Q2 2019 Earnings Call
Uh huh.
HM.
[laughter].
Good morning.
And welcome CEVA Inc. second quarter 2019 earnings conference call.
This is Vince.
And only mode should you need assistance. Please signal a conference specialist, but press the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like turn the conference over to Richard Kingston, Vice President of market Intelligence and Investor Relations. Please go ahead Sir.
Thank you good morning, everyone and welcome to achieve a second quarter 2019 earnings conference call.
I'm joined today by Gideon work either chief.
Academic officer of Eva.
And yet Eve Arieli, Chief financial Officer of Fever, Gideon will cover the business aspects and the highlights from the second quarter and provide general qualitative data.
And he will then cover the financial results for the second quarter and also provide qualitative data for the third quarter and the rest of 2019.
I will start with the forward looking statements.
Please note that today's discussions contain forward looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect could cause the results of siva to differ materially from those expressed or implied by such forward looking statements on assumptions.
Forward looking statements include our financial qualitative data for the third quarter and remainder of 2009 team, including royalty revenues on the mobile market stabilization.
Optimism about so you've had doubling its 2018 royalty revenue by 20 to 22.
Our ability to capitalize on a healthy design environment to sign licensing agreement and maintain a robust licensing pipeline.
Optimism about synergies associated with the acquisition of the Hillcrest labs business on the license arrangement with M. revision.
Including leveraging Hillcrest labs customer base on revenue contribution relating to the Hillcrest labs business in the second half of the year.
And full year expense levels.
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 ability of C was IP for smarter connected devices to continue to be strong growth drivers for us.
Our ability to realize the benefits from the acquisition of certain assets of Hillcrest labs on license arrangement would envision.
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 on offset the maturity of the handset market.
The speed and extend of the expansion of the Fourg LTE and Fiveg networks on wireless connectivity.
A high LTV Io tea on the Io T space generally.
Our ability to execute more non handset baseband license agreements.
The effect of trade tariffs on political tensions.
The effect of intense industry competition and consolidation, including the effect of Apple's announced acquisition of a majority of Intel smartphone modem business.
And global chip market trends.
Eva assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
In addition to the financial results prepared in accordance with generally accepted accounting principles or GAAP.
We will also present certain non-GAAP financial measures today.
Steve as management believes that in addition to using GAAP results in evaluating our business.
It can be useful to review results using certain non-GAAP financial measures.
Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results, which can be found in the earnings press release issued today.
A copy of todays press release for the quarter ended June 32019.
And the related financial tables on management commentary, which were included in our current report on form 8-K filed today also can be found on the Investor relations portion of our website. After this call.
With that said I will now turn the call over to Gideon.
Thank you Rachel good everyone and thank you for doing this could be.
We believe will lead to.
Financial performance in the second quarter.
We have an excellent execution.
No you should they opted in relative.
We also extended our market reach and credit portfolio by acquiring your base.
Good luck.
Specializing in central fusion software technologies.
And Colin as strategic Ultrashape with Univision, a Canadian based company, we had double digit that imaging Finfet technologies.
Total revenue for the second quarter was $18.4 million.
Up 5% in the year over year basis.
License revenue was 10.8 million below.
8% year over year.
Well I think the revenue was 7.6 million below.
2% on a year over year.
Royalty revenue grew 27% sequentially is the handset inventory levels normalized.
Each business Threed wellness focused commercial planning formula based in the US based premium small 2 million and one of our large China base basements basket.
And then licensing phone we convenient.
Face to face customer design wins.
These nine new agreement.
We.
Oh, Hello connectivity product and we will all smoke thing further.
Four of the examined always first time customers.
Although second quarter licensees are bound to be a various range of any Medicaid application in mind, we travel centers.
The wireless field that AI and computer vision for consumer and various product.
And why its very consistently.
The wireless Healy multiple.
Drew wireless failure. These giant green, it's both peculiarity, notably as we provide bones, they sound and have moved us technologies will be staggered mode.
We get quiet.
Yes technology base, we can further extend our offering for this market Weve shameful fusion software.
In the first six months of 2019, we signed a full turn of 17 days.
That's a cliff accomplishments being.
Number of these to more than 160 licensing agreement since the beginning of 2016.
You should accumulate that like I said traders and ongoing chip and fulfill design.
The foundation for royalty generation, though strategic goal of doubling though 2019 that delivering by renting.
Overall, we are capitalizing on the heavy design environment in particular in China, Japan, India, and ALD technology excellence in wireless connectivity and smelter entering the same nuclear PC licensing agreement and maintain and revive licensing pipeline.
On royalties, although second quarter royalty revenue flick subsidization in the basement space following an inventory clean up.
The allowed us based premium hentrich supplier and new production ramps and design win viral China based customer in the no immediate as the smartphone market.
