regarding market dynamics and expectations and financial guidance regarding future performance, including for the full year and the second 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 and 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'll now hand the call over to Gideon. .

broadband IoT and massive IoT. An additional 5G space where we are looking to catalyze demand is 5G radio access network or run. The latest generation of 5G base station architecture are virtualized with disaggregation of the run workloads between the distributed unit or DU and the radio unit or the RU.

Both are highly demanding and accustomed to DSP processing and effectively more than double is CEVA addressable market versus traditional LTE base station architecture.

As I noted earlier, we have concluded in the first quarter a sizable and strategic agreement with top-tier OEM for a new class of DSP architecture that we will announce in the coming months.

This new DSP architecture will set the stage for the proliferation of virtualized run and open run and will be our underlying technology for our next-generation cellular solutions. We also made not worthy progress in the past quarter in the AI space.

In our prior earnings call, we outlined our AI strategy, which focuses on AI at the edge, a fast-growing market forecasted by ABI Research to surpass 1.3 billion units by 2026.

Capitalized on this sizable opportunity, we unveiled a Neu Edge AI processor architecture, the new pom with scalable performance starting from 20 tera operations per second or top and going up to 1,200 tops. NeuPro addresses the AI requirement of broad market and application, among which our smartphone autonomous car mixed reality, 5G and more.

As noted earlier, we signed a lead customer license agreement with a semiconductor targets the ADAS and the intelligent cockpit market in China. It is our first entry to the vibrant automotive market in China that leads the transformation of cars in the form of software-defined architectures and electrification.

In summary, CEVA continued to execute well in the first quarter with strong performance and financials, even in the face of challenging macro events. We have the vision, the market reach and the execution capability to monetize our technology innovation.

While the lockdown in China has impacted our customer there, the end market demand for our product continues to show strength, which co-position us to continue to outperform through 2022. With that said, let me hand over the call to Yaniv for the financials..

Licensing, NRE and related revenues was a record high, $22.4 million, reflecting 65% of our total revenues, up 56% as compared to $14.4 million for the first quarter of 2021. Royalty revenue was $12 million, reflecting 35% of our total revenues, up 9% from $11 million in the first quarter of 2021.

Base station and IoT royalty revenue contributed $7.1 million in the quarter, up 24% year-over-year despite a headwind from supply chain constraints in the 5G base station RAN space and the impact of the lockdown in China on some of our Chinese customers. Both the gross margin was 81% on GAAP basis and 84% on a non-GAAP basis.

both better than expected. Non-GAAP quarterly gross margin excluded approximately $0.3 million of equity-based compensation expenses and $0.5 million of amortization of assets associated with the Intrinsix acquisition and Immervision investments.

Total operating expenses for the first quarter were $27.5 million, at the higher end of our guidance due to lower allocation of Intrinsix NRE costs from R&D into cost of revenues per our prior quarter's guidance.

First shift between these 2 expense line items may occur from time to time and are tied to the actual chip design work performed in any specific quarter.

OpEx also included aggregated equity-based compensation of approximately $3.1 million, amortization of acquired intangibles of $1.1 million and $0.3 million for the costs associated with the Intrinsix acquisition.

Total operating expenses for the first quarter, excluding these items, were $23.4 million, just over the high end of our guidance due to the same reason I just discussed for GAAP. On the tax front, there were a few developments in the quarter.

We have implemented a new tax regulations in France, named IP Box Tax Regime, enabling our corporate tax rate to be lower than the statutory 25% on specific types of revenues. This was offset with higher withholding tax associated with our future utilization in our Israeli subsidiary.

GAAP other income included a $1.1 million loss from our -- the valuation -- revaluation of the investment in CPR, formerly iSIGHT technologies and leading provider of in-cabin sensing solution for the automotive industry that went public in the fourth quarter of 2021.

As we explained last quarter, we will continue to adjust our investment quarterly up or down based on the market valuation of these shares. GAAP net loss for the quarter was $1.7 million and diluted loss per share was $0.07 compared to a net loss of $3.6 million and diluted loss per share of $0.16 for the first quarter last year.

