CEVA(CEVA) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents CEVA, Inc.'s unaudited interim condensed consolidated financial statements and management's discussion for the quarter Item 1. Financial Statements Presents CEVA, Inc.'s unaudited interim condensed consolidated financial statements, including balance sheets, statements of loss, and cash flows Interim Condensed Consolidated Balance Sheets The balance sheet shows a slight increase in total assets to $311.1 million as of March 31, 2023, from $308.4 million at the end of 2022. Total stockholders' equity also saw a minor increase to $259.9 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $180,562 | $177,625 | | Total assets | $311,134 | $308,442 | | Total current liabilities | $35,037 | $33,278 | | Total liabilities | $51,264 | $49,571 | | Total stockholders' equity | $259,870 | $258,871 | Interim Condensed Consolidated Statements of Loss Net loss increased to $4.9 million in Q1 2023, driven by a 16% revenue decrease to $28.7 million and a shift to an operating loss Statements of Loss Summary (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenues | $28,735 | $34,391 | | Gross profit | $23,420 | $27,987 | | Operating income (loss) | $(4,793) | $468 | | Net loss | $(4,872) | $(1,696) | | Diluted net loss per share | $(0.21) | $(0.07) | Interim Condensed Consolidated Statements of Cash Flows Operating cash flow shifted to a $5.1 million use in Q1 2023, with net cash from investing activities positive at $6.5 million Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(5,076) | $9,824 | | Net cash provided by (used in) investing activities | $6,540 | $(4,813) | | Net cash provided by financing activities | $1,673 | $1,720 | | Increase in cash and cash equivalents | $3,198 | $6,625 | Notes to the Interim Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's business, accounting policies, and specific financial statement items. Key disclosures include revenue disaggregation, major customer data, stock-based compensation details, and information on a subsequent acquisition - CEVA is a licensor of wireless connectivity and smart sensing technologies and a provider of chip design services, serving semiconductor and OEM companies across mobile, consumer, automotive, and IoT markets[26][28] Revenue by Geography (Q1 2023 vs Q1 2022, in thousands) | Region | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | United States | $4,441 | $6,746 | | Europe and Middle East | $3,193 | $1,102 | | Asia Pacific | $20,626 | $26,543 | | Other | $475 | $— | - Customer concentration remains significant, with one customer (Customer A) accounting for 13% of total revenues in Q1 2023. In Q1 2022, two different customers accounted for 12% and 11% of revenues, respectively[57] - In May 2023, subsequent to the quarter's end, the company entered into an agreement to acquire the VisiSonics 3D spatial audio business for an aggregate of $3.6 million at closing, plus potential additional payments[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, noting a 16% revenue decrease to $28.7 million and a shift to operating loss and negative cash flow Business Overview CEVA is a leading licensor of wireless connectivity (5G, UWB, Bluetooth, Wi-Fi) and smart sensing technologies (DSPs, AI processors). The company sees significant growth drivers in mobile handsets, 5G infrastructure (PentaG2 platform), high-volume IoT applications, and smart devices like TWS earbuds and AR/VR headsets - In Q1 2023, the company signed a strategic licensing agreement with a leading Android smartphone OEM that is developing its own 5G modem, which could become a key future royalty source[92] - The company believes its broad IP portfolio for Bluetooth, Wi-Fi, UWB, and cellular IoT positions it to capitalize on an addressable market expected to exceed 15 billion devices annually by 2027[95] - CEVA's Intrinsix chip design business unit extends its market reach into aerospace and defense and strengthens customer relationships by offering co-creation services[89] Results of Operations Q1 2023 total revenues decreased 16% to $28.7 million, driven by a 33% drop in royalty revenue, resulting in an operating loss of $4.8 million Revenue Breakdown (in millions) | Revenue Type | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Licensing, NRE and related | $20.7 | $22.4 | -7% | | Royalties | $8.0 | $12.0 | -33% | | Total Revenues | $28.7 | $34.4 | -16% | - The decrease in total revenues was mainly due to a pull-in of handset baseband shipments in Q4 2022, traditional seasonality, and inventory buildup in the smartphone and PC sectors[97][103] - Thirteen IP license and NRE agreements were signed in Q1 2023, targeting diverse markets including 5G, Wi-Fi 6, Bluetooth, and automotive ADAS. Five of these were with first-time customers[101] Operating Expenses (in millions) | Expense Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Research and Development, Net | $20.8 | $20.2 | | Sales and Marketing | $3.0 | $2.9 | | General and Administrative | $4.0 | $3.6 | | Amortization of Intangibles | $0.3 | $0.8 | | Total Operating Expenses | $28.2 | $27.5 | Liquidity and Capital Resources The company held $145.1 million in liquid assets as of March 31, 2023, with operating cash flow shifting to a $5.1 million use - Total cash, cash equivalents, bank deposits, and marketable securities stood at $145.1 million at the end of Q1 2023, down slightly from $147.7 million at year-end 2022[130] - The company used $5.1 million in cash from operations in Q1 2023, primarily due to the net loss and an increase in trade receivables and other prepaid assets[134] - No shares of common stock were repurchased during the first quarter of 2023. As of March 31, 2023, 278,799 shares remained available for repurchase under the existing program[81][139] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily from foreign currency exchange rate fluctuations and interest rate changes. A majority of expenses are in non-USD currencies (NIS, Euro), creating exposure that is partially managed through a hedging program. The investment portfolio, consisting mainly of corporate bonds, is exposed to interest rate risk, which resulted in unrealized losses of $6.2 million as of March 31, 2023 - The company uses foreign currency cash flow hedges to mitigate risks from payroll expenses denominated in currencies other than the U.S. dollar[144] - The investment portfolio of corporate bonds had unrealized losses of approximately $6.2 million as of March 31, 2023, due to significant changes in the interest rate environment[146] Item 4. Controls and Procedures Based on an evaluation as of the end of the period, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2023. No material changes to internal control over financial reporting occurred during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[150] PART II. OTHER INFORMATION Details legal proceedings, risk factors, equity sales, and other required disclosures for the period Item 1. Legal Proceedings The company reports that it is not a party to any litigation or other legal proceedings that are reasonably expected to have a material effect on its business, financial condition, or results of operations - CEVA is not currently involved in any material legal proceedings[152] Item 1A. Risk Factors This section notes no material changes to the risk factors disclosed in the Annual Report on Form 10-K, except for an expanded discussion on the risks associated with the company's broad discretion over its cash and investments. This highlighted risk pertains to potential non-returns on investments, exposure to interest rate fluctuations causing unrealized losses on corporate bonds, and solvency risks of financial institutions - The company highlights its significant exposure to U.S. interest rate fluctuations due to its concentration of investments in corporate bonds, which led to unrealized losses of approximately $6.2 million as of March 31, 2023[155] - The company is also exposed to risks related to the solvency of banks where it holds deposits and investments, as balances exceed FDIC or similar insurance limits[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports that there were no repurchases of its common stock during the three months ended March 31, 2023 - No common stock was repurchased during Q1 2023[158] Other Items (3, 4, 5) Items 3 (Defaults Upon Senior Securities), 4 (Mine Safety Disclosures), and 5 (Other Information) are all reported as not applicable for this period - Items 3, 4, and 5 are not applicable[159][160][161] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including management compensation plans, CEO and CFO certifications, and XBRL data files - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[163]