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): November 7, 2019

CEVA, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 per share	CEVA	The NASDAQ Stock Market LLC

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 November 7, 2019, CEVA, Inc. (the “Company”) announced its financial results for the quarter ended September 30, 2019. A copy of the press release, dated November 7, 2019, is attached and filed herewith as Exhibit 99.1. On the same day, the Company will hold a conference call to discuss its financial results for the third quarter of 2019. 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 September 30, 2019 and 2018 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release and script also included non-GAAP net income and diluted earnings per share (EPS) figures for the referenced periods.

Non-GAAP net income and diluted earnings per share (a) for the third quarter of 2019 excluded (i) equity-based compensation expense, net of taxes, (ii) the impact of the amortization of acquired intangibles associated with the acquisitions of RivieraWaves and the Hillcrest Labs business, and investments in NB-IoT and Immervision technologies, and (iii) deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction; and (b) for the third quarter of 2019 excluded (x) equity-based compensation expense, net of taxes, and (y) the impact of the amortization of acquired intangibles associated with the acquisition of RivieraWaves and investment in NB-IoT technologies.

The Company believes that the reconciliation of financial measures in the press release and script is useful to investors in analyzing the results for the quarters ended September 30, 2019 and 2018 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 November 7, 2019.

99.2     Script of the conference call of CEVA, Inc., dated November 7, 2019.

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:     November 7, 2019	By:	/s/ Yaniv Arieli
		Yaniv Arieli
		Chief Financial Officer

EX-99.1

Exhibit 99.1

CEVA, Inc. Announces Third Quarter 2019 Financial Results

● Strategic licensing agreements with customers targeting ADAS, hearing aids and cellular IoT

● Royalty revenue of $12.2 million, up 61% sequentially

● Record all-time high quarterly non-baseband shipments of 123 million units

MOUNTAIN VIEW, Calif. – November 07, 2019 – CEVA, Inc. (NASDAQ: CEVA), the leading licensor of wireless connectivity and smart sensing technologies, announced today its financial results for the third quarter ended September 30, 2019.

Total revenue for the third quarter of 2019 was $23.5 million, a 10% increase compared to $21.4 million reported for the third quarter of 2018. Third quarter 2019 licensing and related revenue was $11.3 million, a 15% increase compared to $9.8 million reported for the third quarter of 2018. Royalty revenue for the third quarter of 2019 was $12.2 million, an increase of 5% when compared to $11.6 million reported for the third quarter of 2018.

Gideon Wertheizer, CEO of CEVA, stated: “We are very pleased to report strong third quarter results, driven by excellent performance in licensing and a substantial step up in our royalty revenue. We continue to make progress in growing our customer base, including comprehensive agreements with industry leaders in strategic markets such as ADAS, hearing aids and cellular IoT. Our royalty revenue growth reflects good momentum in both the handset baseband and non-handset aspects of our business. Our handset baseband customers benefitted from the launch of premium smartphones and share gain in the low-cost smartphone market. Our non-handset business continues to grow with record high quarterly revenues and unit shipments of 123 million, including first-time contribution from our newly acquired Hillcrest Labs sensor fusion business.”

Of the fourteen license agreements completed during the quarter, one was for a smart sensing product and thirteen were for connectivity products. All of the licensing agreements signed during the quarter were for non-handset baseband applications and five were with first-time customers of CEVA. Customers’ target markets include automotive ADAS, hearing aids, smart meters, true wireless stereo earbuds and a wide variety of IoT devices. Geographically, six of the deals signed were in China, five were in the U.S., two were in Europe and one was in APAC (excluding China).

GAAP net income and diluted earnings per share for the third quarter of 2019 was $0.8 million and $0.03, respectively, compared to $2.5 million and $0.11 reported for the same period in 2018. GAAP and non-GAAP net income and diluted earnings per share for the third quarter of 2019 included a tax benefit of approximately $1 million as a result of the conclusion of a tax audit.

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Non-GAAP net income and diluted earnings per share for the third quarter of 2019 were $5.1 million and $0.22, respectively, compared to $5.2 million non-GAAP net income and $0.23 diluted earnings per share reported for the third quarter of 2018. Non-GAAP net income and diluted earnings per share for the third quarter of 2019 excluded: (a) equity-based compensation expense, net of taxes, of $2.6 million (b) the impact of the amortization of acquired intangibles of $0.8 million associated with the acquisitions of RivieraWaves and the Hillcrest Labs business, and investments in NB-IoT and Immervision technologies, and (c) deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction of $0.8 million. Non-GAAP net income and diluted earnings per share for the third quarter of 2018 excluded: (a) equity-based compensation expense, net of taxes, of $2.3 million, and (b) the impact of the amortization of acquired intangibles of $0.3 million associated with the acquisition of RivieraWaves and investment in NB-IoT technologies.

