8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 7, 2018

CEVA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

000-49842	77-0556376
(Commission File Number)	(I.R.S. Employer Identification No.)
1174 Castro St. Suite 210, Mountain View, CA	94040
(Address of Principal Executive Offices)	(Zip Code)

650/417-7900

(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Security Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On August 7, 2018, CEVA, Inc. (the “Company”) announced its financial results for the quarter ended June 30, 2018. A copy of the press release, dated August 7, 2018, is attached and filed herewith as Exhibit 99.1. On the same day, the Company held a conference call to discuss its financial results for the second quarter of 2018. A copy of the script of the conference call is attached hereto as Exhibit 99.2. This information, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.

In addition to the disclosure of financial results for the quarters ended June 30, 2018 and 2017 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release also included non-GAAP net income and diluted earnings per share figures for the respective quarters that excluded (i) for the second quarter of 2018, equity-based compensation expenses, net of taxes, and the impact of the amortization of acquired intangibles associated with the acquisition of RivieraWaves and NB-IoT technology, and (ii) for the second quarter of 2017, equity-based compensation expenses, net of taxes, and the impact of the amortization of acquired intangibles associated with the Company’s acquisition of RivieraWaves SAS, and a tax benefit as a result of the successful conclusion of a tax audit.

The Company believes that the reconciliation of financial measures in the press release is useful to investors in analyzing the results for the quarters and years ended June 30, 2018 and 2017 because the exclusion of such expenses may provide a more meaningful analysis of the Company’s core operating results and comparison of quarterly results. Further, the Company believes it is useful for investors to understand how the expenses associated with the application of FASB ASC No. 718 are reflected on its statements of income. The reconciliation of financial measures should be reviewed in addition to and in conjunction with results presented in accordance with GAAP, and are intended to provide additional insight into the Company’s operations that, when viewed with its GAAP results and the accompanying reconciliation, offer a more complete understanding of factors and trends affecting the Company’s business. The reconciliation of financial measures should not be viewed as a substitute for the Company’s reported GAAP results.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits.

99.1	Press Release of CEVA, Inc., dated August 7, 2018.
99.2	Script of the conference call of CEVA, Inc., dated August 7, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CEVA, INC.
Date: August 7, 2018	By:	/s/ Yaniv Arieli
		Yaniv Arieli
		Chief Financial Officer

EX-99.1

Exhibit 99.1

CEVA, Inc. Announces Second Quarter 2018 Financial Results

• Third license agreement signed for NeuPro AI processor in the quarter

• Company repurchased approximately 270,000 shares for approximately $9 million

MOUNTAIN VIEW, Calif. – August 07, 2018 – CEVA, Inc. (NASDAQ: CEVA), the leading licensor of signal processing platforms and artificial intelligence processors for smarter, connected devices, announced today its financial results for the second quarter ended June 30, 2018.

Total revenue for the second quarter of 2018 was $17.5 million, a 15% decrease compared to $20.6 million reported for the second quarter of 2017. Second quarter 2018 licensing and related revenue was $10.0 million, a decrease of 3% when compared to $10.3 million reported for the same quarter a year ago. Royalty revenue for the second quarter of 2018 was $7.5 million, a decrease of 27% when compared to $10.2 million reported for the second quarter of 2017.

Gideon Wertheizer, CEO of CEVA, stated: “Our licensing business continued on track in the second quarter, with healthy demand for our AI, computer vision and connectivity products. Our second quarter royalty revenue came in below expectations due to continued unexpected weakness with one of our large Chinese handset baseband customers. We now expect the weakness with this Chinese customer to continue for the rest of the year and have reduced our annual royalty expectations accordingly. With that said, we are encouraged by a new production ramp and share gain of a flagship smartphone and the continued expansion of our non-handset baseband products. As a result, we expect royalties for the second half of the year to be both substantially stronger than the first half and deliver year-over-year growth with respect to the second half of 2018.”

GAAP net loss for the second quarter of 2018 was $2.1 million, compared to $3.9 million net income reported for the same period in 2017. GAAP diluted loss per share for the second quarter of 2018 was $0.09, compared to diluted earnings per share of $0.17 a year ago. GAAP net income and diluted earnings per share for the second quarter of 2017 included a tax benefit of approximately $1.8 million as a result of the successful conclusion of a tax audit.

