CEVA(US:CEVA)2022-05-10 20:17PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents CEVA's unaudited Q1 2022 consolidated financial statements, including balance sheets, loss, and cash flows Interim Condensed Consolidated Balance Sheets 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 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 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 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 defense2829 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 revenues68 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses CEVA's Q1 2022 financial performance, revenue trends, cost structure, liquidity, and cash flows Business Overview and Growth Drivers 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 surveillance114115118 - 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 increase115 Results of Operations 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 business124 - 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 2021130131 - Total CEVA-powered chipsets shipped in Q1 2022 reached a record 531 million units, an increase of 56% YoY121128 Liquidity and Capital Resources 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 liabilities153155 - 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 program101158 Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 payroll161164 - 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 environment166 Item 4. Controls and Procedures 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 effective169 PART II. OTHER INFORMATION Item 1. Legal Proceedings 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 proceedings170 Item 1A. Risk Factors 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 period182 - 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 region201202 - The acquisition of Intrinsix introduces risks related to U.S. government contracts, including budget constraints, potential early termination, and complex procurement regulations208209 - 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 market242243 - 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 results186187 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 2022252 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including compensation plans and certifications