Q3 2024 CEVA Inc Earnings Call
Speaker Change: Good day, and welcome to the SEVA Incorporated 3rd Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two.
Please note, this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence. Please go ahead.
Richard Kingston: Thank you, Jason, and good morning, everyone. Welcome to CEVA's third quarter 2024 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA.
Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions.
Richard Kingston: Forward-looking statements include statements regarding our market positioning, strategy, and growth opportunities.
Market Trends and Dynamics
Expectations regarding demand for and benefits of our technologies
our sales pipeline and backlog.
Richard Kingston: our financial goals and guidance regarding future performance and our expectations regarding utilisation of our stock repurchase programme.
Siva: SIVA assumes no obligation to update any forward-looking statements or information which speak as of their respective dates.
Siva: In addition, following the divestment of the intrinsics business, financial results from intrinsics were transitioned to a discontinued operation beginning in the third quarter of 2023 and all prior period financial results have been recast accordingly.
Siva: We will also be discussing certain non-GAAP financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results.
Siva: A reconciliation of non-GAAP financial measures is included in the earnings release, which we issued this morning, and in the SEC filing section on our investor relations website.
Speaker Change: With that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?
Amir Panush: Thank you, Richard, and welcome, everyone, and thank you for joining us today. Our third portal delivered another impressive consecutive performance, executing effectively against our strategic plan and exceeding market expectations.
Speaker Change: Our results surpass targets with both top-line revenue growth and non-GAAP fully diluted EPS coming in above projections.
Speaker Change: Total revenue for the quarter came in at $27.2 million, up 13% year-over-year, benefiting from our innovative product offerings to the market and positive tailwinds in both our licensing and royalty businesses.
Siva: Our backlog and pipeline continue to improve and we are in a healthy position as we head into the fourth quarter and 2025.
Siva: As a result, we are raising our guidance for the full year 2024, which Yaniv will elaborate on later in the call.
Siva: In licensing, the third quarter produced several important milestones for CIBA that reinforced our strategy of delivering leading-edge IP that enables smart edge devices to connect, send, and infer data.
Siva: Highlights include the first licensing deal for our Newport Nano Embedded AI NPU.
Siva: Multiple deals for our Pentel-G, 5G ADVANCE, Wide Access Network and Satellite Communications Platform.
Siva: and high-profile smartphone OEM customers for our real-space spatial audio software.
Siva: Overall, licensing revenue came in at $15.6 million, up 12% year-over-year, with 10 deals completed in the quarter across all geographies.
and with multiple OEM customers.
Siva: In royalties, the momentum in the consumer and industrial end markets continues.
Siva: driving 15% year-over-year royalty revenue growth to $11.6 million and year-over-year royalty revenue growth for the fourth successive quarter.
Siva: Before I provide more color on our business, I want to reiterate that we are steadfast in our belief that our broad IP portfolio is highly synergetic.
Siva: with the most pressing needs of semiconductor companies and OEMs as they develop their smart edge products and rely on our unique IP to advance and augment their internal development.
Siva: The level of global customer engagement we are experiencing today is the highest that I've seen during my time with CIRA.
Siva: and provide us with tremendous insights and opportunities to partner with some of the world's leading fabulous companies and brands across their short and long-term roadmaps.
Siva: Our technology leadership across multiple core disciplines and commitment to long-term partnership is key to winning licensing deals that garner higher licensing fees, improved royalty rates, and overall better economics.
Siva: The third quarter provided multiple proof points that our CONNECT, SENSE, and INSERT strategy is operating in full flow, with deals signed across our IP portfolio.
Siva: and continuous trends of customers licensing multiple technologies from our portfolio for their products.
Siva: In Connect, we expanded our market leadership and customer base in Bluetooth, Wi-Fi, and UWB with new deals across all platforms.
including our newest Bluetooth 6 IP
Siva: More significantly, we signed a strategic licensing agreement with an innovative OEM for its development of a 5G advanced model based on our PentaG 5G advanced wide access network and satellite communications platform.
Siva: This OEM intends to build a transformative peer-to-peer satellite network constellation that will enable ubiquitous 5G communications globally and bring cost-effective solar IoT services to the masses.