Non-GAAP net income and diluted earnings per share for the second quarter of 2018 were $0.9 million and $0.04, respectively, compared to $6.3 million non-GAAP net income and $0.28 diluted earnings per share reported for the second quarter of 2017. Non-GAAP net income and diluted earnings per share for the second quarter of 2018 excluded: (a) equity-based compensation expense, net of taxes, of $2.7 million, and (b) the impact of the amortization of acquired intangibles of $0.3 million associated

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with the acquisition of RivieraWaves and NB-IoT technologies. Net income and diluted earnings per share for the second quarter of 2017 excluded: (a) equity-based compensation expense, net of taxes, of $2.1 million, and (b) the impact of the amortization of acquired intangibles of $0.3 million associated with the acquisition of RivieraWaves.

During the quarter, CEVA completed nine license agreements. Four of the agreements were for CEVA DSP and AI platforms, including a third NeuPro AI license agreement, and five were for CEVA connectivity IPs. Eight of the agreements were for non-handset baseband applications and three were with first-time customers of CEVA. Customers’ target markets for the licenses include advanced cameras, drones, smart speakers, smartphones, wireless headphones and IoT devices. Geographically, five of the deals signed were in China, one was in Europe and three were in the APAC region, including Japan.

Yaniv Arieli, Chief Financial Officer of CEVA, stated: “Despite lower-than-expected royalty revenue for the second quarter, we were pleased to see continued progress in our non-handset baseband customers, who shipped a new record level of 88 million CEVA-powered devices. On buyback, we purchased approximately 270,000 shares of our common stock in the second quarter for an aggregate consideration of approximately $9 million. In addition, our Board of Directors approved the expansion of this plan during the quarter, and as of June 30^th, we have a total of 700,000 shares of common stock available for repurchase. Moreover, CEVA’s cash and cash equivalent balances, marketable securities and bank deposits were approximately $173 million at the end of the quarter.”

Full Year 2018 Revenue Guidance and Commentary

As a result of the lower royalty revenue for the first half of 2018, the expectation of continued weakness with the Chinese handset baseband customer for the remainder of 2018, and the lack of visibility and uncertainty for the timing of resumption of royalties with the well-publicized ban of a Chinese base station customer, the company is lowering 2018 annual royalty guidance to a level representing a 10% decrease from 2017 royalty revenue. While it is encouraging that the base station customer has resumed operations, it’s assumed, that it will take them a few months to rebuild their supply chain and to get back to full production and shipments. In light of the above and to be prudent, the company now projects total annual revenue to be approximately $80 million.

CEVA Conference Call

On August 07, 2018 CEVA management will conduct a conference call at 8:30 a.m. Eastern Time to discuss the operating performance for the quarter.

The conference call will be available via the following dial in numbers:

• U.S. Participants: Dial 1-844-435-0316 (Access Code: CEVA)

• International Participants: Dial +1-412-317-6365 (Access Code: CEVA)

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The conference call will also be available live via webcast at the following link: https://www.webcaster4.com/Webcast/Page/984/26513. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.

For those who cannot access the live broadcast, a replay will be available by dialing +1-877-344-7529 or +1-412-317-0088 (access code: 10122115) from one hour after the end of the call until 9:00 a.m. (Eastern Time) on August 14, 2018. The replay will also be available at CEVA’s web site www.ceva-dsp.com.

For More Information, Contact:

Yaniv Arieli CEVA, Inc. CFO +1.650.417.7941 yaniv.arieli@ceva-dsp.com Richard Kingston CEVA, Inc. VP Market Intelligence, Investor & Public Relations +1.650.417.7976 richard.kingston@ceva-dsp.com

About CEVA, Inc.

CEVA is the leading licensor of signal processing platforms and artificial intelligence processors for a smarter, connected world. We partner with semiconductor companies and OEMs worldwide to create power-efficient, intelligent and connected devices for a range of end markets, including mobile, consumer, automotive, industrial and IoT. Our ultra-low-power IPs for vision, audio, communications and connectivity include comprehensive DSP-based platforms for LTE/LTE-A/5G baseband processing in handsets, infrastructure and cellular IoT enabled devices, advanced imaging and computer vision for any camera-enabled device, audio/voice/speech and ultra-low power always-on/sensing applications for multiple IoT markets. For artificial intelligence, we offer a family of AI processors capable of handling the complete gamut of neural network workloads, on-device. For connectivity, we offer the industry’s most widely adopted IPs for Bluetooth (low energy and dual mode) and Wi-Fi (802.11 a/b/g/n/ac/ax up to 4x4). Visit us at www.ceva-dsp.com and follow us on Twitter, YouTube, Facebook and LinkedIn.

