Q2 2020 CEVA Inc Earnings Call
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Good day and welcome to see <unk> second quarter 2020, <unk> earnings Conference call.
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I would now like during the conference over to Richard Johnson, Vice President of market Intelligence Investor and public Relations. Please go ahead Sir.
Thank you I feel.
Good morning, everyone and welcome to see that second quarter Twentytwenty earnings Conference call.
I'm joined today by good embraced either Chief Executive Officer, and you need our Yeti Chief Financial Officer, Steve.
Gideon were covered the business aspects of the highlights from the second quarter provide general qualitative data.
Yeah, Steve will then cover the financial results for the second quarter also provide quantitative data for the third quarter on full year Twentytwenty.
I'll start with the forward looking statements.
Please note that today's discussion contains forward looking statements involve risks and uncertainties.
It is assumptions that if they materialize or prove incorrect could cause the results of Steve.
To differ materially from those expressed or implied by such forward looking statements on assumptions.
These forward looking statements include [laughter] guidance for the third quarter Twentytwenty qualitative data for the remainder of Twentytwenty.
Optimism about fiveg opportunities, including expectation of royalty revenue increase in the third quarter associated with Fiveg base station Ron in China.
Optimism associated with the C. <unk> C D S P portfolio.
Entergy Fiveg modem platform.
Steve its ability to play pivoted, Rahul Andy Oh I'm space.
She was the ability to leverage opportunities that may arise from the pandemic on the U.S., China trade attention.
And positive market data by GSM, a intelligence and Forrester research.
For more information on the factors that could cause a difference in our results.
Please refer to our filings with the FCC.
These include the scope and the duration of the pandemic.
The extent and the length of the shelter in place and other restrictions associated with the pandemic are the impact on customers consumer demand on the global economy generally.
The ability of Steve its IPO 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 extend to of the expansion of the Fiveg, Iran wife, I and I O T markets.
Our ability to execute more non handset baseband license agreements.
The effect of intense and industry competition that consolidation.
Global chip market trends.
Steve assumes no obligation to update any forward looking statements or information, which speak as of the respective dates.
With that said I'd now like to turn the call over to go down.
Thank you reach a good morning, everyone and thank you will join us today.
Well, leaving an arbitrary feedback good times, where we own continued to adopt the integration of the call we've made good.
Great. Thank the more we continue to do call.
And and safety and quality lead customer and product now.
Ultimately, we pick up in shoes, you meet our custom Mems microphone and maintain the development schedule fall product.
We'd like to take this opportunity to think all employees for their hard work I'm going to be difficult circumstances.
Second we are closely monitoring the impact of the measure to conform to spread the collision avoidance Oh, no ongoing business in on for strategic opportunities. There and then me I'm calling.
And you would you be later in the cool.
Despite these lingering uncertainty we had a very good second quarter.
Thank you Wendy he'd been seats media.
I wouldn't be a different deals are you the highest second quarter revenue as they are equal.
And I can think environment continues to be Henchy, we'd 17.5 million brlone licensing.
Oh, well it seems like let's say you will be.
Slide eight new license agreement, which we were full smoke sensing and fight well for connectivity program.
Out of the 88, when we first time cost.
I'll give application will fall custom made include multi train.
And you won't see opportunity for example, multi space.
We are doing.
Wireless carrier your book in a range of antibodies.
Well the revenue came in ahead of expectation it 10.1, even though.
10% sequentially.
73% even really.
Driven by strength in the base stations in our European product line.
All money.
No as long as well.
He's product line posted 77 people said deal do you read and go full point Threemillion Bruno.
Open to all time record, partly driven by record highs <unk> and one point again Steve.
John being well, many new ideas deep reduction.
Mhm product line we.
[laughter] desktop in our royalty revenues in the third we'll do.
Well see a bit different.
And shared again Fiveg base station lie in China.
Hello product line also showed growth will slowly man.
New local smartphone form the U.S. based stuff and then.
Well again offset weakness in there no issue.
Into emerging markets.
India, which is currently the second now defensive market volume exterior, 48% evil didn't decline Goldman kind of at least with boat you to supply and remain constrained as we've done the union government measure equally well that strategy.