Siva: As the only IP provider with a comprehensive modem platform for 5G advanced communications,
Siva: We are the partner of choice for any systems company or OEM looking to develop advanced wireless communications ASICs.
and Amir Panush.
and Amir Panush. Thank you.
Amir Panush: Our leading HIIP and deep wireless expertise significantly reduce the entry barriers for the development of this highly complex chip design.
Amir Panush: The economics and scale of this deal reflect the trust they've placed within CEVA for this project, and we are incredibly proud to partner with this OEM to help make their vision a reality.
Amir Panush: In addition to this strategic deal, an illustrative of the broad market opportunities we are seeing for our 5G advanced IPs.
We signed two other agreements this quarter.
Siva: One with a leader in 5G cellular IoT modem and another with an automotive semiconductor for their next generation V2X vehicle-to-everything communication chipset.
Siva: These deals, combined with the two large deals signed last quarter, and our robust pipeline for 5G advanced IP, cement Siva's position as the leader in this market. Our market leadership translates into higher licensing fees per deal.
Siva: hire royalties per unit and create sticky long-term relationships that are incredibly beneficial to civil business.
Siva: In CENTS, we continue to expand the market penetration for our real space spatial audio software.
Siva: We signed a new licensing deal with a high-profile smartphone OEM to include real space in multiple SKUs of headphones and TWF earbuds, with the first product expected to launch in the first half of 2025.
Siva: This OEM specializes in developing smartphones and accessories with incredible details for aesthetic design while delivering a unique user experience.
Siva: Overall, we are experiencing increasing interest in our real space software in multiple categories of products.
Siva: due to the excellent user experience based on our superior spatial audio and head-tracking technology.
Siva: Our ability to deliver this software on embedded platforms across multiple architectures and on higher-end smartphone and PC platforms is the key driver for this demand.
Siva: In the case of this OEM, our superior solution quality reflected in the tight integration of our special audio rendering and head-tracking technologies.
Siva: coupled with our capabilities to efficiently support the full product integration and tuning helped us to secure this deal.
Siva: As I've mentioned previously, the royalties for software license directly to OEMs are at the higher end of our overall range, and the customers get to market faster than typical semiconductor customers involved in a lengthy chip design process.
and Amir Panush.
in Inference
Siva: While training neural networks in the cloud is the most practical way of developing new AI models, inferencing is the path to monetizing these investments.
Siva: The preferred way to inference is to process it honest on the smart edge device itself due to the near zero marginal cost of performing each query in addition to other benefits such as the lower latency and privacy.
Siva: From laptops, smartphones, and self-driving cars, scaling all the way down to tiny neural networks on power-constrained IoT devices.
Siva: The industry is experiencing unprecedented demand for power and cost-efficient solutions to run AI on devices.
Siva: In line with this trend, we secured our first licensing bid this quarter for our NUPO Nano NPU, which was only introduced in June of this year, a significant milestone for our embedded AI product line.
Siva: Embedded AI is a highly synergetic with our connectivity and sensing offerings.
Siva: from the high-volume end markets we serve, to the customers we work with, and through the growing need for connectivity, sensing, and AI to be increasingly integrated into every smart edge device.
This specific customer is an existing
Siva: which it ships in high volume today in their wireless audio chips.
Siva: These customers required a highly efficient NPU to add to their products for audio and other embedded AI processing in order to increase performance and add new AI-based features.
Siva: Newport Nano was the outstanding choice for them due to its single core, highly efficient architecture that can execute CPU, ESP, and neural network workloads with high performance and low energy utilization, all in a small area.
Siva: This deal is indicative of our belief that many of our existing connectivity customers will require an NPU for their product roadmaps, and is reflected in multiple opportunities in our pipeline.
and Amir Panush.
Siva: Through our proven relationships, based on market success together, we are very well positioned to capitalize on this and license our Nippon Nano IP, which leads to higher royalties on each device.
Siva: In addition to signing the first licensee in the third quarter, we also achieved other important milestones for embedded AI. We delivered a second, higher performance implementation of Nucor Nano, which is available for customers now, giving them another option for their NPU requirements.
Siva: And we also expanded access for AI developers to rapidly develop, train,
Siva: and deployed advanced embedded machine learning applications for the Neupor NPUs via a partnership with Edge Impulse, whose platform is widely used in the AI developer community for IoT devices.