Forward Looking Statement

This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include Mr. Wertheizer’s statements about the second half of the year being substantially stronger in royalty revenue due to a new flagship smartphone and continued expansion of CEVA’s non-handset baseband products, the revised annual revenue and annual royalty revenue guidance and the rationale for such revised guidance in the section entitled, “Full Year 2018 Revenue Guidance and Commentary,” as well as any potential prospects of share buybacks. The risks, uncertainties and assumptions that could cause differing CEVA results include: the ability of the CEVA DSP cores and other technologies to continue to be strong growth drivers for

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us; our success in penetrating new markets, including in non-baseband markets, and maintaining our market position in existing markets; our ability to diversify the company’s royalty streams, the ability of products incorporating our technologies to achieve market acceptance, the speed and extent of the expansion of the 4G, 5G and LTE networks, the maturation of the IoT market, the effect of intense industry competition and consolidation, global chip market trends, the possibility that markets for CEVA’s technologies may not develop as expected or that products incorporating our technologies do not achieve market acceptance; our ability to timely and successfully develop and introduce new technologies; and general market conditions and other risks relating to our business, including, but not limited to, those that are described from time to time in our SEC filings. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

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CEVA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME – U.S. GAAP

U.S. dollars in thousands, except per share data

	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
	Unaudited
Revenues:
Licensing and related revenues	$	10,038		$	10,337		$	20,121		$	19,872
Royalties		7,456			10,238			14,942			21,990
Total revenues		17,494			20,575			35,063			41,862
Cost of revenues		1,988			1,608			3,960			3,304
Gross profit		15,506			18,967			31,103			38,558
Operating expenses:
Research and development, net		11,843			10,509			23,859			20,382
Sales and marketing		3,399			3,427			6,575			6,365
General and administrative		2,833			2,552			5,787			4,677
Amortization of intangible assets		92			309			451			618
Total operating expenses		18,167			16,797			36,672			32,042
Operating income (loss)		(2,661	)		2,170			(5,569	)		6,516
Financial income, net		777			755			1,704			1,326
Income (loss) before taxes on income		(1,884	)		2,925			(3,865	)		7,842
Income taxes expense (benefit)		206			(983	)		407			(173	)
Net income (loss)	$	(2,090	)	$	3,908		$	(4,272	)	$	8,015
Basic net income (loss) per share	($	0.09	)	$	0.18		($	0.19	)	$	0.37
Diluted net income (loss) per share	($	0.09	)	$	0.17		($	0.19	)	$	0.36
Weighted-average number of Common Stock used in computation of net income (loss) per share (in thousands):
Basic		22,129			21,712			22,139			21,556
Diluted		22,129			22,563			22,139			22,376

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Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

U.S. Dollars in thousands, except per share amounts

	Three months ended						Six months ended
	June 30						June 30
	2018			2017			2018			2017
	Unaudited
GAAP net income (loss)	($	2,090	)	$	3,908		($	4,272	)	$	8,015
Equity-based compensation expense included in cost of revenue		168			114			325			205
Equity-based compensation expense included in research and development expenses		1,359			972			2,628			1,843
Equity-based compensation expense included in sales and marketing expenses		423			370			877			659
Equity-based compensation expense included in general and administrative expenses		895			722			1,786			1,420
Income tax benefit related to equity-based compensation expenses		(153	)		(69	)		(282	)		(184	)
Amortization of intangible assets related to RivieraWaves transaction and in 2018 NB-Iot technologies		275			309			634			618
Non-GAAP net income	$	877		$	6,326		$	1,696		$	12,576
GAAP weighted-average number of Common Stock used in computation of diluted net income (loss) per share (in thousands) Weighted-average number of shares related to outstanding stock-based awards (in thousands)		22,129 903			22,563 269			22,139 935			22,376 315
Weighted-average number of Common Stock used in computation of diluted earnings per share, excluding the above (in thousands )		23,032			22,832			23,074			22,691
GAAP diluted earnings (loss) per share	($	0.09	)	$	0.17		($	0.19	)	$	0.36
Equity-based compensation expense, net of taxes	$	0.12		$	0.10		$	0.23		$	0.16
Amortization of intangible assets related to RivieraWaves transaction and in 2018 NB-IoT technologies	$	0.01		$	0.01		$	0.03		$	0.03
Non-GAAP diluted earnings per share	$	0.04		$	0.28		$	0.07		$	0.55