Non-GAAP operating income more than doubled to $5.5 million from $2.6 million reported in the first quarter of 2021. Our non-GAAP net income and diluted EPS for the first quarter of 2022 was $4.2 million and $0.18, respectively. And net income and diluted EPS for the first quarter of 2020 were $0.3 million and $0.01 respectively. Other related data.

Shipped units by CEVA licensees during the first quarter of 2022 were a record 531 million units, up 21% sequentially and 56% for the first quarter of 2021.

Of the $531 million units shipped $100 million or 19% were for handset baseband chips, reflecting a sequential increase of 20% from 83 million units of handset basement chips shipped in the fourth quarter of '21 and a 22% decrease from 129 million units shipped a year ago.

Our base station and IoT product shipments were 431 million units in the quarter, up 21% sequentially and 104% year-over-year. Of note, Bluetooth was a record 333 million units in the quarter, an all-time record high with sensor fusion, WiFi and cellular IoT also delivering strong contributions. As for the balance sheet items.

At the end of March 2022, our cash, cash equivalents, balances, marketable securities and bank deposits were $162 million. Our DSO for the first quarter of 2022 continue to be lower than the norm at 32 days compared to the first quarter of 39 days. During the first quarter, we generated $9.8 million of cash from operations.

Our depreciation and amortization was $1.9 million and the purchase of fixed assets was $0.9 million. At the end of the first quarter, our headcount was 476 employees, of which 391 are engineers, slightly lower than the total of 475 employees at the end of December '21.

On our yearly guidance, as Gideon explained, the fundamentals of our business are strong, which is implemented by record revenue in the first quarter. We continue to dominate the wireless IT space, stepping up our relationship with top-tier customers and are encouraged by the share gains by our key handset customer, the Tier 1 smartphone OEMs.

We therefore are arising our annual -- raising our annual revenue guidance to a range of $142 million to $146 million versus $122.9 million for 2021. This guidance contemplates consistent recovery in China as the restrictions there are gradually lifted throughout the year.

Specifically for the second quarter of 2022, gross margin is expected to be approximately 78% on GAAP and 82% on non-GAAP basis, excluding aggregate of $0.3 million of equity-based compensation and $0.5 million for amortizations. OpEx for the second quarter is forecasted to be similar to the first quarter of 2022.

GAAP-based OpEx is expected to be in the range of $27.1 million to $28.1 million. And of our total operating expenses for the second quarter, $3.3 million is expected to be attributed to equity-based compensation, $0.8 million for amortization and $0.3 million for the cost associated with the Intrinsic acquisition.

Our non-GAAP OpEx, excluding all these items, is expected to be in the range of $23 million to $24 million. Net interest income is expected to be approximately $0.4 million and taxes for the second quarter are expected to be similar to the first quarter.

Texas generated from the new 10% significantly lower tax rate on specific revenue sources for our French activity offset by tax expenses associated with the holding taxes and their future utilization in our Israeli subsidiary. Share count for the second quarter is expected to be 24 million shares for on and on-GAAP EPS calculation basis.

Betsy, you could now open the Q&A session. .

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

Yes, thank you for taking my questions. Congratulations on a great quarter. Just maybe on the topic of the earnings season has been China and all the shutdowns that you're expecting a gradual improvement.

Are you -- I guess are you getting that from your customers that are saying that they see this change in their government policy?.

Government. Hi, Kevin, thank you for what you said, government policy is not something that our customer can control the lockdown in the Shanghai area is still in place. There are few areas that you see releases.

When it comes to our customer, as we pointed in the prepared remarks, things that happen when people cannot go to work and manufacturing lidar basically almost shut down. So there is no point to assemble product and get the chip for that. Nobody is there.

So -- we don't -- the indication that we're getting from there is that they don't see a decline in demand. The demand is there. Keep in mind that our technology goes to all sort of new applications in the IoT areas, in the industrial areas, things that are wireless driven, and that's in high demand.

So we believe that once they get back to work, things will recover post they can. .

Okay, great. So no demand destruction. And maybe I think your acquisition of Intrinsic is extremely important and has great opportunities.

Can you talk a little bit about the -- your funnel of opportunities that you're working on, what might have changed during the quarter?.

