UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 000-49842 CEVA, INC. (Exact name of registrant as specified in its charter) Delaware 77-0556376 (State or other jurisdict ...

CEVA, Inc. (NASDAQ:CEVA) Q4 2022 Earnings Conference Call February 15, 2023 8:30 AM ET Company Participants Richard Kingston - Vice President, Market Intelligence and Investor Relations Amir Panush - Chief Executive Officer Yaniv Arieli - Chief Financial Officer Conference Call Participants Matt Ramsay - Cowen Kevin Cassidy - Rosenblatt Securities Suji Desilva - Roth Capital Chris Reimer - Barclays Martin Yang - Oppenheimer David O’Connor - BNP Paribas Gus Richard - Northland Operator Good day, and welcome ...

Financial Performance - Total revenues for Q3 2022 were $33.7 million, representing a 3% increase year-over-year, while revenues for the first nine months of 2022 reached $101.2 million, up 14% compared to the same period in 2021[132]. - Licensing, NRE, and related revenues were $22.3 million for Q3 2022, a 3% increase year-over-year, and $66.8 million for the first nine months of 2022, reflecting a 30% increase compared to the same period in 2021[136]. - Royalty revenues were $11.4 million for Q3 2022, a 2% increase year-over-year, and $34.5 million for the first nine months, a 7% decrease year-over-year[139]. - Customers reported sales of 357 million chipsets for Q3 2022, a 19% decrease year-over-year, and 1,320 million for the first nine months, a 7% increase year-over-year[140]. - The company recorded a net loss of $398,000 and $1,140,000 for the third quarter and first nine months of 2022, respectively, related to forward and options contracts[185]. Revenue Composition - CEVA's connectivity products accounted for 71% of total revenues for the first nine months of 2022, while smart sensing products made up 29%[135]. - The company’s five largest customers accounted for 38% of total revenues in Q3 2022, down from 51% in Q3 2021, indicating a diversification in the customer base[133]. Market Trends - Shipments of devices enabled by Bluetooth, Wi-Fi, and cellular IoT IPs increased by 19% year-over-year to 945 million units for the first nine months of 2022[124]. - Unit shipments for non-handset products increased by 14% year-over-year to 1.06 billion units for the first nine months of 2022, with expectations for continued royalty growth in this category[130]. - The addressable market size for Bluetooth, Wi-Fi, UWB, and cellular IoT is expected to exceed 15 billion devices annually by 2026, indicating significant growth potential[124]. - The company is experiencing exceptional interest in its wireless connectivity platforms, with 11 out of 18 IP licensing deals in Q3 2022 focused on this area[121]. Operating Expenses - Total operating expenses were $29.7 million for Q3 2022, an increase from $26.3 million in Q3 2021, mainly due to an impairment charge of $3.6 million[145]. - Research and development expenses were $18.5 million for Q3 2022, representing 55% of total revenues, compared to 57% in Q3 2021[146]. - General and administrative expenses were $3.6 million for Q3 2022, consistent with 11% of total revenues, compared to 11% in Q3 2021[149]. Financial Position - The total cash, cash equivalents, short-term bank deposits, and marketable securities amounted to $144.4 million, a decrease from $154.9 million at December 31, 2021[170]. - Cash provided by operating activities for the first nine months of 2022 was $3.5 million, with a net loss of $25.1 million[174]. - The company has significant operations in Israel, France, and the Republic of Ireland, with a substantial portion of taxable income generated in these jurisdictions[163]. Taxation and Valuation - Income tax expenses increased to $17.9 million for Q3 2022, compared to $1.8 million in Q3 2021, primarily due to a valuation allowance charge[156]. - As of September 30, 2022, the company recorded a valuation allowance of $15.6 million against deferred tax assets due to uncertainty regarding future taxable income[160]. - The French subsidiary is entitled to a new tax benefit of 10% under the French IP Box regime, applicable to specific revenues[164]. - The Israeli subsidiary is taxed at a rate of 12% on profits from intellectual property under the Technological Preferred Enterprise tax track[166]. Investment Activities - The company invested $41.3 million in bank deposits and marketable securities with maturities up to 48 months during the first nine months of 2022[172]. - The cash outflow from investing activities for the first nine months of 2022 was $3.3 million, compared to $4.6 million for the same period in 2021[179]. - The company has not recognized any credit loss during the third quarter and first nine months of 2022 despite holding bonds with unrealized losses[187]. Market Risks - The company expects to continue experiencing fluctuations in operating results due to currency fluctuations on an annual and quarterly basis[185]. - The company anticipates that fluctuations in interest rates will not have a material effect on its financial position on an annual or quarterly basis[189]. - The company has not experienced any loss of principal or lack of access to invested cash or cash equivalents to date, but future access may be affected by financial institution failures[186].