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CEVA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in thousands)

	June 30,			December 31,
	2018			2017 (*)
	Unaudited			Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	10,700		$	21,739
Marketable securities and short term bank deposits		114,995			117,096
Trade receivables		9,246			14,480
Accrued revenues		8,753			2,014
Prepaid expenses and other current assets		6,244			3,747
Total current assets		149,938			159,076
Long-term assets:
Bank deposits		47,134			44,518
Severance pay fund		9,022			8,910
Deferred tax assets		4,454			3,643
Property and equipment, net		8,100			6,926
Goodwill		46,612			46,612
Intangible assets, net		3,307			1,742
Other long term assets		6,250			5,385
Total assets	$	274,817		$	276,812
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	1,034		$	392
Deferred revenues		2,717			4,399
Accrued expenses and other payables		17,099			18,004
Total current liabilities		20,850			22,795
Long-term liabilities:
Accrued severance pay		9,601			9,347
Total liabilities		30,451			32,142
Stockholders’ equity:
Common stock:		22			22
Additional paid in-capital		219,333			217,417
Treasury stock		(31,640	)		(26,056	)
Accumulated other comprehensive loss		(1,417	)		(586	)
Retained earnings		58,068			53,873
Total stockholders’ equity		244,366			244,670
Total liabilities and stockholders’ equity	$	274,817		$	276,812

(*) Derived from audited financial statements

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EX-99.2

Exhibit 99.2

CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

CEVA, INC.

Second Quarter 2018 Financial Results Conference Call

Prepared Remarks of Gideon Wertheizer, Chief Executive Officer and

Yaniv Arieli, Chief Financial Officer

Aug 7, 2018

8:30 AM Eastern

Good morning everyone and welcome to CEVA’s second quarter 2018 earnings conference call. I’m joined today by Gideon Wertheizer, Chief Executive Officer of CEVA, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the second quarter and provide general qualitative data. Yaniv will then cover the financial results for the second quarter and also provide qualitative data for 2018.

I will start with the forward-looking statements.

Forward Looking Statements

Please note that today’s discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include our revised financial guidance for full year 2018 revenues, third quarter and annual royalty revenues; optimism about a healthy licensing environment and demand for CEVA’s products; optimism about the distinguishing features of CEVA’s AI edge technology; positive forecasts from Tractica forecasts and SIG forecast, and optimism about CEVA’s technologies being adopted by ZTE at a later time. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the ability of the CEVA signal processing IPs for smarter, connected devices to continue to be strong growth drivers for us; the traction with edge technology for AI; our success in penetrating new markets and maintaining our market position in existing markets; the ability of new products incorporating our technologies to achieve market acceptance and offset the maturity of the handset market; the speed and extent of the expansion of the LTE and 5G networks, AI, LTE-IoT and IoT space generally; our ability to execute more broad portfolio license agreements; and customers’ ramp-up schedules and the impact on royalty revenues. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

In addition to the financial results prepared in accordance with Generally Accepted Accounting Principles, or GAAP, we will also present certain non-GAAP financial measures today. CEVA’s management believes that in addition to using GAAP results in evaluating our business, it can also be useful to review results using certain non-GAAP financial measures. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results, which can be found in the earnings press releases issued today.

A copy of today’s press release for the quarter ended June 30, 2018, and the related financial tables and management commentary, which were included in our Current Report on Form 8-K filed today, can also be found on the investor relations portion of our website.

Before handing the call over to Gideon, I would like to remind you that CEVA adopted the new revenue accounting standard known as ASC 606 as of January 1, 2018. Under the new standard, our royalty revenue represents what our customers shipped during the second quarter of 2018, or our best estimates for such shipments. The numbers stated on this call for the second quarter are based on ASC 606 unless otherwise stated. However, as our Q2 2018 financial results are not directly comparable to our Q2 2017 financial results, which were reported under the old revenue accounting standard known as ASC 605, we also will provide you on today’s call our Q2 2018 financial results as reported under ASC 605 to allow for an “apples to apples” comparison on a year-over-year basis. We will have this dual reporting approach throughout 2018 as required by the Financial Accounting Standards Board.