Yaniv Arieli, Chief Financial Officer of CEVA, stated: “Our portfolio of IP for wireless connectivity and smart sensing applications continues to attract strong customer interest worldwide. This is clearly evident in our third quarter results, for both licensing and royalty revenues, where we recorded 15% and 5% year-over-year growth, respectively. At the end of the third quarter, our cash and cash equivalent balances, marketable securities and bank deposits were approximately $148 million, following the acquisition of the Hillcrest Labs sensor fusion business and the technology investment in Immervision’s wide-angle imaging IP during the quarter.”

CEVA Conference Call

On November 7, 2019 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)

The conference call will also be available live via webcast at the following link: https://www.webcaster4.com/Webcast/Page/984/31914. 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: 10135680) from one hour after the end of the call until 9:00 a.m. (Eastern Time) on November 14, 2019. The replay will also be available at CEVA's web site www.ceva-dsp.com.

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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 wireless connectivity and smart sensing technologies. We offer Digital Signal Processors, AI processors, wireless platforms and complementary software for sensor fusion, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling technologies 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, robotics, industrial and IoT. Our ultra-low-power IPs include comprehensive DSP-based platforms for 5G baseband processing in mobile and infrastructure, advanced imaging and computer vision for any camera-enabled device and audio/voice/speech and ultra-low power always-on/sensing applications for multiple IoT markets. For sensor fusion, our Hillcrest Labs sensor processing technologies provide a broad range of sensor fusion software and IMU solutions for AR/VR, robotics, remote controls, and IoT. For artificial intelligence, we offer a family of AI processors capable of handling the complete gamut of neural network workloads, on-device. For wireless IoT, we offer the industry’s most widely adopted IPs for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6 (802.11n/ac/ax) and NB-IoT. Visit us at www.ceva-dsp.com and follow us on Twitter, YouTube, Facebook, LinkedIn and Instagram.

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 statements about CEVA’s process in growing its customer base, the good momentum in the band set baseband and non-handset segments and CEVA’s portfolio of IP for wireless connectivity and smart sensing applications attracting strong customer interest worldwide. 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 us; our success in penetrating new markets, including in non-baseband and connectivity 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					Nine months ended
	September 30,					September 30,
	2019			2018		2019			2018
	Unaudited
Revenues:
Licensing and related revenues	$	11,269		$	9,786	$	33,084		$	29,907
Royalties		12,202			11,627		25,756			26,569
Total revenues		23,471			21,413		58,840			56,476
Cost of revenues		2,767			2,006		7,283			5,966
Gross profit		20,704			19,407		51,557			50,510
Operating expenses:
Research and development, net		13,873			11,897		38,593			35,756
Sales and marketing		2,832			2,727		8,809			9,302
General and administrative		3,509			2,406		8,360			8,193
Amortization of intangible assets		757			225		1,177			676
Total operating expenses		20,971			17,255		56,939			53,927
Operating income (loss)		(267	)		2,152		(5,382	)		(3,417	)
Financial income, net		603			831		2,299			2,535
Income (loss) before taxes on income		336			2,983		(3,083	)		(882	)
Taxes on income (tax benefit)		(439	)		440		(49	)		847
Net income (loss)	$	775		$	2,543	$	(3,034	)	$	(1,729	)
Basic net income (loss) per share	$	0.04		$	0.12	$	(0.14	)	$	(0.08	)
Diluted net income (loss) per share	$	0.03		$	0.11	$	(0.14	)	$	(0.08	)
Weighted-average number of Common Stock used in computation of net income (loss) per share (in thousands):
Basic		21,953			21,997		21,936			22,091
Diluted		22,404			22,428		21,936			22,091