Survives.
Let me take the next few minutes to walk you through our full spectrum on called me Dean and the geopolitical tension between us and John.
Cobiz 19 recent market data from research feeling just to maintain against predicted the IP. Net addition for DC are expected to be down 45% or do you mean, they said you did unbending.
Yes, the main daily JV.
Maintaining focus for 2025.
24 billion devices that bidding 29 11 equally thanks.
Strong Boston endemic of PBB offset currency decline.
That said the phone southeastern see measure if uncover new services for mobile technology, including education healthcare and industry.
The next configured claimed that nearly 1.4 billion skew that they want the world. If she said remote study beyond mobile technology.
Both figures are in emerging market why you wouldn't even though the vendor.
Gogo mole follow after these sales would be that more than 1 billion Didnt joint account fees that are expected, we think they deal with this year.
The magnitude and.
Adoption of B, you said, it's a color for the systems the occupancy excavated deployment Fiveg network.
We believe that we'd be attractive opportunities all strong technology portfolio.
As I commented earlier based on discussions to discuss our customers.
We expect to see a sizable reduction home and no piece of business picked up in warranty revenue for Fiveg base station run in the third quarter.
Celgar Mill call me you may be moving forward, new usage Morgan for Fiveg, including fixed wireless access IDN, they've been PC end before.
Ladies and feel like CBSP portfolio, and now Entergy Fiveg modern platform, we are well equipped and position to address these new usage movie going come them and newcomer.
Oh, the geopolitical tension between China and dealer.
Existing export control wounds look there's actually a logical college technology the vital <unk> there in Europe.
We can any money told the volkmann when these flaunting I'll add to adopt our business is required.
If they brought about the trend pension the U.S. government is looking to Steven Dave.
The use of opened Wow, all run technologies for Fiveg Mobile network.
Well run they neighborhoods mobile, we're ready to mix and match, how blue and focus conforming from different supplier.
The news don't become solution with you tier one Oems.
Alright dramatically reduce the entered their full softwood and hardwood company the majority of each other with.
Such an intense Facebook Cisco Microsoft.
It's really the new startups like I'll give some of them even farther than what it.
He raised any Nate it even grown in the old space using the old efficiency and I will discuss our DSP platform for the stringent onetime and low latency requirements.
Let's see I believe baseband processor.
We have gained a lot of experience and pedigree.
The Ron space to be able to four leases I discipline.
In the China from the symptoms government came out in March we knew and we should men who are new infrastructure.
The blend higher investment in seven area.
Reached 40% to 50% of the investment other associated with these fiveg AI and how you would be.
These are early afternoon, FEIBA already had wrong president and deployment in China.
We are continuously discussing was all major regions customer and how we can expand on blood then in China, Ben based on display.
So in closing our business in the first couple deal with robust despite the volatility and behind certainty what that vote they called making.
He said he loved the strength of our company vision and business.
Furthermore, the carlin situation with the opportunity for who expanding all around and China will fluctuate there.
Slide nine cents by these out first half performance and opportunities ahead.
Recovery from the indemnity slow than was anticipated and indeed.
In the U.S., China with Sanchez present additional stuff and.
We are the fully laser focus on our efficiency will the TV and most important PL custom engaging.
Oh organization a giant.
There you respond to any positive or negative development in the coming month.
With that said, let me handover the call forgive me well financials and guidance.
Thank you Peter.
I'll start by reviewing the results of operations for the second quarter of 20 point.
Revenue for the second quarter was up 28% to $23.6 million.
Compared to 18.4 million for the same quarter last year.
Hi, Yes second quarter revenue, we have every quarter.
Revenue breakdown in the fall.
I continue to related revenue was approximately 13 and a half million dollar, reflecting 57% of our total revenue.
One, 5% higher and 10.8 million for the second quarter 2019.
Royalty revenue was $10.1 million.
Lectin, 43% of our total revenue.
33% higher than $7.6 million for the same quarter last year.
Royalty revenue from our base station and I have people decline in the quarter was $4.3 million.
This is comparable to the all time record high we reached in the fourth quarter of 29.