With that said, I will now hand the call over to Gideon.

Gideon

Thank you Richard and welcome everyone. Our second quarter revenue came in at $17.5 million. Licensing and related revenue was $10 million, similar to last year and a quarter ago, reflecting a healthy environment for our AI, computer vision and Bluetooth technologies.

Royalty revenue under ASC 606 came in at $7.5 million, similar to last quarter but below our expectations, attributable to continued unexpected weakness of one of our large Chinese handset baseband customers, which I will elaborate on later in the call. We did however experience seasonal unit growth in both handsets and consumer products, with non-handset baseband shipments reaching a new record level of 88 million units in the quarter.

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

During the second quarter, we concluded 9 deals, of which 3 were for our DSP cores and platforms, one for our NeuPro AI platform, and 5 for our connectivity IPs. Three of the agreements were with first time customers and the rest were with existing customers that are expanding their existing businesses or upgrading to newer products. Customers’ target applications include advanced cameras, drones, smart speakers, smartphones, wireless earphones and IoT verticals.

We continue to experience good interest in our AI and Bluetooth products, with five of our deals in the second quarter being for those two product categories. Let me take the next few minutes to highlight the success factors that distinguish CEVA in the crowded landscape of AI processors and in the cost-driven Bluetooth market.

On AI, while most of the AI applications are currently cloud-based, there is widespread acknowledgment that AI workloads are destined to move to the devices themselves, or what is referred to as “the Edge.” AI at the Edge ensures faster response time and greater privacy by keeping the intelligent processing on the device rather than in a public cloud. Market research firm Tractica forecasts that the market for deep learning chipsets will increase from $1.6 billion in 2017 to $66 billion by 2025. Edge devices are expected to represent more than three-quarters of the total market opportunity, with the remainder being in the cloud. Smartphones, automotive, surveillance cameras, and robots are prominent edge categories. Apparently, the growth opportunities and market size the AI space presents attracts companies both from the semiconductor and the semiconductor IP industries to offer a variety of AI solutions to support the burgeoning need for performance. Against this crowded backdrop, CEVA’s proposition distinguishes itself in three main areas:

• First is performance: CEVA’s NeuPro4000 processor offers the highest AI operations capacity per core among all IP and semiconductor vendors in our targeted markets according to a recent study by the Linley Group’s Microprocessor Report.

• Second, NeuPro is a unified platform that can combine processing of AI, Computer Vision and general DSP algorithms. It allows our customers to reuse the same platform for a variety of use cases and to compliment AI with front end and back end computer vision and image enhancement applications.

• Third and a key success factor is our deep neural network compiler technology, known as CDNN. CDNN is an incredibly complex software technology that automatically optimizes many different types of neural networks to process efficiently in power- and

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

size-constrained edge devices that are enabled by our NeuPro hardware. An equivalent technology called TensorRT is offered by Nvidia; yet its primary use is in the cloud. CEVA is the only company that offers similar features and robustness targeted for edge devices.

We have already signed up three leading customers for NeuPro who provide us with valuable feedback on this unique offering. We are experiencing growing interest from a pipeline of reputable companies which we will further engage in as the technology becomes available for general licensing by the end of this month.

On Bluetooth, according to the recent Bluetooth SIG report, in 2018, nearly 4 billion devices will ship with Bluetooth technology. It is expected to grow to over 5 billion units by 2022. The growth will be driven by the latest standard, Bluetooth 5 and a recent major addition to the standard, the MESH topology. CEVA is the incumbent Bluetooth IP supplier for dozens of customers and the clear leader in Bluetooth Dual Mode that combines the benefits of Bluetooth low energy with audio capabilities. According to SIG forecast, 65% of all Bluetooth shipments by 2022 will be dual mode due to the proliferations of smart speakers, Bluetooth audio speakers, earphones, hearing aids and voice-enabled TV remote controls. Our newest voice software technology, ClearVox, offers value-add and a higher royalty level opportunity in conjunction of Bluetooth and DSP cores. We continue to grow our shipments in the Bluetooth space with an all-time high 71 million units shipped in the second quarter up 58% versus Q2 actual shipments last year.

