CEVA INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Licensing Milestones: Secured first licensing deal for NeuPro-Nano, multiple deals for PentaG 5G, and a high-profile smartphone OEM for RealSpace spatial audio. 10 licensing deals completed in Q3 across geographies.
• Royalty Strength: Continued growth in consumer and industrial IoT end markets, with 522 million units shipped in Q3, including record cellular IoT units and robust Bluetooth/Wi-Fi shipments.
• Strategic Focus: Executing the "connect, sense and infer" strategy, with deals signed across IP portfolio and customers licensing multiple technologies. Emphasis on embedded AI with NeuPro-Nano and partnerships for AI development to drive growth.

Segment Performance

• Licensing and Related Revenue: $15.6 million, accounting for 57% of total revenue, up 12% year-over-year. Highlights include licensing deals for NeuPro-Nano embedded AI NPU, PentaG 5G platform, and RealSpace spatial audio software.
• Royalty Revenue: $11.6 million, accounting for 43% of total revenue, up 15% year-over-year. Shipped units were 522 million, with strong performance in consumer and industrial IoT, Bluetooth, Wi-Fi, and cellular IoT. Cellular IoT shipments were a record high, and combined Bluetooth, Wi-Fi, and cellular IoT shipments surpassed 400 million units for the first time.

Guidance

• Full Year 2024: Raised guidance with overall revenues expected to grow 7%-9% higher than previous guidance. Aim to double non-GAAP operating margins and operating profit for 2024 over 2023, and double non-GAAP fully diluted EPS.
• Fourth Quarter 2024: Total revenue expected to be in the range of $26.5 million to $28.5 million. Gross margin expected at ~88% GAAP and 89% non-GAAP. GAAP OpEx range $25.2M-$26.2M, non-GAAP OpEx $21M-$22M. Net interest income ~$1.2M, taxes ~$1.4M, share count ~25.3 million.

Risks

• Forward-Looking Statements: Involve risks and uncertainties that could cause results to differ materially from forward-looking statements.
• Customization Impact: Temporary drag on gross margin due to strategic customization work for 5G advanced deals, but annual non-GAAP gross margins still expected in the high-80s to low-90s.

Question and Answer Q: Clarification on gross margin drag from 5G custom work and platform standardization A: Amir and Yaniv explained that customization for 5G deals allocates R&D costs to cost of revenue temporarily, but annual margins remain strong. The platform will be expanded across customers.

Q: Licensing deal count and backlog/pipeline A: Amir stated pipeline is highest since early 2023, backlog strong, with focus on quality of deals over quantity.

Q: Wi-Fi shipment strength and sustainability A: Amir and Richard noted strong Wi-Fi shipments due to market share gains and customer restocking, with long-term growth expected similar to Bluetooth.

Q: Cash hoard and potential acquisitions A: Amir mentioned past acquisition of RealSpace and interest in M&A to expand IoT/connectivity portfolio, with excess cash available for buybacks and potential acquisitions.