For the gross margin was 87% than gap and 89% the non-GAAP basis.
Both slightly better than what people object.
Non-GAAP quarterly gross margin excluded approximately zero point $2 million of equity based compensation expenses and zero point $2 million for the impact of the amortization of acquired intangibles.
Our GAAP operating expenses for the second quarter, it's just below the high end of our guidance at 22.1 young.
Opex also included aggregate based compensation expenses of approximately $3.3 million and your point 6 million for the amortization of acquired intangible.
Total operating expenses for the second quarter. Excluding these two items were $18.3 million just above the high end of aren't back.
Yes, GAAP net loss for the quarter was 1.1 million dollar eluded loss per share was five cents.
This compares to a net loss of $1.5 million and diluted loss per share seven thing, but the second quarter of 29.
Our non-GAAP net income of alluded bps for the second quarter 2020 increased by 130, adding 140% We act.
HM $2.9 million and wealth then.
Non-GAAP net income in the alluded it yet for the second quarter 2019 were 1.2 million dollar and I'd say respect.
Other related the.
Shipped units by Steven licensees during the second quarter 2020.
With 231 million units.
Down 11% sequentially in up 6% from the second quarter 2019 reportage.
Oh, the 231 million units shipped 99 million units or 43% well for handset baseband chips.
Collecting a sequential decrease of 11% from 111 million units.
Handset baseband ship during the first quarter of 20 point.
Then a 19% decrease from 122 million unit shit year ago.
Our base station and I'd product shipments were 132 million unit down, 12% sequentially and up 37% year over year.
The reminder, we have categorized all our non handset baseband chips under the umbrella all base station and IP products since the beginning of this year.
This product line hosted 77% year over year growth, 17% sequential revenue growth.
The reached $4.3 million.
As for the balance sheet items.
As of June 30, it's 2020, Steve as cash and cash equivalent balances marketable securities bank deposits were $157 million.
We did not be purchased any shares this quarter under the touring our of our Tenbfive Claire.
Only had approximately half a million shares available for repurchase.
Our dsos for the second quarter.
2020 was 27 day significant lower the 63 day, we recorded for the first quarter this year.
During the second quarter.
We generated $6.2 million net cash from operation.
Oh, depreciation and amortization due or one of the half million dollar.
In purchase of fixed asset was your point $6 million.
End of the second quarter, our headcount was 401 people of which 333 work engineers up from a total of 309 people at the end of March 20.
Now for the night.
As demonstrated by our results for the first half of this year.
Fever product.
Customer diversity enabled us to migrate economic challenges.
That make presented.
We remain focused on our near term objective and continue to invest in future growth.
As for the second half outlook for launch measures the containing the spread of the Corona virus polled economic uncertainty arsenic in emerging market I.
Particularly in emerging market.
Where our primary exposure in for low tier AG.
Another handgun encouraged by the end to create is we have noted in recent customer reports, reflecting to the base station and audio deep product line and as Gideon just alluded to we expect a step up in the Fiveg They station royalty revenue.
The third quarter royalty reports.
So with that said, we believe the second half royalty revenues will be higher than the first.
Based on that some some of the gradual recovery any economic activities.
The current restrictions are lifted.
Licensing.
We maintain the licensing target we are focused that earlier this year.
About $2 million to $4 million over the 2019, a record annual licensing revenue.
Specifically for the third quarter of this year.
Gross margin is expected to be approximately 88% and GAAP basic and 89% non-GAAP basis.
Excluding the aggregate Europe, one $2 million for both equity based compensation expenses and the amortization of other assets shows chicken with our immune vision in this.
Opex for the third quarter is forecasted to be slightly lower than the first two quarters of 220.
Yep based topics is expected to mean the range of 21, and a half the 22 and a half million dollars.
Of our anticipated total opex for the third quarter.
$3.4 million and expected to be attributable equity based compensation, if anything and zero point sixmillion the amortization of acquired intangibles.
Our non-GAAP Opex is expected to be in the range of 17 in a half to 18 in the half million dollars.
Net interest income is expected to be approximately 0.7 million.
Taxes for the third quarter expected to be approximately half a million dollars on both GAAP and non-GAAP basin.