Let me now provide you update of on our base station RAN customers:

Nokia continues to grow the footprint of its Airscale baseband and radio technology enabled by CEVA IPs. Last week Nokia announced that it has signed a $3.5 billion deal with T-Mobile to supply equipment for its 5G network, the world’s largest 5G deal announced to date. Nokia has also won designs for 5G at Verizon, AT&T and NTT Docomo of Japan and recently signed an important agreement with China Mobile. In its recent earning call, the CEO of Nokia reiterated his confidence for an upcoming 5G ramp up in the third quarter with acceleration in the fourth quarter but was also prudent about a large scale deployment that is difficult to predict due to the timing of deployment completions.

On ZTE, we are encouraged by the recent lifting of the ban on the sale of US manufactured components to ZTE and the resumption of their base station operations, which contributes royalties to us. ZTE is a strong contender in Pre-5G and 5G network infrastructure and

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

is determined to resume this position. With that said, we assume it will take a few months for ZTE to rebuild the supply chain and to get back to full production and shipments. Also, licensing discussions for our more advanced platforms which were put on hold during the ban will resume shortly but the timing of licensing closure has been affected by the ban.

As for handset baseband, in the second quarter, we started to see preparation for a sizable ramp up by one of our customers who will supply their baseband processor to a premier smartphone OEM for a flagship launch. In this upcoming product cycle, we are set to benefit from higher ASPs due to an increased content. On the other hand, the weakness we experienced in the first quarter in the low tier of the smartphone space with a large Chinese-based customer of ours continued unexpectedly into the second quarter. We believe this can be attributed to a share shift at one large OEM, in which the volume this year will now be split between another customer of ours and a supplier that does not use our technology. We now expect this weakness to continue for the rest of the year. So net net, on an annual basis, the expected growth in volume and content associated with the premier smartphone, will partially offset the weakness of our Chinese-based customer.

Yaniv will later discuss the financial implications on our 2018 guidance, which will reflect both ZTE and the handset developments.

In summary, we continue to progress with our licensing business, driven by healthy demand for our AI, computer vision and connectivity products. We continue to strengthen and broaden our technology base and are confident about our strategy and our ability to add more content and value to our customers. On royalties, we are capitalizing on new royalty growth engines, notably in premium smartphones and the continued expansion in the non-handset segment that will drive substantial sequential royalty revenue growth in the second half of the year and beyond.

With that said, let me turn the call over to Yaniv to discuss our financials and guidance.

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

Yaniv

Thank you Gideon, I’ll start by reviewing the results of our operations for the second quarter of 2018.

• Revenue for the second quarter based on ASC 606 was $17.5 million. The revenue breakdown is as follows:

• Licensing and related revenue was $10.0 million, reflecting 57% of total revenues, 3% lower as compared to the second quarter of 2017.

• Royalty revenue was $7.5 million, reflecting 43% of total revenues, a decrease of 26% on a YoY basis compared to $10.0 million for second quarter actual shipments that were “reported” in the third quarter of 2017 following the revenue rules under ASC 606.

• Quarterly gross margin was 89% on a U.S. GAAP and 91% on a non-GAAP basis. Non-GAAP quarterly gross margin excluded approximately $167,000 of equity-based compensation expenses and $183,000 of the impact of the amortization of acquired intangibles of our investment in NB-IoT technologies.

• Total operating expenses for the quarter were below the mid-range of our guidance at $18.2 million. OPEX included an aggregate equity-based compensation expense of approximately $2.7 million, and $0.1 million for the amortization of acquired intangibles of RivieraWaves. Total operating expenses for the second quarter, excluding equity-based compensation expenses and amortization of intangibles, were $15.4 million, slightly above the mid-range of our guidance.

• U.S. GAAP loss and diluted loss per share for the quarter were ($2.1) million and (9 cents), respectively.

• Non-GAAP net income and diluted EPS for the second quarter of 2018 were $0.9 million and 4 cents, respectively. Those figures exclude equity-based compensation expenses, net of taxes, of $2.8 million, and the impact of the amortization of acquired intangibles of RivieraWaves and our investment in NB-IoT technologies, of $0.3 million.