We believe these positive trends will accelerate as we head into the high season in this space.
In the base station market, we are particularly encouraged by the recent progress with our key customers were VP.
In Fiveg base stations.
We recently publicly commented that it was executed more than 25 Commission Fiveg network on trucks to be.
VP of capitalizing on its sales mover advantage and local for which we may flow advanced DSP platform.
Vein multichannel indexed indict that tried to deployment in China.
Normally the government run out of Commission Fiveg licenses.
Finical multiple rate, though and cable network operator.
Overall.
Well the full non handset.
That's fair made continued to show solid growth up 50%, 52% in revenue versus the second quarter of 2018.
Now on the strategic transaction, we have concluded that recently.
In July we acquired the HEYCO slept business from into digital full.
$11 million in cash.
Research Labs is a big deal, but the idea of sets to be complimentary services trends employment bid process data from sensors.
He's going to flat advanced motion engine isolate them and software platform.
Fields. They kept you implemented they various range of sensors, such as accelerometer, gyro magnet pullmantur, but little bit there and are there to reflect the accumulate orientation and the hedging ofer device industry the domain.
Sensor fusion is broadly used in smartphone laptops.
Bob let wireless able but remote controls of small PBM fit the boxes.
Drones automotive.
Hey, Alvin Vo wallboard and numerous other devices.
Either flash technology.
Comprehensive Copeland been fees and customer base and new revenue sources end market opportunities blow smoke sensing portfolio. Currently include vision phone in a builder.
This lump sum feel pullback pick shift in more than 100 million devices to date.
And then mortgage customers high sense NGL electronic some zone in some of the leading robotics companies.
Its revenue for the first six months of the ads was approximately $3 million or fleet, 80% workers.
We think of weaker felt technologies on board, we plan to offer a complete himself and integrate the softest stake that we couldn't buy in the hiccup motion sensing we've shown and vision.
Address multiple market, but that didnt.
We expect to pick up and be motion sensing technology result, more portfolio over DSP based wireless and cellular connectivity IP.
We also anticipate to capitalize on the Haynesville, if nothing material Sofia assays and experience to engage in license directly to Oems benefit from shelter Bang for royalties in adult royalty payment scheme based on device rather than chips.
I'd like to thank diesel, but the only people away from the Hincker flops team to deceive affinity and to think they usually do that infill drill support really the acquisition growth.
And other transaction that we executed a few days ago is a 10 million dollar investment and strategic partnership with Zimmer vision.
It kind of basic private and government funds and technology company.
Any reason also very promising so focusing on reduced relating to wide angle formula.
Rising income it also seemed to fuel between 80 degrees. The 250 degrees and is commonly use in the civil variance market and recently expanded the smartphone a dozen rebels or primary markets full fever.
With that said wide angle lens suffer forming inherent distortion.
In the image quality, particularly at the edge of deferring.
Advanced imaging algorithms and index know how.
Phlegm peak in the vision is able to correct the distortion and provide smooth and clean 360 degree views they speak to the mix of multiple wide angle governor.
And Bill this partnership agreement Siloed, we'd have an exclusive license right.
All in the region image in Memphis also portfolio.
We expect to offer the filter is the royalty viewing venue areas, where our customer base or independently to Oems.
Turning summary, I am very pleased with the performance in the second quarter.
We continue to expand our licensee base and diversify our royalty revenue sources.
The weakness in demand our mobile customer face less deal shows good signs of stabilization.
And we expect a strong second half in royalty revenue.
Yes, our recent cash investment in acquiring sales effort or FICO flops and full licensing right was the imaging softer for Mena region.
Our in line with our strategy to grow up into value change to the 18, tyco relationship with our customer and incremental royalty sources from semiconductor companies and Oems.
With that said I'll now turn the call it will be a meaningful we outline our financial guidance and guidance.
Thank you read on how start reviewing the results of operations for the second quarter of 2018.
Revenue for the second quarter of $18.4 million up 5% as compared to 17 and a half million for the same quarter last year.
Revenue breakdown is as follows.
Licensing and related revenue was approximately 10.8 million, reflecting 59% of our total revenue, 8% higher as compared to the second quarter of 18.
Royalty revenue was $7.6 million, reflecting 41% of our total revenue up 2% from seven and a half million.
For the same quarter last year.
Quarterly gross margin was 86% on a GAAP basis, and 88% a non-GAAP basis as projected.
non-GAAP quarterly gross margin excluded approximately zero zero point $1 million of equity based compensation expenses and zero point $1 million of impact of their motivations of the acquired intangibles foreign investment in the narrow and deep intelligence.
Our total operating expenses for the second quarter came in at the mid range of our guidance at $18.1 million. Opex also included aggregate based compensation expenses.