Yes. I think there are two aspects of the activities or the dynamics that we see with Intrinsic. Number one is there is a very solid position in the defense market.

And you see it from the U.S., the ambitions and the need to ramp up the investment, both in the defense side, at the back of what is happening in Europe as well as overall building a semiconductor infrastructure. So we see this implied to Intrinsic in terms of engagement.

The other thing that we are now under the umbrella of CEVA doing is to promote or propose to customer a new business model that we call integrated IP solutions. So basically, we take the CIP and the Intrinsic capability to design, chip design, pretty complicated one combination of RF, mixed-signal, digital processors.

And we basically elevate our proposition to customers and say, let's not just the -- take the component, the core, but rather we'll build the design of the SoC, a result, and we are getting in particular in the U.S., we see a lot of interest from OEMs and also semiconductors that lack both the IP and resources because there is a scarce resources about engineers.

And we are getting good feedback, and we see some movement in this respect. So overall, the Intrinsic acquisition is taxeme to the next level of more of a trusted partnership with customers and not just a supplier customer relationship..

Great. Thank you..

Thank you, Kevin.

Next question comes from Suji DeSilva with ROTH Capital. Please go ahead..

Hi, thanks. Congratulations as well. So Gideon, and Yaniv.

So maybe following up on Kevin's question, the Intrinsic efforts here, are you seeing the business model kind of, I guess, extension or shift to maybe more licensing upfront? Is that starting to take hold? Or will that take some quarters to kick in?.

I mean it's ongoing. We believe that as time goes by is when you see the integrated IP solution, which are larger deal size overall, both in the upfront side and the royalties, you see more higher components of IP in the intrinsic deal, which you're going to see it in the COGS side of our business.

But it is a process that we gradually want to promote it and focus on large customers because it's a different relationship. By the way, to remind you, Suji, that the first deal that we signed of integrated IP last quarter in Q4 of last year, that was the first deal. The project should end now in the second quarter.

And then eventually, we should see a flow of royalties down the road as soon as that chip goes into production. So that first part of being able to design the IP with the surrounding NeuPro is something that we have already started. And I think from every once in a while or every quarter, so we will be able to talk about a new deal. That's the goal. .

Okay, great. That's very helpful. Of the areas in auto IoT that are positioned to grow sensor fusion, WiFi, cellular IoT. Can you talk about which ones maybe have the most opportunity in the second half of this year? I know they're all growing.

Just curious, is any of them starting to inflect at all? Or are they all steady growers?.

Yes. Suji, I would say that wireless and AI are the two hotspot. And I'm saying wireless, it's all over the place. We have 4 unique technologies, 5G, to offer 5G, WiFi, UWB and Bluetooth. And in 5G, the interest that we see is in the IoT side, cellular IoT.

The late -- the upcoming standard in 5G release 17 and release 18 will open up a lot of new use cases. Some of them I mentioned in the call, RedCap, which will displace the narrowband IoT usage model.

And there is a side link, which is basically think about putting this kind of cellular block for every smartphone and wearable device so you can communicate with a vehicle and get additional safety. So these are -- in the 5G, we see a lot of customers are interested.

WiFi, we see it in China, all over the place for smart home, access point and also industrial. And UWB is upcoming standard that you see in Q4 in automotive. And people even talk about audio UWB as the de facto standard for Metaverse.

So in terms of interest and potential wireless all over the place, and I said in the prepared remarks, we are in a position that is and dominant in this wireless IP space as arm is the CPI. We are the go-to guy when people wanted to do because the comprehensiveness and the pod, the success stories that we have. The other area that I mentioned is I.

We believe that going forward, every SoC will have an AI processor in different form factors. And we build this new pond the new product that we announced vacant in light of something more generic than the previous generation Edge AI, which was more camera related. And that's what we see now people are coming to us with the requirement to do.

And the challenge with Edge AI, and we are addressing it not just in the outlook, but the software as well is to make it simple for people to develop these applications. And that's make a strong -- the way we look holistically on these problems and not just the technology itself. .

Okay. Thank you, Gideon. I’ll get back in the queue. Thanks, man..

Thank you..

The next question comes from Chris Reimer with Barclays. Please go ahead..