In our share how show count for the third quarter is expected to be approximately 23.1 million shares.
Well I'll call you could now open the accumulation.
Thank you well now begin the question answer session.
To ask a question and their press Star then one other touchtone phone.
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Sure withdraw your question. Please press Star then too.
Just first question comes from Matt Ramsay with Cowen. Please go ahead.
Thank you very much good afternoon, and good morning, everybody.
Gideon I wanted to start a with a question about fiveg.
In general for for a sort of both sides of the business the infrastructure side in the handset side and maybe.
Back in kind of characterize where are you guys feel like you are competitively and maybe more important where your licensees are competitively on fiveg. It sounds like things are going to start soon to materially ramp in the third and fourth quarter on the base station side, but on the flip side, we've seen some share consolidation with Qualcomm and media attack on the five.
Handset side at the expenses some of your licensees. So if you could just kind of level set how you're thinking about the fiveg opportunity for the company that would be helpful. Thank you.
Hi, Matt.
So let me start was beside you run run Burdiek suspected that's the base station.
Let me start by saying that side you have.
Substantially more oil.
Addressable market for was then in empty.
For the new component in Fiveg, that's where I mean empty.
The first one is what these collective and thing and then do the yeah.
The and then I was passive now when you go to Fiveg and yet these high bandwidth and affected you have massive amount of antenna.
So the move some of that they've been processing infant done bene they done by.
My SPJ my name and a.
While he was the first company that managed to build it was the own DSP.
And they are no customer will move and come out we would be the solution based on all DSP. So that's.
It's pretty sizable market, because full Italy, Playstation and you're going to read between three to 100 something each of them we'll have the.
And processing off of the processing done and on downtown I said on top of what you do on the on the base station incentive. So that's one area that not only are you in finding great with many more small since then you have enough things because because of Michael way, meaning that the way.
And then gradually operating style and where they go pretty soon.
The cell component of that you had been in Fiveg, Iran.
Is that and we'll just go private management, so the world's announcement coming from but yet we don't customizable and full blown installed private base station in there and then essentially in line to get these low latency friend.
Your security that they are made for the whole books in them any sector and the first one I was answering the call is the all along is that you use initiative that is for a long time now we've been polarization between China will be less stimulated right.
Maybe the government that's it.
Very good sweet spot to guys like in things like Facebook, though one of the active in this area.
And Michael sort of made acquisition and Lisa and all of them more this win win and some others.
The SEC work, we opened so all those are areas that one NMT and Fiveg and inside you were doing and one of the reason that we have a step up in China alone.
He's done then on the fast deployment and we we failed or this component and the we have you know we have a good visibility I'm very optimistic about the boasting the.
When you think you asked about 10 said, though so.
You put it right between consolidated area.
Mediabeacon Qualcomm is they really engagers. Okay, then, though in China the spectrum in hand immune shuttling wanting to fight on Fiveg.
It way too for last two worlds that fiveg not to the modern side that these consolidate the than people wants to build a one stop other than the you know customers that we have there is to go through the application person. Because this is not really bullish analyze them open up so the comment.
It becomes much more DSP and oriented this feature.
And also and with this concludes the Ascension Ali I wore a and then the natural language processing Bces moving to the Ed This is moving to the.
The answer to the smell claim that where we are coming results multisensing portfolio and getting traction. So you may not see.
We will not be news in terms of local media uptick in Fiveg modern but there are other avenues that we going to report in head.
The engagement and you know the market is not just the being the is the speed. The mountain cheap. It's also is Oems that are building their own chips, and and and and looking for stuff is what.
No that.
Thank you get in that that's great perspective, all the way around I as a follow up for me.
Thank you any of you talked about in the guidance I'm royalties being higher in.
In the second half of the year versus the first half and it's notable that I would expect the revenue you get from the Intel modem.
Would be significantly less in the back half of the year. So if you could talk about the them maybe the magnitude that you're expecting out of Fiveg base station in the back half of your just kind of the moving parts on the royalty side would be helpful. Thank you.