72, and a half million dollars and zero point $2 million for the amortization of acquired intangibles of Rivierawaves total operating expenses for the second quarter. Excluding these items were $15.4 million also at the midpoint of our guidance.
USGIF not loss for the second quarter decreased by 28% to one and a half million dollars.
Diluted net income per share decreased 22% to seven cents.
Compared to a net loss of $2.1 million or nine cents for the second quarter of 2018.
non-GAAP net income and diluted EPS for the second quarter of 2019 were up 42% and 25% $1.2 million.05, respectively.
Our net income and diluted EPS for the second quarter of 2018 of $2.9 million.04.
Other related data.
Shipped units may see those licensees during the second quarter of 2019 or 217 million units.
Up 24% sequentially.
And down 2% year over year from the second quarter of 2018 and mortgage.
Of the 217 million units shipped 122 million.
Or 56% or for handset baseband chips.
This reflects an increase of 37% sequentially from 89 million unit shipped in the first quarter of 2019.
And a 26% decrease.
From 165 million units shipped a year ago.
In the non base band.
Volume shipments were up 11% sequential 8% on a year over year basis.
As for our balance sheet.
As of the end of June .
Give us cash cash equivalents and marketable securities and bank deposits were $166 million.
We continued our buyback repurchasing program and purchased the approximately 103000 shares during the second quarter for approximately $2.3 million.
Year ago, our board of directors.
Through the expansion of the existing buyback program and as of the end of June . This year, we had a total of 161000 shares available under this repurchase program.
Our dsos for the second quarter were 52 days.
During the quarter, we generated a negative $3.8 million of cash from operations.
Depreciation was zero point $7 million and purchase of fixed assets were zero point $7 million as well.
At the end of the quarter, our headcount was 368 people of which 294 or engineers.
These numbers do not include the 22 people from Hillcrest Labs, which were added in July .
Yearly guidance.
NVDIMM pointed out we are experiencing an overall healthy environment, both in licensing and royalty fronts.
We also expect the Hillcrest business to continue to contribute to revenue in the second half of this year.
Therefore, you are now anticipating that our annual revenue will be in the range of $3 million to $4 million higher than the current street estimates.
On the operating side, we continue to be cautious.
Disciplined.
Expense control.
And the result.
Including the addition of Hillcrest slab.
We expect to remain or to record a slight increase in the annual non-GAAP operating expense level that we guided earlier in the year for 2019.
Cumulated data specifically for the third quarter of 2019.
We expect a substantial increase in royalties in the second half of the year.
Starting with more than 60% sequential increase for the third quarter.
This concludes the initial contribution from Hillcrest loud and should account for one of the highest royalty revenue quarter in the company's history.
Gross margin is expected to be approximately 88% on a GAAP basis and 89% the non-GAAP basis.
Overall opex is expected to be in the range of $19.7 million to $20.7 million.
After adding any new Hillcrest business.
Excluding deal costs, the new amortization, but including approximately zero point $3 million of deal related write offs.
The anticipated total operating expenses for the third quarter $2.9 million was expected to be attributed to equity based compensation expenses.
Zero, according to millions of amortization of acquired intangible not including Hillcrest and in revision.
Another is zero point $3 million for deal related write offs.
Our total non-GAAP Opex is expected to be in the range of $16.4 million to $17.4 million.
Net interest income is expected to be approximately $750000 for the quarter.
Practice for the quarter, approximately zero point, Threemillion, and GAAP basis, and half a million on non-GAAP basis.
In our share count for the third quarter is expected to be approximately 22.9.
Millions ships.
With that we could open a or the Q and a session.
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 are using a speakerphone, please pick up your handset or for pressing the keys.
To address your question. Please press Star then too.
At this time, we will pause momentarily to assemble the roster.
And our first question today comes from Peters <unk> Debs he with Barclays. Please go ahead.
Hi, Good morning, now this is Peter on for Ah first hobby Rosner from Barclays.
So you mentioned the inventory normalization in smartphone was that specific to that the U.S. customers or or is that broad based geographically and then I have a follow up.
[noise] Hi, Hey, this is good we don't normally we don't be so those all in the same it does focusing.
On what we know about those questions.
Thank you and then and then.
In terms of inventory levels going it going into into the the fall we understand shipments for your units for your large U.S. premium smartphone customer have been a bit above seasonal in the second quarter.
So.
Going into the fall do you see inventory levels.
Just maybe back down to closer to historical or or are there are there are there are they even maybe below historical.
Or maybe it is how how does that factor into your into your your royalty guidance for for the third quarter.
Peter So you need to remember that there is seasonality that's playing in our favor.
In all the markets, whether it's consumer or handset.
And this is not only see though you live in the third and fourth quarter are stronger and then the first two quarters of the year I think thats lets say its first we are referring to.