Siva: These developments are part of our strategy to leverage our significant investment in AI to create a strong growth engine for SILVA.
and Amir Panush.
Siva: Overall, I'm incredibly pleased with licensing performance in the quarter and through the key build signs in each domain we specialize in. There is a clear indication that our strategy is working and resonating with our customers worldwide.
Turning now to royalties.
Siva: Continuous trends in consumer and industrial IoT end markets help us to achieve 15% year-over-year royalty revenue growth and deliver the second highest quarterly unit shipments in SIVA history of 522 million units.
Siva: Cellular IoT units were at an all-time record high, while Bluetooth and Wi-Fi continue to be very robust.
Siva: Overall, combined shipments of Bluetooth, Wi-Fi, and cellular IoT surpassed 400 million units in a quarter for the first time. An impressive milestone for our IoT connectivity product line.
Siva: Also, we draw sequential and year-over-year growth of TVs and PCs powered by our Sensor Fusion software.
Siva: Smartphone shipments volume were down moderately on a sequential and year-over-year basis, and muted 5G RAN shipments reflected the software environment for 5G operator CapEx this year.
Siva: Of note, we saw several of our customers ship record volumes of their SIVA-powered products, reflecting a combination of improved demand and continued market share gains, particularly in the wireless connectivity space.
Siva: Overall, I remain very confident in the resilience of our royalty business with many different customers.
Siva: and EndMarkets, contributing to the fourth consequential quarter of year-over-year royalty growth.
Siva: Our loyalty pipeline continues to show strong momentum, with a growing number of customers preparing to launch SIVA Power products, sending wireless combo chips
new 5G and several IoT use cases.
Siva: Vision and Sensor Fusion for radar systems and special audio software, to name just a few.
Siva: Now, I will turn the call over to Yaniv for the financials.
Thank you.
Yaniv Arieli: Thank you, Amir. I'll start by reviewing the results of our operations for the third quarter of 2024.
Yaniv Arieli: Revenue for the third quarter was $27.2 million, up 13% compared to $24.1 million for the same quarter last year.
The Revenue Breakdown is as follows.
Siva: Licensing and related revenue was $15.6 million, reflecting 57% of total revenue, increased 12% year-over-year.
Siva: Rotary revenues were $11.6 million, reflecting 43% of our total revenue, increased 15% year-over-year.
Siva: Gross margins came below our guidance, 85% on GAAP and 87% on non-GAAP basis, compared to 90% and 92% on GAAP and non-GAAP basis, respectively, a year ago.
Siva: This is mainly due to a strategically beneficial customization work associated with key 5G advanced deals we signed recently.
Siva: Our ability to provide the most advanced 5G platform IP together with customization expertise to the semiconductor and OEM community is highly compelling.
Siva: and is enabling us to sign deals with higher licensing fees, higher royalty rates and creates sticky long-term relationships.
and Amir Panush.
Siva: Total gross operating expenses for the third quarter were 25.9 million dollars at the higher end of our guidance due to slightly higher equity-based compensation expenses.
Siva: Total non-GAAP operating expenses for the third quarter, excluding equity based compensation expenses and mortgagations of intangible and related acquisition costs.
Siva: were $21.4 million, just over the mid-range of our guidance and in the same expense level as the second quarter.
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Siva: Non-GAAP operating margins and net income were 8% of revenue and $2.1 million.
Siva: 14% and 30% higher than operating margins of 7% and operating in an income of $1.6 million recorded in the third quarter of 2023 respectively.
Siva: This plays well with our commitment to increase growth and profitability in line with new IT developments and disciplined expense growth.
and Amir Panush.
Siva: Gap operating loss for the third quarter of 2024 was $2.6 million as compared to a gap operating loss of $2.7 million for the same period in 2023. Gap and non-gap taxes were $1 million lower than our guidance and affected by the geography of deals signed.
Siva: Gap that lost for the third quarter of 2024 were $1.3 million, and the limited loss per share was $0.06, as compared to a net loss of $2.8 million, and the limited loss per share of $0.12 from the same period last year.
Thank you.
non-GAAP net income in their new income per share
Siva: for the third quarter of 2024 increased significantly by 137% and 133% to $3.4 million and 14 cents respectively. As compared to a net income of $1.4 million and the needed…
Siva: income per share of six cents reported from the same quarter last year.
with respect to other related data.