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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						Nine months ended
	September 30						September 30
	2019			2018			2019			2018
	Unaudited
GAAP net income (loss)	$	775		$	2,543		$	(3,034	)	$	(1,729	)
Equity-based compensation expense included in cost of revenue		168			155			464			480
Equity-based compensation expense included in research and development expenses		1,494			1,246			4,314			3,874
Equity-based compensation expense included in sales and marketing expenses		362			369			1,112			1,246
Equity-based compensation expense included in general and administrative expenses		728			697			1,957			2,483
Income tax benefit related to equity-based compensation expenses		(129	)		(118	)		(473	)		(400	)
Amortization of intangible assets related to acquisitions of RivieraWaves and Hillcrest Labs business, investments in NB-IoT and Immervision technologies, and deal costs and write off of an acquired lease related the Hillcrest Labs transaction		1,680			303			2,258			937
Non-GAAP net income	$	5,078		$	5,195		$	6,598		$	6,891
GAAP weighted-average number of Common Stock used in computation of diluted net income (loss) per share (in thousands)		22,404			22,428			21,936			22,091
Weighted-average number of shares related to outstanding stock-based awards (in thousands)		489			390			850			897
Weighted-average number of Common Stock used in computation of diluted earnings per share, excluding the above (in thousands )		22,893			22,818			22,786			22,988
GAAP diluted earnings (loss) per share		0.03		$	0.11		$	(0.14	)	$	(0.08	)
Equity-based compensation expense, net of taxes	$	0.12		$	0.11		$	0.32		$	0.34
Amortization of intangible assets related to acquisitions of RivieraWaves and Hillcrest Labs business, investments in NB-IoT and Immervision technologies, and deal costs and write off of an acquired lease related the Hillcrest Labs transaction	$	0.07		$	0.01		$	0.11		$	0.04
Non-GAAP diluted earnings per share	$	0.22		$	0.23		$	0.29		$	0.30

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CEVA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in thousands)

	September 30,			December 31,
	2019			2018 (*)
	Unaudited			Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	14,851		$	22,260
Marketable securities and short term bank deposits		127,453			123,608
Trade receivables, net		7,967			9,971
Unbilled receivables		18,846			16,185
Prepaid expenses and other current assets		5,682			5,264
Total current assets		174,799			177,288
Long-term assets:
Bank deposits		5,330			21,864
Severance pay fund		9,732			9,026
Deferred tax assets, net		10,891			5,924
Property and equipment, net		7,891			7,344
Operating lease right-of-use assets		10,688			—
Goodwill		51,070			46,612
Intangible assets, net		17,353			2,700
Other long term assets		6,171			6,505
Total assets	$	293,925		$	277,263
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	1,319		$	632
Deferred revenues		4,766			3,593
Accrued expenses and other payables		17,167			17,527
Operating lease liabilities		2,442			—
Total current liabilities		25,694			21,752
Long-term liabilities:
Accrued severance pay		10,447			9,632
Operating lease liabilities		7,879			—
Other accrued liabilities		545			—
Total liabilities		44,565			31,384
Stockholders’ equity:
Common stock:		22			22
Additional paid in-capital		225,483			223,250
Treasury stock		(35,492	)		(39,132	)
Accumulated other comprehensive loss		(22	)		(1,114	)
Retained earnings		59,369			62,853
Total stockholders’ equity		249,360			245,879
Total liabilities and stockholders’ equity	$	293,925		$	277,263

(*) Derived from audited financial statements

EX-99.2

Exhibit 99.2

CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

CEVA, INC.

Third Quarter 2019 Financial Results Conference Call

Prepared Remarks of Gideon Wertheizer, Chief Executive Officer and
Yaniv Arieli, Chief Financial Officer

November 7, 2019

8:30 A.M. Eastern

Good morning everyone and welcome to CEVA’s third quarter 2019 earnings conference call. I’m joined today by Gideon Wertheizer, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the third quarter and provide general qualitative data. Yaniv will then cover the financial results for the third quarter and also provide qualitative data for the fourth quarter of 2019.

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 optimism about our IP portfolio for wireless connectivity and smart sensing, new agreements with customers in the automotive space, adoption of NB-IoT, Yole Developpement’s market data about motion sensor space and royalty prospects from recent licensing deals. 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 CEVA’s IPs for smarter, connected devices to continue to be strong growth drivers for us; our ability to realize the benefits from the acquisition of certain assets of Hillcrest Labs; 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 4G, LTE and 5G networks and wireless connectivity, AI, NB-IoT and IoT space generally; our ability to execute more non-handset baseband license agreements; the effect of trade tariffs and political tensions; the effect of intense industry competition and consolidation; and global chip market trends. 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. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

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 also can 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 release issued today.

A copy of today’s press release for the quarter ended September 30, 2019, and the related financial tables and management commentary, which were included in our Current Report on Form 8-K filed today, also can be found on the investor relations portion of our website.

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

Gideon

Thank you Richard. Welcome everyone and thank you for joining us today. We are pleased to have delivered a robust third quarter on the back of another excellent quarter in licensing and a substantial step up in our royalty revenue.

Total revenue for the third quarter was $23.5 million, up 28% sequentially and 10% on a year-over-year basis. License revenue was $11.3 million, up 15% year-over-year. Royalty revenue was $12.2 million, up 61% sequentially and 5% on a year-over-year basis.