Financial Data and Key Metrics Changes - Revenue for Q3 2022 was $33.7 million, up 3% year-over-year from $32.8 million [18] - Licensing revenue was $22.3 million, reflecting 66% of total revenues, up 3% from $21.6 million [19] - Royalty revenue was $11.4 million, reflecting 34% of total revenues, up 2% from $11.2 million [19] - GAAP operating loss for Q3 was $4 million, down from a GAAP operating profit of $1.7 million in the same quarter a year ago [20] - Non-GAAP operating profit was $6.9 million, up 4% from Q3 2021 [21] - GAAP loss for the quarter was $21.3 million, with a diluted loss per share of $0.96 [21] Business Line Data and Key Metrics Changes - Licensing environment outperformed, with 18 licensing agreements across various market segments including ADAS and wireless audio devices [7][8] - Handset baseband royalties were up 16% year-over-year but down 20% sequentially due to inventory adjustments [9] - Base station IoT royalties were down 3% year-over-year but up 16% sequentially, driven by growing 5G RAN shipments [9][10] Market Data and Key Metrics Changes - China and the U.S. were the largest drivers of business, with Japan emerging as an important market due to automotive and industrial activities [8] - Shipped units by CEVA's licensees during Q3 2022 were 357 million units, down 23% from Q3 2021 [22] - Base station and IoT product shipments were 279 million units, down 20% sequentially and down 31% year-over-year [22] Company Strategy and Development Direction - The company aims to increase IP content by moving up the value chain and licensing software IP to OEMs [11][13] - The Penta-G RAN platform was announced to extend the portfolio for the 5G RAN market, reducing entry barriers for new entrants [12][49] - Focus on diversifying revenue through software IP for wearables and other devices, with over 50 licensees using CEVA technologies [13][14] Management's Comments on Operating Environment and Future Outlook - Management noted the further deterioration of consumer demand and extended COVID-19 restrictions in China affecting inventory levels [11] - The company expects royalty revenue to be lower by about 10% sequentially in Q4 due to softer demand in smartphones and consumer electronics [24] - Annual revenue is expected to be in the range of $132.5 million to $135 million, representing 8% to 10% annual growth over 2021 [24] Other Important Information - CEO Gideon Wertheizer announced retirement effective December 31, 2022, with Amir Panush set to take over [16][17] - The company has a strong cash position of $144 million and continues its buyback program [23] Q&A Session Summary Question: Comparison of 5G rollout in India to China - Management highlighted that India is an untapped area for 5G, with significant opportunities as they start from scratch [30][31] Question: Differences in licensing software IP contracts - Licensing software IP is royalty-based, allowing for optimization due to the company's understanding of its IP [32][34] Question: Changes in customer demand across verticals - Management noted a combination of supply easing and reduced demand leading to higher inventory levels, particularly in mobile and consumer products [38][40] Question: M&A environment and future acquisitions - No immediate M&A plans, but the company is open to exploring interesting technologies and add-ons in the future [43] Question: Update on automotive business and revenue timing - Revenue from automotive customers is expected to materialize around 2024-2025 due to the lengthy qualification process [64]

PART I. FINANCIAL INFORMATION [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) CEVA, Inc.'s unaudited interim consolidated financial statements as of June 30, 2022, show increased revenues but net losses due to higher expenses and acquisition costs [Interim Condensed Consolidated Balance Sheets](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2022, shows a slight decrease in total assets and stockholders' equity compared to December 31, 2021, with total assets at $319.4 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $173,572 | $188,980 | | **Total Assets** | **$319,407** | **$328,659** | | **Total Current Liabilities** | $31,589 | $35,440 | | **Total Liabilities** | **$45,702** | **$51,927** | | **Total Stockholders' Equity** | **$273,715** | **$276,732** | [Interim Condensed Consolidated Statements of Income (Loss)](index=8&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)) Q2 2022 revenues increased to $33.2 million, but a net loss of $1.1 million was reported, with H1 revenues at $67.6 million and a $2.8 million net loss Statement of Income Highlights (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $33,195 | $30,457 | $67,586 | $55,859 | | **Gross Profit** | $26,370 | $26,764 | $54,357 | $49,785 | | **Operating Income (Loss)** | $(276) | $1,588 | $192 | $258 | | **Net Income (Loss)** | **$(1,123)** | **$315** | **$(2,819)** | **$(3,315)** | | **Diluted EPS** | **$(0.05)** | **$0.01** | **$(0.12)** | **$(0.15)** | [Interim Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations for H1 2022 decreased to $1.7 million, with increased investing and financing outflows leading to a $13.9 million decrease in cash and equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $1,711 | $8,431 | | **Net cash used in investing activities** | $(12,256) | $(4,222) | | **Net cash provided by (used in) financing activities** | $(2,737) | $1,577 | | **Decrease in