Hi, thank you for taking my questions. Congratulations on the quarter. Gideon, as you mentioned some of the problems with China and the covered restrictions.

Can you give a little more color on how that is impacting the business in terms of getting things out or you mentioned shipping? And then just on a follow-up, the guidance for revenues, I believe that's an increase.

Can you give some of the some of the things going into that, that may be more confident about raising the guidance?.

Sure. Let me try to help out, Chris. So on -- first, on the guidance perspective, we took it up, you're right from the beginning of the year and obviously, much higher than last year. Last year, we closed the 21% to 22.9%.

The new guidance is $1.42 to $1.46 million, so a much higher than what we had in mind at the beginning of the year due to a strong start for Q1. China, I think what Gideon talked about earlier, I would look at it from 2 perspectives.

From a licensing perspective, we have all been doing business we've covered alongside for the last 2 years, 2-plus years. So on the licensing front of licensing new technologies, -- nothing has changed in China nor in the rest of the world.

The companies in the technology sector are continuing to license new technologies, over Zoom and Teams and on the virtual capabilities without less travel from country to run country, but when there are no lockdowns, of course, there our internal teams, the local team that each country does go from a customer to customer and to face-to-face meeting.

So you saw that in the licensing, record licensing in the quarter, a lot of deals in China, 5 deals out of the 14 are China, business as usual. Unfortunately, they are under lockdown. So part of that design work is done from home and remote but not from their own offices and facilities. That's one side of China that really hasn't changed.

In the contrary, there's still good demand, and we saw that in licensing, both last year and this year, and the numbers continue to be quite strong there. Same as the interest. So now we're moving to the royalty front. And on the royalty front, we also came up with a better quarter compared to last year.

So China is a big factor in our revenues and our customers. But we have seen that in specific markets like the base station market, our customers didn't probably get the full access of supply to build the base stations. It's not CEVA-related it's industry-related.

This is a lot to do with the lockdowns that has been happening for the last 1.5 months or so in China. And I think that's what we referred to that in some segments of our business, the royalty reports were lower than what we had in mind for the first quarter.

But we believe that will catch up because the demand is there and 5G base stations are in record demand around the world. And even the consumer devices that some of our customers were down maybe in 20% or 30% from what we anticipated, the overall scheme of things, you saw that our royalties were up year-over-year from $11 million to $12 million.

So I think that the problem is really having some of these facility being closed for such a long time. As soon reopen, we may see that correction quite fast. We saw 2 years ago when China was locked down in the first quarter and the second quarter was robust around -- in China because everybody was picking up the pace.

So we don't have that crystal ball of the exact timing. But as Gideon said earlier, the demand for all these products that we are in, both whether consumer or electronics or the digital area still is around us, and we probably could have had a better set of numbers without the pandemic right now in China. But with that said, they're recognized.

So I think that's what we're trying to convey. -- that's still business is strong there, although they are facing some difficulties. .

Thanks. And just one more, if I could.

How do you -- how are you looking at the M&A pipeline? Has anything changed?.

We are -- when it comes to M&A, it's a valid strategy for us. We are looking on different options. We don't see any change in terms of reluctance to sell company or ambitious to by company. We do it one by one, different aspects in order to find the right fit for us.

We did in the last, I would say, years 3 acquisitions, and all of them are extremely successful in growing our business. .

Okay, great. Thanks. That's all for me. I’ll get back in the queue. .

Thank you. .

The next question comes from Matt Ramsay with Cowen. Please go ahead..

Hey, good morning. This is Sean Oakland on for Matt. Thanks for taking my questions. I wanted to talk about ASPs quickly. And I think if you look at the license ASP in the quarter, it seems strong. But no, I know that there's probably more NRE there in the past -- than in the past from the Intrinsic.

So maybe you could speak to the split between license versus NRE in that line? And then just on the royalty side, Bluetooth, you called out record shipments. Is that what's driving the maybe a little lower ASP there? Or is there something else in the baseband mix? Thanks..

Sure. Good question. On licensing, we've always said for years that it doesn't make too much sense. You come up with a number, but there's not too much logic behind it. If you take the licensing number and divide it by 14 deals. Some deals that are service-oriented, so you don't recognize that amount up front.