Yes, Hey, so as you say the RV many moving parts of it it was always the case and see the modeling. This is why in one hand, it's quite difficult a two with the model the south in there based on the new rules of the six so since we just wait for the customer reports at the end of.
The 30 days after the quarter end and then we get the real visibility of how they're the quarter worked out there in every segment, we have the ups and downs in every segment, we have seasonality. It this year I think seasonality in cobot 19, and completely changed we solved.
Vacuum cleaners, they're being very very strong we're TV than the first half of the year something that is not commonly common practice because people want that they had more time to shop for at home or one of your their house to be cleaner had more kids around the from rooms immediate TV ads that's too.
True for Bluetooth White fight devices that we just came out of our strongest royalty a number they ever for business and we find the second quarter and remember when we stepped into this first at the second quarter. The ended the first we believe that the Q2 will be the low point of the year for us and from.
They were on its going to pick up so how long are we in the two and half for three months ago, So very difficult to predict the answer the white answered knowing today, how Q3 in Q4 going to look like.
Stuff that you mentioned correctly, the handset space there the change a at least with 1 million deadweight well known OEM in the five GE aspects, but they they came out with a very very successful at low cost version and the which is doing extremely well I think all of US we're super supplies.
Excellent results. They came up with two weeks ago caught everybody by surprise then that's part of the very strong second quarter from.
As well we couldn't have known that in advance nor do we know how Q3 in Q4 will look like from that aspect so from different next.
Well that's one.
One area in other areas the emerging economy, Gideon mentioned, India was down close to 50% in the Consumptions of phones last quarter. This win because of the first few and Corona direct impact of people not walking around being able to go to stores and and buying Amazon is maybe less of it.
Weighed by Erie, those the lower cost phone and we in no way now when things open up gradually in the third or fourth quarter that segment of the market should strengthen for us.
Last but not at least the base station a live beginning just talked about its in line with just.
Different indications that we are seeing from from our customer and we shared with you last quarter that they have one significant design wins in China, and they will have north of 30% marketshare.
In that segment and that's starting to ramp up and be deployed so as soon as we get goes royalty reports, we'll have a much better vision, what's the magnitude of it.
There's no doubt that per the differently.
News than that and then and deployment data that we're getting it this could be quite significant but they are moving pieces. So overall, we believe it's going to be stronger second quarter. I don't think we have the data to guess right now like we were wrong and the positive side, if you a month ago for Q2.
And you just need to look how these the layoff in the second half on a quarterly core basis. So what we managed to give you a little bit more color on the addition, the moving parts.
Thanks, very much and I'll jump back in the queue, but much appreciate it.
Thanks, Anna our next question today comes from Tavi Rosner with Barclays. Please go ahead.
Hi, This is Peter that's going on on for Tavi. Congratulations on the quarter <unk> regarding the continued strength in licensing I was wondering how we should think about the sustainability of that and the two wage and given given that we saw but you are deals in the quarter versus Q1.
Headwind at all or is that that you're just getting a bit bigger deal size.
And then if I could have a follow up I was hoping if you could give us an update on the integration of the the imaging and sensor fusion acquisitions.
From the operational but particularly from from a commercial.
Point of view.
Okay.
Tell you I guess.
No.
Let me think the first the licensing so when we see is the the momentum continues.
And then to defend that you have eight to 10 or 11, there's nothing in licensing is is there it's a lumpy business.
ER peaks and valleys.
Yes to look things in perspective, the pipeline and literally.
And we we managed to do you continue as those deals now.
We have strong interest in a lightweight product we have swung into the interesting computer vision color.
We have strong interest Oh goodness, we sign of nearly a bolt that agreement the powertrain Oh. This this is by itself is going is going to grow 30%, it's part of the electrification.
This space is going to go maybe 30% or see any gel between Twentytwenty a grant this therapy.
So I mean, there we don't see any weakness again this is licensing.
Indeed, the you know signing of closing because we want to do.
And do the completed completed valuation discussed in their build the legal negotiation pull through nickel Nelson negotiation properly.
But we're on on on on a solid going there.
Regarding integration or sensor fusion imaging.
The sensor fusion its its focus see volatility it's going strong contributor.
At a unique mentioned victim Gina and or.