cash and cash equivalents** | $(13,864) | $5,563 | [Notes to the Financial Statements](index=13&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) The notes detail business operations, accounting policies, and financial results, highlighting Asia Pacific as the primary market, customer concentration, and share repurchases - CEVA licenses wireless connectivity and smart sensing technologies, and provides chip design services through its Intrinsix subsidiary, targeting mobile, consumer, automotive, and IoT markets[26](index=26&type=chunk)[27](index=27&type=chunk) Revenue by Geography - H1 2022 (in thousands) | Region | Licensing, NRE, etc. | Royalties | Total | | :--- | :--- | :--- | :--- | | United States | $9,637 | $4,100 | $13,737 | | Europe & Middle East | $2,534 | $1,340 | $3,874 | | Asia Pacific | $32,345 | $17,630 | $49,975 | - For the six months ended June 30, 2022, one customer (Customer A) accounted for **11%** of total revenues, down from **21%** in the prior year period[65](index=65&type=chunk) - During the three and six months ended June 30, 2022, the company repurchased **136,091** shares of common stock for an aggregate price of **$4.5 million**[103](index=103&type=chunk) [Management's Discussion and Analysis (MD&A)](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2022 financial performance, noting a 9% revenue increase to $33.2 million driven by licensing and NRE growth, and a strong liquidity position [Business Overview](index=30&type=section&id=BUSINESS%20OVERVIEW) CEVA licenses wireless connectivity and smart sensing technologies, with Intrinsix adding chip design services, driven by growth in 5G, IoT, and edge AI processors - CEVA's business model focuses on licensing IP for wireless connectivity and smart sensing, complemented by co-creation chip design services from its Intrinsix acquisition[108](index=108&type=chunk)[111](index=111&type=chunk) - Key growth drivers include 5G baseband processing, high-volume IoT connectivity (Bluetooth, Wi-Fi, UWB), TWS earbuds, and AI processors for edge devices[115](index=115&type=chunk)[116](index=116&type=chunk)[119](index=119&type=chunk) - In Q2 2022, **14** of **22** new IP licensing and NRE deals were for wireless connectivity, with eight for Wi-Fi platforms, indicating strong industry demand[113](index=113&type=chunk) [Results of Operations](index=32&type=section&id=RESULTS%20OF%20OPERATIONS) Q2 2022 total revenues increased 9% to $33.2 million, driven by licensing and NRE growth, but gross margin decreased and operating expenses rose, resulting in an operating loss Revenue Breakdown (in millions) | Revenue Type | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Licensing, NRE & related | $22.1 | $15.5 | +42% | | Royalties | $11.1 | $14.9 | -26% | | **Total Revenues** | **$33.2** | **$30.5** | **+9%** | - The Q2 2022 royalty revenue decline was primarily due to a **$3.3 million** one-time payment from a customer in Q2 2021. Excluding this, royalty revenue would have been down only **4%** YoY[122](index=122&type=chunk)[128](index=128&type=chunk) - Gross margin decreased to **79%** in Q2 2022 from **88%** in Q2 2021, mainly due to higher cost of revenues from NRE-related costs associated with the Intrinsix business[133](index=133&type=chunk) - The company concluded **22** license and NRE agreements in Q2 2022, with **five** being first-time customers. Target applications include smartphones, smart home, PCs, ADAS, and 5G satellite communication[126](index=126&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of June 30, 2022, CEVA held $146.1 million in cash and investments, generated $1.7 million from operations, and repurchased shares, with sufficient capital for the next 12 months - Total cash, cash equivalents, bank deposits, and marketable securities amounted to **$146.1 million** as of June 30, 2022[153](index=153&type=chunk) - Net cash provided by operating activities for H1 2022 was **$1.7 million**, down from **$8.4 million** in H1 2021[158](index=158&type=chunk)[159](index=159&type=chunk) - The company repurchased **136,091** shares for **$4.5 million** in H1 2022 under its share repurchase program[162](index=162&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces market risks including foreign currency fluctuations, interest rate risk on its investment portfolio with $5.2 million in unrealized losses, and credit risk - The company is exposed to foreign currency risk as most expenses are in NIS and Euro, while revenues are in USD. A hedging program is in place to mitigate this[165](index=165&type=chunk)[166](index=166&type=chunk) - The investment portfolio, consisting mainly of corporate bonds, had unrealized losses of approximately **$5.2 million** as of June 30, 2022, due to rising interest rates[168](index=168&type=chunk) - The company holds cash and deposits with major banks that exceed FDIC or similar insurance limits, posing a credit risk if these financial institutions were to fail[167](index=167&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[173](index=173&type=chunk) - There were no material changes in the company's internal control over financial reporting during the most recent fiscal quarter[173](index=173&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings[174](index=174&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section outlines key business risks, including intense competition, reliance on limited customers, acquisition integration challenges, and geopolitical tensions - The company faces significant competition from Verisilicon, Cadence, Synopsys, ARM, and internal design teams at major semiconductor companies[180](index=180&type=chunk) - A significant portion of revenue is derived from a limited number of customers. UNISOC accounted for **11%** of total revenues for H1 2022[189](index=189&type=chunk) - The business is exposed to geopolitical risks, including U.S.