So one of those 14 deals, a few of those 14 deals that you divided by are not really relevant to the revenue because they are not in the revenue line. So sometimes because of the accounting rules or start-ups, you don't deliver before the customer actually pays you.

So again, the same result that you get a number, but it's not -- doesn't necessarily reflect if it's a single use, if it's a larger multimillion-dollar deal for a wider range of products, I think that over the years, we've managed to come up with a nice portfolio of different technologies, now services as well.

The pipeline is strong and then the numbers are going up. So that $22.4 million, I think, is a combination of all these different factors.

What we could say maybe in the wireless side, and obviously, type deals are more expensive and lucrative than 4G deals a few years ago and salaries for WiFi, WiFi 6, and now we talked last quarter about WiFi as leading-edge technology are, of course, being higher priced than a Bluetooth type of device.

So that's on the licensing front to give you a little bit more color. And the more type of technologies we crew come up with like Gideon talked about AI, the nicer offering and the higher ASPs we have for these types of deals.

It's really technology-driven and the newer technology that comes out, we overall to charge more than the technology that's 2 or 3 years old. On the royalty front, Bluetooth surprisingly, the ASPs are not even going down, but not just flat, but slightly even hare.

The reasoning is that we have more and more customers, new customers that are joining in. And the ASPs usually a newer customer with the royalty scheme is higher than the existing customer with a very large volume. So catalyze that keeping the ASPs even better than flat on the Bluetooth side.

And no doubt that you're saying the 333 million units a quarter that does move the needle with royalties. So the royalty overall for us, for Bluetooth and overall IoT, a base station group is higher due to that. A nice factor, and I think maybe we were asked earlier about this is how do you see the rest of the year or some of the exciting things.

One of the exciting add-ons to Bluetooth is WiFi, and we see much more demand for combo chips today.

And if you -- we start -- we will start seeing more Bluetooth Wi-Fi devices in the market, ASP they're not necessarily 1 and 1, it's 2, but that one-and-one type of technologies could be even equal to 3 because the ASPs are WiFi chip is more expensive than Bluetooth. So from our perspective, a percent of that composite and the bit contributor.

And part of our customers powering 300 million devices a quarter start adding Bluetooth and Wi-Fi to it, that's a winning factor on the log side. that's something to take into account from the ASP perspective. And these are the 2 biggest factors right now that probably worthwhile mentioning from an ASP perspective. I hope I covered..

Thank you. That's helpful. And maybe segueing off of that, you talk about WiFi flowing potentially into the royalties.

Maybe bigger picture, if you could just talk about licenses that you've signed in 2021, how you're thinking about the time line of those flowing into the royalties? I mean, it was a pretty solid year for you last year, continued into this quarter. And obviously, it depends on the end market.

Auto is going to be longer, but how are you thinking about that? Are you starting to see royalties already from 2021 licenses? Or is that a ‘22 or ’23 or ‘24 or ’25 type of thing?.

In general, the connectivity, which we are WiFi, Bluetooth, UWB, this -- the design cycle is much shorter than, let's say, 5G. 5G, it's a much bigger So, there is a more stringent certification with operators, and that take between 18 to 24 months.

I believe that we're going to see deals to sign in, let's say, in the first -- late first half of last year, we'll see it in early 2023 in mass production because the whole process of certifying a chip is much shorter and most important, the proposition that we have for connectivity is much more integrated.

We will not just provide the hardware, but also the software. So the cycle is something between 12 to 15 months from mass production... .

Super helpful. Thanks a lot, guys..

Thank you..

The next question comes from Martin Yang with Oppenheimer. Please go ahead..

Hi, good morning, and thank you for taking the questions. Looking to the Bluetooth strength in the first quarter, can you maybe talk about where did that trend come from how sustainable that is and whether or not that's associated with any inventory replenishment activities by our customers. Thank you..

Well, look Bluetooth is a very powerful standard in terms of the diversity of applications. What we are seeing now in terms of customer shipments, it relates to TWS, the Mimi market of the market, that's a growing market. That's close to 1 billion units in the next year also.

And this market is now getting into different headset space, whether it's for VR, Metaverse and in gaming in general to do it. So to your question, it's extremely sustainable and growing.