Siva: Shipped units by SEVA's licensees during the third quarter of 2024 were 522 million units.
Siva: Up 4% from the third quarter of 2023 reported shipments, and 13% higher sequential.
This is the second highest quality shipment in Siemens history.
of the 522 million unit ship.
Siva: 72 million units or about 14% were for mobile handset models.
Siva: 440 million units were consumer IoT markets, up 4% from 398 million units in the third quarter of 2023.
Siva: Of note, gross revenue for consumer IoT increased 21% year-over-year due to shipment growth for our higher ASP products.
Thank you.
Siva: 36 million units were for industrial IoT markets, up 50% from 24 million units in the third quarter of 2023.
Siva: Bluetooth shipments were 306 million units in the quarter, down slightly, 2% year-over-year.
Siva: Settler IOT shipments were record all-time high with 48 million units, up 37% year-over-year.
Siva: and Wi-Fi shipments also increased significantly to 47 million units, up 100% year-over-year.
Siva: Overall, a strong mix of shipments across our key end markets delivered year-over-year royalty revenue growth for the fourth successive quarter.
Siva: As of the balance sheet items, as of September 30th, 2024, SEVA's cash, cash equivalent balances, marketable securities and bank deposits were approximately $158 million.
Siva: In the third quarter, we purchased approximately 186,000 shares for approximately $4.2 million.
Siva: Earlier today our Board of Directors authorized a new increase of 700,000 shares to our existing 10B18 repurchase program.
Siva: As of today, just over 1 million shares are available for repurchase under the repurchase program after giving effect to this expansion.
We believe in our future business prospects.
Siva: and intend to take advantage of the program to increase shareholders' value.
Siva: Our DSO for the third quarter is 61 days, better than the 69 days in the prior quarter.
Siva: During the quarter, we generated $0.4 million of cash from operating activities.
Siva: Our ongoing depreciation and amortization was $1 million and purchase of fixed assets was $0.4 million.
Siva: At the end of the third quarter, our headcount is 431 people, of whom 354 are engineers.
and Amir Panush.
Siva: Now for the guidance for the fourth quarter of 2024 and the full year.
Siva: As evidenced from the last two quarters, our annual growth plan progressed well.
Speaker Change: Also as Amir stated earlier, our backlog and pipeline improved both for the fourth quarter was 24 as well as for 2025.
Speaker Change: Also, as Amir stated earlier, our backlog and pipeline improved, both for the fourth quarter of 2024 as well as for 2025.
Speaker Change: Therefore, we expect overall revenues for the year to be higher than the last two guidance. We provided earlier and then you had your range of 7% to 9%.
Speaker Change: Therefore, we expect overall revenues for the year to be higher than the last two guidances we provided earlier, and in a new higher range of 7% to 9% growth.
Speaker Change: We continue to manage our opex closely and.
Siva: We continue to manage our OPEX closely and implement cost control measures from time to time. This would enable us to double our non-GAAP operating margins and operating profits for 2024 over 2023.
Siva: We implemented cost control measures from time to time this would enable.
Siva: Able us to double our non-GAAP operating margins.
Siva: Operating profit for 2024 over 2023.
Siva: And also generate stronger earnings power and double our non-GAAP fully diluted EPS.
Siva: and also generate stronger earnings power and double or non-gap fully diluted EPS.
Siva: That's for the fourth quarter total revenue is expected to be in the range of 26, and a half to 28 and a half million dollars.
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Speaker Change: As for the fourth quarter, total revenue is expected to be in the range of $26.5 to $28.5 million.
Speaker Change: Gross margin is expected to be approximately 88% on GAAP basis, and 89% a non-GAAP basis.
Speaker Change: In aggregate.
Speaker Change: Zero point $2 million with equity based compensation expenses, and 0.1 million associated with the acquired intangibles.
Speaker Change: This is a bit lower than originally expected due to the higher allocation of engineering efforts to support key five key advanced customers.
Speaker Change: GAAP Opex is expected to be in the range of 25, 2% to $26.2 million.
Speaker Change: Active to be attributed to equity based compensation expense and zero point $2 million for the amortization of inquired intangible and zero point $3 million for the expense related to the business acquisitions.