-China trade tensions and the Russia-Ukraine conflict, which could disrupt the semiconductor supply chain and customer demand[211](index=211&type=chunk) - Challenges exist in integrating the Intrinsix acquisition and its business, which relies heavily on U.S. government contracts subject to budgetary constraints and policy shifts[218](index=218&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) [Share Repurchases](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, the company repurchased 136,091 shares at an average price of $32.75, with 361,517 shares remaining available under the program Share Repurchases in Q2 2022 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 0 | N/A | | May 2022 | 121,729 | $32.74 | | June 2022 | 14,362 | $32.83 | | **Total** | **136,091** | **$32.75** | - As of June 30, 2022, **361,517** shares remained available for repurchase under the company's share repurchase program[264](index=264&type=chunk)[265](index=265&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $33.2 million, up 9% year-over-year from $30.5 million in Q2 2021 [14] - Licensing revenue was $22.1 million, representing 67% of total revenue, up 42% from $15.5 million in Q2 2021 [14] - Royalty revenue was $11.1 million, down 26% year-over-year from $14.9 million in Q2 2021, but down only 4% when excluding a one-time adjustment from the previous year [14][15] - Gross margin was 79% on a GAAP basis and 82% on a non-GAAP basis, slightly better than expectations [15] - GAAP net loss for the quarter was $1.1 million, with diluted loss per share of $0.05, compared to net income of $3 million and $0.01 per share in Q2 2021 [18] Business Line Data and Key Metrics Changes - Licensing and NRE related revenue was $22.1 million, reflecting a strong licensing environment [14] - Base station and IoT royalty revenue contributed $7 million, flat from the previous quarter and up 6% year-over-year [15] - Handset-related royalties were $4.1 million, indicating a decline due to economic uncertainty and COVID impacts [36] Market Data and Key Metrics Changes - Asia remains a major driver of business, with increasing engagement from U.S.-based customers [8] - Bluetooth shipments increased by 35% year-over-year to 255 million units, while cellular shipments rose by 12% year-over-year to 20 million units [19] - The overall market for wearables is growing, with CEVA's technology being integrated into various devices [11] Company Strategy and Development Direction - CEVA is focusing on co-creation business models to enhance customer engagement and drive revenue growth [10][13] - The company sees significant potential in the coexistence of 5G and Wi-Fi technologies, positioning itself as a one-stop shop for both [12] - CEVA aims to leverage its IP portfolio to address key technology trends in the semiconductor market [13] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with financial performance despite macroeconomic challenges, particularly in the wireless space [7][13] - The company is monitoring economic uncertainties, especially in the handset market, but remains optimistic about growth in base station and IoT segments [21][22] - Future guidance indicates expectations for slightly improved gross margins and operating expenses in Q3 2022 [22][23] Other Important Information - CEVA's total operating expenses for Q2 were $26.6 million, below guidance due to favorable foreign exchange and timing of grants [16] - The company activated its share buyback program, repurchasing approximately 136,000 shares for about $4.5 million [19] Q&A Session Summary Question: Trends in different end markets and revenue guidance - Management noted challenges in providing specific revenue guidance due to the nature of customer reporting under revenue recognition rules, but highlighted positive trends in base station IoT and Bluetooth devices [26][28] Question: Impact of handset royalties - Handset royalties were identified as the weakest link, particularly in low and mid-tier smartphones, with expectations for recovery as economic conditions improve [29][32] Question: New IT deals and revenue mix - Management clarified that the number of new deals does not directly correlate with revenue due to complexities in customer relationships and project delivery [37][39] Question: Opportunities from Intrinsix - Intrinsix is expected to play a significant role in defense market projects, with ongoing design engagements [41] Question: Synergies between Wi-Fi and 5G - CEVA highlighted the technological synergies between Wi-Fi and 5G, emphasizing the integration of both technologies in customer offerings [42][43] Question: Customer ramp-up in 5G infrastructure - Management indicated strong customer relationships in the 5G space, with significant growth opportunities ahead [45][46] Question: Operating margin dynamics - The mix of licensing and royalty revenues is expected to influence operating margins, with a focus on maintaining margins in the low 80s [48][50] Question: M&A pipeline considerations - Management is actively exploring M&A