CEVA(US:CEVA)2022-08-09 20:16PART I. FINANCIAL INFORMATION Financial Statements 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 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) 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 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 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 markets2627 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 period65 - 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 million103 Management's Discussion and Analysis (MD&A) 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 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 acquisition108111 - Key growth drivers include 5G baseband processing, high-volume IoT connectivity (Bluetooth, Wi-Fi, UWB), TWS earbuds, and AI processors for edge devices115116119 - 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 demand113 Results of Operations 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% YoY122128 - 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 business133 - 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 communication126 Liquidity and Capital Resources 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, 2022153 - Net cash provided by operating activities for H1 2022 was $1.7 million, down from $8.4 million in H1 2021158159 - The company repurchased 136,091 shares for $4.5 million in H1 2022 under its share repurchase program162 Quantitative and Qualitative Disclosures about Market Risk 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 this165166 - 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 rates168 - 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 fail167 Controls and Procedures 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, 2022173 - There were no material changes in the company's internal control over financial reporting during the most recent fiscal quarter173 PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings174 Risk Factors 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 companies180 - A significant portion of revenue is derived from a limited number of customers. UNISOC accounted for 11% of total revenues for H1 2022189 - 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 demand211 - Challenges exist in integrating the Intrinsix acquisition and its business, which relies heavily on U.S. government contracts subject to budgetary constraints and policy shifts218241242 Share Repurchases 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 program264265