CEVA(US:CEVA)2022-03-01 21:50Technology 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].