opportunities but emphasizes the importance of strategic fit over valuation [52][53] Question: Co-creation agreement catalysts - The co-creation model is seen as beneficial for both CEVA and its customers, providing more visibility and potential for royalties [56][59] Question: Engagements with U.S. companies - Recent engagements have focused on wireless audio technologies for wearables, indicating a shift towards more complex projects [60][62]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) Presents CEVA's unaudited Q1 2022 consolidated financial statements, including balance sheets, loss, and cash flows [Interim Condensed Consolidated Balance Sheets](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | **$197,304** | **$188,980** | | Cash and cash equivalents | $39,778 | $33,153 | | Marketable securities | $92,625 | $90,298 | | **Total Assets** | **$335,040** | **$328,659** | | Goodwill | $74,777 | $74,777 | | **Total Current Liabilities** | **$40,787** | **$35,440** | | **Total Liabilities** | **$56,961** | **$51,927** | | **Total Stockholders' Equity** | **$278,079** | **$276,732** | [Interim Condensed Consolidated Statements of Loss](index=8&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Loss) Consolidated Statements of Loss (in thousands, except per share data) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | **Total Revenues** | **$34,391** | **$25,402** | | Licensing, NRE and related revenue | $22,393 | $14,397 | | Royalties | $11,998 | $11,005 | | **Gross Profit** | **$27,987** | **$23,021** | | **Operating Income (Loss)** | **$468** | **($1,330)** | | **Net Loss** | **($1,696)** | **($3,630)** | | **Diluted Net Loss Per Share** | **($0.07)** | **($0.16)** | [Interim Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$9,824** | **$15,193** | | **Net cash provided by (used in) investing activities** | **($4,813)** | **$16,218** | | **Net cash provided by financing activities** | **$1,720** | **$1,577** | | Increase in cash and cash equivalents | $6,625 | $32,519 | | **Cash and cash equivalents at end of period** | **$39,778** | **$53,662** | [Notes to the Interim Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain CEVA's business, accounting policies, revenue disaggregation, major customers, and key items - **CEVA is a licensor of wireless connectivity and smart sensing technologies**, including Digital Signal Processors, AI processors, and wireless platforms. The company's offerings are used in mobile, consumer, automotive, industrial, and IoT end products. The **acquisition of Intrinsix expands its market reach into aerospace and defense**[28](index=28&type=chunk)[29](index=29&type=chunk) Disaggregated Revenue by Geography (Q1 2022 vs Q1 2021, in thousands) | Primary Geographical Markets | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | United States | $6,746 | $3,950 | | Europe and Middle East | $1,102 | $1,099 | | Asia Pacific | $26,543 | $20,353 | | **Total** | **$34,391** | **$25,402** | Disaggregated Revenue by Product Line (Q1 2022 vs Q1 2021, in thousands) | Major Product/Service Lines | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Connectivity products | $25,877 | $20,910 | | Smart sensing products | $8,514 | $4,492 | | **Total** | **$34,391** | **$25,402** | - In Q1 2022, two customers accounted for **12%** and **11%** of total revenues, respectively. This is a **decrease in concentration** from Q1 2021, when three customers accounted for **23%**, **14%**, and **12%** of total revenues[68](index=68&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses CEVA's Q1 2022 financial performance, revenue trends, cost structure, liquidity, and cash flows [Business Overview and Growth Drivers](index=28&type=section&id=Business%20Overview%20and%20Growth%20Drivers) CEVA, a licensor of wireless and smart sensing tech, highlights growth drivers in 5G, IoT, wearables, and Edge AI - **Key growth drivers include**: - **5G baseband processing for mobile and RAN**. - **Broad IoT connectivity IP portfolio (Bluetooth, Wi-Fi, UWB)** with an addressable market of **over 15 billion devices annually by 2026**. - **Growing markets for TWS earbuds, wearables, and AR/VR headsets**. - **Expansion into Edge AI applications with SensPro2 and NeuPro-M processors for automotive, drones, and surveillance**[114](index=114&type=chunk)[115](index=115&type=chunk)[118](index=118&type=chunk) - In Q1 2022, shipments of devices with CEVA's Bluetooth, Wi-Fi, and cellular IoT IPs reached a **record 386 million units, a 125% year-over-year increase**[115](index=115&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Q1 2022 revenues grew 35% to $34.4 million, driven by licensing, while gross margin decreased due to Intrinsix costs Q1 2022 Key Financial Results (in millions) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$34.4** | **$25.4** | **+35%** | | Licensing, NRE & Related | $22.4 | $14.4 | +56% | | Royalty Revenues | $12.0 | $11.0 | +9% | | **Gross Margin** | **81%** | **91%** | **-10 p.p.