But let me start by the way you did last year as well.
Our business has changed from prior years.
And on top of that you need to fine tune as Gideon said blogger specific customers in different markets in different regions and we have high end devices as well as low end devices, and we had baked into the best of our knowledge all of that data, but when we get the Q3 roles to report no reported in early November then we'll have the real numbers and we'll have a better picture to front line.
Got it yes.
I just.
Hi.
I was just trying to get a better picture of.
Of Weiss of seasonality looks like it might be a bit stronger this year than than done last year based on your guide.
Oh, let's say, it's a it's very similar its very similar we have seen improvement and the Chinese though it probably means the customer weve talked about that in the prepared remarks, we've seen more design wins that you could look at the way I've been fighting them much more announcements of new chips room rolling out the new phones. So that's that's encouraging and with that said we are on top of that last year. We also have the initial contribution from Hillclimb sit together and then maybe how your sequential increases the last year. The difference the concept is quite similar.
Got it.
Thank you very much.
Thank you.
And our next question comes from Suji de Silva with Roth Capital. Please go ahead.
Hi, getting high enough congratulations on the.
Improving results here, so I'm sort of third COVID-19, you guided very strong royalties can you give us some sense of what are the drivers beyond Hillcrest, just understand which segments of business are improving the most here.
You mean for the second half of this year.
Yes, your deferred third quarter second half yes.
So.
Yes.
What we care about downstream analyzing the second quarter will into the fold.
Is that the inventory words.
What's the stumbling issue in the first quarter.
As a concern to us.
It's kind of normalize and we are going to.
Very good now and on the handset guarded regular though.
50000 ish.
Up season, where you have the models and the design the new design common.
Within market.
So overall, if you look on the all in our guidance is composed of the.
Season.
Uptrend boats in the.
The mobile in the non handset keep in mind that the non handset in general we have new models coming so there is a contribution.
From dead for so this is the strength.
Ben Haynor grants and the.
And of course the base stations.
As we mentioned CDW input it so on on the I know these are done these are the cylinder firing in the frick enough with that said.
There is this.
The.
So is the global not cool is that these were around the us rich.
Really we keep close eye and Thats. The reason that will yield so carefully is the expenses.
So overall.
We bank whatever we can do you can think in these.
And that can come out of this year and we generally optimistic.
Okay, and then specifically on wireless infrastructure.
Can you talk about the shape of the ramp here is it steady or will that be an inflection quarter ahead.
Is is what's the run rate you'll expect to the next.
Six to 12 months from from the current levels.
So thats.
That's a difficult on.
Good question and.
On a non surfaces.
Here are you going in this space you see all the global it disappeared, there where they're VT how far the peak in go to outside of China, what about the other customer between.
Kind of things that we.
It Doesnt know where we are today.
Oh Gosh I don't see is the issue.
CLM and.
Bundle for his role as something we see.
Really the Fiveg dumbing down.
In people out and start building the base station upgrading the base station.
So it seems.
It looks positive in terms of this one is not a hockey stick them, we'll know.
Okay Thats helpful and then last question.
One of your customers into other assets were acquired.
Recently any insight into the Fiveg planner opportunity how to model that for US any color you have would be helpful. Thank you.
You'll see.
We held about this.
The acquisition availability in like anybody else.
It's.
They have to conclude on the implication of these days so I don't know when they visit I think generally it's good for the area.
For the industry that OEM sort of taking the lead.
In.
And do their own chips we.
I believe there will be other we said in the past we believe that people.
At Oems Big Williams wants to have a control on Fiveg modem.
In the end they we will step in there.
You can see the field has sold so much substance.
In this space that any new permanent loan covenants.
That wants to go to the stepping into the model.
Business, we find the technology seem appealing to them in different flavors.
So that's what we know, but we know that we have what we can also love of things to do new commerce.
Okay. Thank you Gideon thanks, guys congratulations again.
Thankfully.
And once again, if youd like to ask a question. Please press Star then one.
[laughter].
Once again that is star then one to ask a question.
And this will conclude our question and answer session I'd like to turn the conference back over to Richard Kingston for any closing remarks.
Thank you.
Thank you everybody for joining us today and for your continued interest in and support that Stephen.
As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current reports on form 8-K on accessible through the investors section of our website at <unk> investors dots Eva hyphen DSP dotcom.
With regards to upcoming events, we will be attending these include the Jefferies 2019 semiconductor hardware and communications infrastructure Summit August 27 to 28 in Chicago.
The City 2019 Global Technology Conference on September 4th True six in New York.
And the Deutsche Bank Technology Conference September 10th and 11th in Las Vegas.
Please visit the Investor section of our website for further information on these events and other events that will we will be attending thank you and goodbye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a wonderful day.