Q2 2018 financial results under ASC 605 for a direct comparison to our Q2 2017 financial results:

• Total revenue was $ 16.6 million.

• U.S. GAAP loss and diluted loss per share for the quarter were ($3.0 million) and (13 cents), respectively.

• Non-GAAP net income and diluted EPS for the second quarter of 2018 were $0 million and 0 cents, respectively.

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

Other related data:

• Shipped units by CEVA licensees during the second quarter of 2018 were approximately 222 million, up 13% sequentially and down 11% from Q2 2017 actual shipments reported in the third quarter of 2017. Of the approximately 222 million units shipped, 134 million units, or 60%, were for handset baseband chips, reflecting a 10% sequential increase and a 29% decline on year-over-year basis.

• In non-baseband, volume shipments reached a record 88 million units, up 19% sequentially and up 44% YoY based on ASC 605, as Bluetooth shipments continued to be strong.

As for the balance sheet items:

As of June 30, 2018, CEVA’s cash and cash equivalent balances, marketable securities and bank deposits were approximately $173 million. During the second quarter, we paid ASTRI two more payment milestones of $0.9 million for the new NB-IoT technologies we discussed on our prior earnings call. We continued our active buyback plan, repurchasing approximately 270,000 shares during the second quarter, at an average price of $33 per share, for approximately $9 million. During the second quarter, our Board of Directors approved the expansion of the existing buyback plan, and as of June 30th, we have a total of 700,000 shares of common stock available for repurchase. Looking back, in the last 10 years of buyback activities, we repurchased 6 million shares for $98 million.

Last, our “adjusted to ASC 606” DSO for the second quarter of 2018 was 48 days, down from the prior quarter of 62 days.

During the second quarter, we generated $2 million of net cash from operations; depreciation was $0.6 million and purchase of fixed assets was $1.8 million, higher than the norm due to additional new EDA tools for our R&D design teams. At the end of June 2018, our headcount was 325 people, of which 261 were engineers.

Now for the guidance for the rest of year:

On royalties, we are lowering our 2018 annual royalty guidance to a 10% decrease from 2017 royalty revenue. With that said, we expect a substantial increase in royalties in the second half of the year, with more than 50% sequential increase for the third quarter. Moreover, royalties are expected to return to year-over-year growth in the second half of 2018.

On licensing and related revenue, we continue to experience healthy demand for our products, but have slightly reduced our expectations for the year due to the ZTE deal pushout, which Gideon elaborated on.

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CEVA, Inc. :: Q2 2018 Financial Results Conference Call – Prepared Remarks :: Aug 7, 2018

Our revised annual revenue is expected to be in the region of $80 million, split fairly evenly between licensing and royalties, plus or minus a few percentage points either way.

Specifically for the third quarter of 2018

• Gross margin is expected to be approximately 91% on GAAP and 92% on non-GAAP basis, excluding an aggregate of $0.2 million of equity-based compensation expenses and $0.1 million amortization of acquired intangibles of our investment in NB-IoT technologies.

• Overall OPEX is expected to be slightly lower than second quarter OPEX, in the range of $17.5 million to $18.5 million. Of our anticipated total operating expenses for the third quarter, $2.4 million is expected to be attributable to equity-based compensation expenses and $0.2 million to the amortization of acquired intangibles. Non-GAAP OPEX is also expected to be similar to the second quarter level, in the range of $14.8 million – $15.8 million.

• Net interest income is expected to be approximately $0.8 million.

• Tax rate for the third quarter is expected to be 17% on GAAP basis and 11% on non-GAAP basis.

• Share count for the third quarter of 2018 is expected to be approximately 23 million shares.

Operator: You can now open the Q&A session:

Wrap Up: Richard

Thank you for joining us today and for your continued interest in and support of CEVA. We will be attending the following upcoming events and invite you to meet with us there:

• Oppenheimer 21st Annual Technology, Internet & Communications Conference in Boston on August 8^th

• Canaccord Genuity 38th Annual Growth Conference in Boston on August 9th

• ROTH Internet of Things Corporate Access Day in San Francisco on September 5^th

• Citi 2018 Global Technology Conference in New York on September 5^th

• Deutsche Bank Technology Conference in Las Vegas on September 12th

Please visit the investor section of our website for further information on these events and other events we will be attending.

Thank you and goodbye

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