** | | **Operating Expenses** | **$27.5** | **$24.4** | **+13%** | - The **increase in Licensing, NRE and related revenues** was driven by high demand for WiFi IP and NRE services from the newly acquired Intrinsix business[124](index=124&type=chunk) - The **decrease in gross margin** was mainly due to higher service costs associated with the NRE-intensive Intrinsix business, which was not part of the company in Q1 2021[130](index=130&type=chunk)[131](index=131&type=chunk) - Total CEVA-powered chipsets shipped in Q1 2022 reached a **record 531 million units**, an increase of **56%** YoY[121](index=121&type=chunk)[128](index=128&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) CEVA's liquidity reached $162.4 million by March 31, 2022, with $9.8 million from operations, sufficient for 12 months Cash and Liquidity Position (in millions) | Position | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $39.8 | $33.2 | | Short-term bank deposits | $30.0 | $31.4 | | Marketable securities | $92.6 | $90.3 | | **Total Liquidity** | **$162.4** | **$154.9** | - **Cash provided by operating activities was $9.8 million** in Q1 2022, **compared to $15.2 million** in Q1 2021. The **decrease was primarily due to changes in operating assets and liabilities**[153](index=153&type=chunk)[155](index=155&type=chunk) - The company **did not repurchase any shares of common stock** during the first quarter of 2022. As of March 31, 2022, **497,608 shares remained available** for repurchase under the existing program[101](index=101&type=chunk)[158](index=158&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces market risks from foreign currency fluctuations and interest rate changes, mitigated by hedging programs - The company's **primary market risk is foreign currency fluctuation**, as most expenses are in NIS and Euro while revenues are primarily in USD. A **foreign currency cash flow hedging program is in place** to mitigate risks associated with non-U.S. dollar payroll[161](index=161&type=chunk)[164](index=164&type=chunk) - The company's **investment portfolio of corporate bonds had unrealized losses of approximately $3.4 million** as of March 31, 2022, **due to changes in the interest rate environment**[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Management confirmed effective disclosure controls and procedures as of March 31, 2022, with no material changes - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's **disclosure controls and procedures were effective**[169](index=169&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) The company is not involved in any material legal proceedings expected to impact its business or financial condition - The company is **not currently involved in any material legal proceedings**[170](index=170&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20RISK%20FACTORS) Outlines significant risks: customer concentration, geopolitical tensions, cyclical industry, and acquisition challenges - The company relies significantly on a limited number of customers. **Sales to UNISOC accounted for 12% of total revenues** in Q1 2022. Two royalty-paying customers collectively represented **47% of total royalty revenues** in the same period[182](index=182&type=chunk) - The business is exposed to **geopolitical risks, including U.S.-China trade tensions**, which could result in tariffs, sanctions, or other restrictions that disrupt the semiconductor industry and harm the company's business, as a **substantial portion of revenue comes from the Asia Pacific region**[201](index=201&type=chunk)[202](index=202&type=chunk) - The **acquisition of Intrinsix introduces risks related to U.S. government contracts**, including **budget constraints, potential early termination, and complex procurement regulations**[208](index=208&type=chunk)[209](index=209&type=chunk) - The company's operating results are affected by the **highly cyclical nature of the semiconductor industry**, which is currently facing **significant global supply chain disruptions** and **potential negative cycles**, especially in the handset market[242](index=242&type=chunk)[243](index=243&type=chunk) - **Royalty rates are under pressure** due to decreasing average selling prices of semiconductor products, consolidation among customers, and competitive pressures, which could adversely affect operating results[186](index=186&type=chunk)[187](index=187&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) No shares of common stock were repurchased during the first quarter of 2022 - **No shares of common stock were repurchased** during the first quarter of 2022[252](index=252&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20EXHIBITS) This section lists exhibits filed with the Form 10-Q, including compensation plans and certifications

Financial Data and Key Metrics Changes - CEVA reported a record high revenue of $34.4 million for Q1 2022, up 35% year-over-year from $25.4 million in Q1 2021 [6][14] - Licensing and NRE revenues reached $22.4 million, reflecting 65% of total revenues and a 56% increase compared to $14.4 million in Q1 2021 [14] - Royalty revenue was $12 million, up 9% from $11 million in Q1 2021, with a gross margin of 81% on a GAAP basis and 84% on a non-GAAP basis [15][20] Business Line Data and Key Metrics Changes - The base station and IoT royalty revenue contributed $7.1 million, up 24% year-over-year despite supply chain constraints [15] - CEVA shipped a record 531 million units in Q1 2022, a 56% increase year-over-year, with Bluetooth shipments reaching 333 million units, an all-time high [19] Market Data and Key Metrics Changes - CEVA's wireless connectivity solutions are positioned to drive IoT proliferation, with the market expected to reach 15 billion units annually by 2026 [9] - The demand for CEVA's technologies in various markets, including smartphones, smart home, automotive, and industrial applications, remains strong [7][9] Company Strategy and