No byproduct of the pandemic, we start seeing significant degree is involved is there.
They leave the news, though interesting and we are at the PC space, where they just do a much stronger on the TV space.
We do global sales between.
See what worldwide voice and sensor fusion so it was a.
Swartz integration.
Yeah like what seems like doing when we acquired company. We look on the history. We note that these themes.
No what they do and the and.
And then based on these will make a decision so there's the.
ER to do.
Yeah.
Did you ask another question well.
Well have the one more thing that we said earlier that than the licensing funds overall not on a per quarter basis, we're still evaluating our bivens from earlier this year, which is like $2 million to $4 million on top of the 48 million, which was all time record high last year. This means that we're looking to cross the 50 million dollar.
Level for the first time and this is for 2020, so with all that said.
This is still a plan that we kept that last quarter. We are still very confident with its for this quarter and this is a very a part of getting for the rest of the.
Very helpful perspective, Thank you.
Sure.
Ladies and gentlemen, as a reminder might ask your question. Please press Star then one.
Today's next question comes from Suji de Silva with Roth Capital. Please go ahead.
I get in high end Eve congratulation on the momentum here so.
The second half the second half guidance for an improvement can you talk about what your.
Assuming there in the consumer Expos non smartphone markets the volume markets, we're expecting a seasonality recovery or kind of still muted demand a lot of the other areas, where it comments I'm curious just the broader consumer non but non smartphone.
Hey, So this time the mid to what we try to conveyor belt earlier, it's an excellent question then Andy.
Stoically Q3 was seasonally strong in a lot of these consumer devices.
Hey, this year, we hope that that's still the case, especially after on one hand, some of their manufacturing was lower and they're in the beginning of the year in picked up in the second quarter AD demand as people start.
Going back to normal or sort of normal alongside the cold beer then they continue work.
It should not historically at least it did pick up a Q2 was down in the in volume and a lot of these then I O T devices, although we saw new product ramps.
New devices for the first time, so with those.
In my bringing in.
Those new products adjusted the shelves in Q2 with relatively lower volumes because of the pandemic. We do believe that they will continue to pick up the taste of all this whether it's a TV or even above or.
I mean vacuum cleaner Ti vo all of these other devices that we are powering is there is a lot of moving pieces and from lots of different segments and they know what you're going to one of our customers into action camera space came out surprisingly with a very strong quarter and an increase their guidance for Q3.
A which is again, it's not not the easiest gets for us if people don't start their thinking a bit more vacation going out to the outdoors. So even that that's a good sentiment and good sign that Q3. It seasonality is the maybe I don't want to say back on track, but on the right.
And that's a these are the movie.
You want to see.
No I appreciate the color, Dave I mean, it sounds very.
Optimistic in a challenging environment, there and then the automotive market you started talking about Gideon, but keep talking about how many when do you have now you have one you talked about in the press release and what the timing of potential revenue contribution there is maybe the content per car things like that.
Oh limits to the American what do you need to take a degree.
For until you go through production and then real activities ongoing with.
Net customer than other customer.
Older brother.
I think in ER Lakeland Btwenty one free.
The initial public or whether it was a significant specifically for these products and Fogo sweated bets Twentytwenty tree must production.
Okay, great. Thanks, guys.
Thank you.
Ladies and gentlemen. This concludes the question answer session I was apparently conference back over to the management team for any final.
Thanks Rocco.
Thank you all for joining us today and for your continued interest in fever.
As a reminder, the prepared remarks for this conference call our filed as an exhibit to the current report on form 8-K and accessible through the Investor section of our website.
Investors don't see vitamin D.S.P. Dot com.
With regards to upcoming events, we will be participating in and these are the following virtual events that will attend in August and September.
Starting with Oppenheimer is 23rd I know technology Internet Communications Conference August 12.
Jeffrey semiconductor I.T. hardware communication infrastructure, so much September 1st and second and cities 2020 Global Technology Conference September eight nine content.
Further information on these events on all events, we will be participating in can be found on the investor section of our website. Thank you I'm goodbye.
Thank you. This concludes todays conference call you may now disconnect your lines and have a wonderful day.