The Bluetooth standard is working on next-generation technologies that will provide to help the customer beyond the audio that we all know use Bluetooth for that purpose about locations. So think about the different trackers that's going to be all over the place, that's going to be even bigger market than the audit.

So overall, you're talking about Bluetooth of 4 billion units a year annually and is expected to grow. .

Understood. My next question is on your AI comment.

So are you implying that most of the Edge AI implementations you have are mostly for camera-related applications? And for this newer generation, where do you think or what market segment do you think will get first adopted besides camera applications?.

That's a good question. When people talk about Edge AI or AI, the terms, just in the last 2 years, people start using it to distinct it between the AI activity that happens in the data center.

Edge AI, the initial use was related to camera, so when people talk about ADAS, so it's a camera that you make -- you put -- you use AI to detect pedestrian or they take traffic light or things like this or surveillance camera, you need to detect strange behavior.

The -- as time goes by, people got more familiar of how you use the of other applications. So in 5G, you can use it for optimizing the network performance.

So when it comes to smartphone in general, you can use AI to optimize the power metrics by collecting data and knowing how people specifically use it, natural language processing, voice recognition. We are seeing a lot of customers using AI for things that in the past, they wrote software.

And that's what drove us to come out with new prom to say, this is not just AI for camera. This is AI for sensing in general. This is AI is for any workloads that you need to do. It's think about CPU for AI, the same thing. CPUs don't customers are not trying to use it for certain tasks. They just use it for everything that they need.

Same goes for the Newport people we use, people will use this platform for any workload, any application that relates to….

Thank you for the color. .

Martin, I'll add one more thing to your prior question, and Giga talked about the size of the Bluetooth market. Don't forget that last year, and this is part of the excitement for us in the connectivity in the wireless space. Last year, we talked about two design wins that we add into the cellular space with Bluetooth or WiFi that connectivity.

One is the semiconductor company and one was an OEM, an actual Chinese OEM doing handset, and we are going -- they're going to do their own ship with our connectivity technology, replacing an incumbent supplier that is there today.

So that's part of the growth and part of the opportunity that we have in Bluetooth, not just IoT devices, but also back in handsets with more technology than just the modems that we have done for many years. .

Makes sense. Thank you..

Thank you..

The next question comes from Gus Richard with Northland. Please go ahead..

Yes. Thanks for taking my questions. I apologize in advance for having to ask this. In the old days, you used to recognize revenue for royalties 1 quarter in arrears.

And then when FASB-606 came along, you had to recognize revenue in the current period, but I don't think you get all of your royalty reports by the time you put your numbers together, and I'm just wondering, has that changed and your customers get the royalty reports to you? Or -- and if not, how do you estimate royalties in a period without all the reporting? Any color there would be helpful.

.

Yes. Excellent question, Gus. I mean the first, you're most welcome to write to the FTC and request to change the rules. It will make all of our lives much easier. And it is more complex.

There's no doubt that we don't get all the sports, especially this quarter, when the companies in China were specifically were shut down and people can't come to work and close their numbers and use the system; so we did call up all our customers. We did try to get as much insight as we can for their business. Some gave us a verbal estimate.

Some gave us an assumption of where they think they are compared to the prior quarter and well the estimates for the best to translate it into royalties. That's the best we could do with the companies that did not report to us.

And a big portion did report on time and still managed whether it's a draft or a final report, but to those that were not around their offices, that was the theme that we did for this quarter, a bit more challenging than prior quarters when the business as usual people in the office. .

Got it.

And when do you just true up any inter-accuracies from Q1 and Q2 earnings?.

Yes, always -- that's always the case. The next quarter, we always update it and throw it up -- the final report. Usually, we know these customers for many years. The ones that are in production. So there are no big surprises. And if they are, they will be traded up in the following quarter. .

Got it. Thank you so much. Very helpful..

Gus, Thank you..

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

The Oppenheimer 23rd Annual Israeli Conference May 22 to May 24 in Tel Aviv; Cowen's 50th Annual TMT Conference, June 1 and June 2 in New York; and Rosenblatt Securities Technology Summit – the Age of AI Conference, June 9 and June 10.

For 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. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..