Development Direction - CEVA is intensifying its 5G innovation and aims to leverage new opportunities in broadband satellite communications and virtualized RAN architectures [10][11] - The company is focusing on integrated IP solutions through its acquisition of Intrinsix, enhancing its offerings in the defense market and semiconductor infrastructure [27][28] Management's Comments on Operating Environment and Future Outlook - Management noted that while the lockdowns in China have impacted operations, demand for CEVA's products remains strong, and recovery is expected as restrictions are lifted [25][39] - The company raised its annual revenue guidance to a range of $142 million to $146 million, reflecting confidence in market recovery and strong demand [21] Other Important Information - CEVA's total operating expenses for Q1 2022 were $27.5 million, with a significant portion attributed to equity-based compensation and amortization related to acquisitions [16] - The company generated $9.8 million in cash from operations during the quarter, with a cash balance of $162 million at the end of March 2022 [20] Q&A Session Summary Question: Impact of China shutdowns on business - Management indicated that while lockdowns have affected manufacturing, demand remains strong, and recovery is anticipated once operations resume [25] Question: Opportunities from the Intrinsix acquisition - Management highlighted a solid position in the defense market and the introduction of integrated IP solutions as key opportunities stemming from the acquisition [27][28] Question: Changes in business model towards more upfront licensing - Management confirmed ongoing efforts to promote integrated IP solutions, which are expected to lead to larger deal sizes and higher royalty components over time [30] Question: Sustainability of Bluetooth strength - Management noted that Bluetooth's growth is driven by diverse applications, particularly in TWS and gaming markets, indicating sustainability in demand [55] Question: Revenue recognition and royalty reporting challenges - Management explained that revenue recognition is complex due to varying reporting timelines from customers, especially during lockdowns, but they strive to estimate royalties accurately [63][64]

Technology and Market Position - CEVA's technology has shipped in over 14 billion chips to date, with more than 50 devices sold worldwide every second powered by CEVA [182]. - In Q4 2021, CEVA signed ten IP licensing and NRE deals for Bluetooth and Wi-Fi wireless connectivity, including an agreement for next-generation Wi-Fi 7 technology [184]. - CEVA reported record high shipments of Bluetooth, Wi-Fi, and cellular IoT IPs at 1.1 billion units in 2021, a 79% increase year-over-year [186]. - Unit shipments for base station and IoT product categories increased by 25% year-over-year in Q4 2021, totaling 333 million units, and up 69% for the full year to over 1.3 billion units [192]. - CEVA expects royalty growth from base station and IoT products to continue, driven by Bluetooth, Wi-Fi, and sensor fusion technologies [194]. - The addressable market for Bluetooth, Wi-Fi, UWB, and NB-IoT is projected to exceed 14 billion devices annually by 2026 [186]. - CEVA's acquisition of Intrinsix is expected to enhance integrated IP solutions and expand its serviceable market and revenue base, particularly in defense and aerospace sectors [181]. - CEVA anticipates continued expansion in licensing and NRE revenues, particularly in 5G, Wi-Fi 6 & 7, Edge AI, and wearables [194]. - The company is positioned to capitalize on the growing market for True Wireless Stereo (TWS) devices, with the BlueBud platform lowering entry barriers for semiconductor and OEM development [187]. - CEVA's NeuPro-S AI processors are aimed at the Edge AI market, representing new IP licensing and royalty opportunities in the coming years [190]. Revenue Recognition and Financial Reporting - The company recognizes revenue from IP licenses at the time of delivery when the customer accepts control, as the IP is functional without additional services [203]. - Revenue from contracts involving significant customization is recognized over time using cost-based input methods, with provisions for estimated losses made when determined [206]. - Royalty revenues are recognized in the quarter when the sale of products incorporating the company's IP occurs, often based on estimated sales data [207]. - The company recently acquired Intrinsix, which primarily derives revenues from NRE payments recognized over time as services are rendered [208]. - Deferred revenues include unearned amounts from license and NRE agreements, as well as technical support not yet recognized as revenue [210]. - The company has not identified any impairment of goodwill for the three years ended December 31, 2021 [212]. - The provision for income taxes includes reserves for uncertain tax positions, which may be adjusted based on changes in circumstances [216]. - The company accounts for equity-based compensation based on estimated fair values for all equity-based awards made to employees and directors [221]. - The adoption of ASC 326 resulted in the assessment of expected credit losses on available-for-sale debt securities, with immaterial credit losses recorded for the years ended December 31, 2021 and 2020 [225]. - The company is evaluating the impact of ASU No. 2021-08 on its consolidated financial statements, effective in the first quarter of 2023 [228]. Financial Performance - Total revenues for 2021 reached $122.7 million, representing a year-on-year increase of 22.3% from $100.3 million in 2020 [233]. - Licensing, NRE, and related revenue accounted for 59.4% of total revenues in 2021, up from 52.3% in 2020 and 54.9% in 2019 [238]. - Royalty revenues for 2021 were $49.9 million, a 4.3% increase from $47.8 million in 2020 [239]. - Cost of revenues for 2021 was $16.8 million, representing 13.7% of total revenues, compared to 10.7% in 2020 and 11.6% in 2019 [247]. - The five largest royalty-paying customers accounted for 68% of total royalty revenues in 2021, down from 76% in 2020 [243]. - Total shipments in 2021 increased by 24% year-over-year to over 1.6 billion units, up from 1.3 billion in 2020 [243]. - The acquisition of Intrinsix contributed to a record high in licensing, NRE, and related revenues in 2021, with 73 new license agreements signed [238]. - The APAC region accounted for 72.6% of total revenues in 2021, with China being the largest contributor [244]. - Operating income for 2021 was 2.8%, a significant improvement from a loss of (0.8)% in 2020 [231]. - Financial income for 2021 was 0.2%, a decrease from 3.3% in 2020, indicating a shift in financial performance [231]. Expenses and Investments - Total operating expenses for 2021 were $102.4 million, reflecting a year-on-year increase of 13.3% from $90.3 million in 2020 [250]. - Research and development expenses increased to $72.5 million in 2021, a 16.9% increase from $62.0 million in 2020 [252]. - Research and development expenses accounted for 59.1% of total revenues in 2021, down from 61.8% in 2020 [254]. - Sales and marketing expenses rose to $12.9 million in 2021, an 8.0% increase from $11.9 million in 2020, with sales and marketing personnel totaling 36 [256][258]. - General and administrative expenses were $14.3 million in 2021, a slight increase of 1.3% from $14.1 million in 2020 [259]. - The amortization of intangible assets was $2.7 million in 2021, up from $2.3 million in 2020 [261]. - The net financial income decreased to $0.20 million in 2021, down from $3.28 million in 2020, primarily due to lower yields [262]. - The provision for income taxes increased to $5.3 million in 2021, reflecting higher income earned in France [267]. Cash Flow and Financial Position - As of December 31, 2021, the company had approximately $154.9 million in cash, cash equivalents, and marketable securities, a decrease from $159.6 million at the end of 2020 [275]. - Cash provided by operating activities in 2021 was $25.8 million, consisting of a net income of $0.4 million and adjustments for non-cash items of $19.6 million [279]. - The company invested $40.7 million in bank deposits and marketable securities in 2021, compared to $99.9 million in 2020 [277]. - Net cash used in investing activities in 2021 was $16.7 million, with a cash outflow of $39.2 million for investments in marketable securities [283]. - The company had a cash outflow of $29.9 million for the acquisition of Intrinsix in 2021 [283]. - The effective tax rate for the company's French subsidiary was 26.5% in 2021, significantly higher than the overall blended tax rate [271]. - The company’s Irish subsidiary benefits from a 12.5% tax rate on trade income, while interest income is taxed at 25% [269]. - The company’s Israeli subsidiary is taxed at a rate of 12% on profits from intellectual property under the "Technological Preferred Enterprise" tax track [273]. - Cash provided by financing activities in 2021 was $3.2 million, compared to net cash used in financing activities of $2.1 million in 2020 [285]. - The company believes its cash and cash equivalents, along with cash from operations, will be sufficient to fund operations for at least the next 12 months [287]. Obligations and Risks - Total operating lease obligations amount to $909 million, with $513 million due within one year [290]. - Purchase obligations for design tools total $7.127 billion, with $6.855 billion due within one year [290]. - Other purchase obligations are $2.396 billion, with $2.1 billion due within one year [290]. - The company has accrued severance pay of $10.551 million, primarily related to Israeli employees [292]. - Foreign exchange losses were recorded at $1.27 million in 2021, with gains of $0.44 million in 2020 and losses of $0.35 million in 2019 [293]. - Interest income and gains from marketable securities decreased to $1.47 million in 2021 from $2.84 million in 2020 [298]. - The company has no long-term debt or capital lease obligations, focusing on cash and cash equivalents [291]. - The investment portfolio mainly consists of corporate bonds, with no material credit loss recognized in 2021 [297]. - The company follows a foreign currency cash flow hedging program to mitigate currency fluctuations [294]. - Cash and cash equivalents are primarily invested in high-grade certificates of deposits, with minimal credit risk [295].

CEVA, Inc. (NASDAQ:CEVA) Q4 2021 Earnings Conference Call February 15, 2022 8:30 AM ET Company Participants Richard Kingston - Vice President of Market Intelligence, Investor & Public Relations Gideon Wertheizer - Chief Executive Officer Yaniv Arieli - Chief Financial Officer Conference Call Participants Suji DeSilva - ROTH Capital Partners Chris Reimer - Barclays Ethan Petazni - Cowen & Company Martin Yang - Oppenheimer Operator Good day, and welcome to the CEVA Inc. Fourth Quarter and Full Year 2021 Earni ...