Speaker Change: non-GAAP Opex is expected to be similar to the last two quarters and in the range of $21 million to $22 million, reflecting our continued expense control and enabling strongly stronger earnings power.
Speaker Change: Net interest income is expected to be approximately $1 $2 million taxes are expected to be approximately $1 $4 million pending deal geography closure and the share count is expected to be 25 3 million shares.
Speaker Change: Jason you could now open the Q&A session. Please.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
Siva: Yeah.
Speaker Change: Our first question comes from Kevin Cassidy from Rosenblatt Securities. Please go ahead.
Speaker Change: Hi, yes, thanks for taking my question and congratulations on the great results.
Speaker Change: Just that.
Speaker Change: Maybe clarification or maybe restate it.
Speaker Change: Gross margin the drag on gross margin. This is engineering time, youre spending, making accustomed <unk> modem platform in.
Speaker Change: This extends a little bit into next quarter is that.
Speaker Change: Is there going to be extension further and also yeah, just want to understand business.
Speaker Change: Platform and become a standard device that you license to other companies.
Speaker Change: Sure. Good morning, Thanks for the question so.
Speaker Change: Cost of revenues in the IP business.
Speaker Change: Do bring up R&D resources, when you do some customization work for your customers.
Speaker Change: This is a very strategic large deal we had fuel being tool men in the modem space earlier in the year and now this is the third one that we signed now in the third quarter.
Speaker Change: Two of these deals we have the some worked at all.
Speaker Change: Don't shoot it for them.
Speaker Change: And these are special request to change specifics things for these specific customers of course, the knowledge and the knowhow and the capabilities of doing things like this in the past in the future.
Speaker Change: <unk> with Stifel.
Speaker Change: And this could drive a good one.
Speaker Change: One quarter or so there was two quarters.
Speaker Change: The margins a little bit down, but at the end of debates allocation of R&D cost to cost of revenue, it's not an increase in the overall expenses and when you look on an annual basis. This year, we are still looking at 89%, 90% margins non-GAAP. So nothing has changed.
Speaker Change: Dramatically just a little bit more efforts on the on the top line versus R&D and Kevin I would add to that also more strategic in how we are driving in the company in the business. If you recall when I talked previously.
Speaker Change: And what we would like to achieve and basically to be a truly partner with all our customers and driving better economy, and finally to our customers of the technologies that we provide in this case with the five G advance platform basically being up a complete platform, let's start with the so called D has been positive.
Speaker Change: Technology, but not a complete and one more than technology hardware and software because of IP that we are building and we wouldn't go and expand our IP at close on all of our customer base.
Speaker Change: Specific case, including data did through the year and also edition of so called customization that support that we provide to our customers, but that drive the long term economics, well better licensing and <unk> moving forward as we continue to bend the connectivity IP portfolio that we have.
Speaker Change: Okay, great. Thanks for that clarification, and maybe it's as you're designing with this platform is there an opportunity for our Wi Fi and in the platform overall.
Speaker Change: Oh, that's Kevin that's a great question. So in this specific case, we are starting with the five year advanced platform, but we have multiple customers that are looking to add to this platform Wi Fi and Bluetooth and other technologies.
Speaker Change: So definitely on top of what I said strategically more binding than an economy expert deal is really creating and adding more content to all the different wireless connectivity.
Speaker Change: And on top of that moving forward and also what you will see is adding a eye on your own networks capabilities in terms of the processing, which we provide in this type of connectivity platforms.
Speaker Change: Amir Panush, Richard Kingston, Amir Panush, Richard Kingston, Amir Panush, Richard Kingston,
Speaker Change: Wave Dania Pointe I don't know that we talked about today as well as they are there any views that you have in our portfolio. So definitely what we see is that and I'm very happy with how I see the strategy that we put in place.
Speaker Change: We are executing that exactly to our plan and driving more and more value and with that the economics of the data to our customers with the multiple connectivity technology isn't it and then on top of that AI.
Speaker Change: Okay, great. Thanks.
Speaker Change: Okay. Thank you I'm sorry.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from Chris Reimer from Barclays. Please go ahead.
Chris Reimer: Oh, hi, thanks for taking my questions.
Siva:
Siva: I wanted to ask about the licensing deal you announced Ken I think it was on the press release.