We concluded fourteen agreements in the quarter, of which thirteen were for connectivity and one for smart sensing. Five of these agreements were with first-time customers. Customers’ target products include automotive ADAS, hearing aids, smart meters, true wireless stereo earbuds and a wide variety of IoT devices. Of the deals signed in the quarter, three were of strategic importance, with marquee names. I will elaborate on these shortly. Overall, we continue to show consistent execution in signing up new customers and to build up a pipeline for new agreements. Our comprehensive portfolio for wireless connectivity and smart sensing intersects with the IP needs of almost every semiconductor company and OEM . Our customer reach is global, and we are winning prominent businesses in every geography. In the U.S., we are seeing opportunities in smart edge devices for consumer, robotics and automotive. In Europe, digital health and smart city applications are strong areas of interest. In APAC, excluding China, we see interest for ADAS and consumer electronics and in China, we are engaging with customers across many verticals, including wireless infrastructure, smartphones, robots and a wide variety of IoT edge devices.

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CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

Let me take the next few minutes to expand on three important licensing agreements signed in the third quarter.

The first is a comprehensive agreement with a name brand semiconductor incumbent in the automotive market, which is a new customer for CEVA in this space. The customer selected our AI processor technology, which we announced last month along with our reputable CDNN AI software framework for its next generation ADAS chips. We are extremely excited by the engagement with this key player, targeting mainstream and high volume ADAS use cases such as automatic emergency breaking, which is now mandated by multiple regulatory groups such as NCAP of Europe, adaptive cruise control, lane keeping, blind-spot detection, surround view and more. This design win anchors our position in the automotive space and adds to our already key automotive-related customers, which includes ON Semiconductor, the industry’s leading supplier of ADAS image sensors and one of the world’s largest automotive OEM. To this effect, last month, we announced our latest NeuPro-S AI processor that addresses the requirements for data bandwidth efficiencies and performance scalability. We also unveiled a novel extension to our CDNN framework, called CDNN-Invite API, which allows automotive OEMs or Tier 1 customers who own proprietary AI processor to couple it with our comprehensive CDNN software framework, which saves costly and complicated development of AI complier technology.

A second agreement that we would like to highlight is a sizable Bluetooth low energy IP agreement with one of the world’s largest manufacturers of hearing instrument products, an industry that is going through continuous technology innovations involving digitization and wireless integration. Our extremely low power BLE technology will be deployed inside an advanced hearing instrument to enable the user of the device to flawlessly connect with smartphones and access useful applications and services, such as stereo audio streaming, voice, transcript and remote tuning. This new comprehensive agreement with our customer exposes us to a growing industry that according to company research addresses about one billion people that experience hearing difficulties.

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CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

The third key agreement in the quarter was with a very large European semiconductor company who decided to license our comprehensive Dragonfly NB-IoT IP, initially for a smart meter application. It is our first agreement with this large customer who owns a broad product portfolio and has a diverse customer base and strong synergies with our broader product lines. The adoption of NB-IoT by cellular operators throughout the world is progressing. Beyond China where the deployment is ongoing, India, led by Reliance JIO, is pushing forward an aggressive program. In its recent annual general meeting, the Reliance Chairman stated that JIO aims to connect 1 billion NB-IoT devices within the next two years. He also mentioned that 300 million smart meters need to be connected in India for real-time monitoring and to enable consumers with visibility and full control on costs.

On royalty revenue, we had a strong quarter, including for the first time, contribution from the Hillcrest Labs sensor fusion business. Our baseband customers benefitted from the launch of new premium tier smartphones and market share gain in the low tier of LTE phones targeted for developing economies. In non-baseband, we continued the momentum with excellent progress, contributing $3.9 million, an all-time high with units up 29% sequentially and 27% year-over-year, reaching also an all-time quarterly high of 123 million units.

During the quarter, we started to reach out to customers in regards to our Hillcrest Labs sensor fusion technologies that we recently acquired. The feedback has been very constructive on the potential intersection points with customers’ needs and the potential business growth. The motion sensor space is a big and fragmented market, growing to over $6 billion in MEMS semiconductor content by 2024 according to industry research firm Yole Developpement. Initially, our focus will be around robotics, laptops, mobile headset, and advanced remote controls. Hillcrest Labs is a household name with strong technology fundamentals and solid customer relations. This particularly applies to OEMs where our revenue composition will be primarily from royalties based on the device price rather than upfront license fees and per-chip royalties that we engage with semiconductor customers.

In summary, we had an excellent third quarter both on the licensing and royalty fronts. We remain focused on executing licensing agreements and gaining key customer adoption, as evident across the first three quarters of this year. Licensing is the precursor for royalty growth and the earnings leverage that we outlined in our January investor day. Our royalty revenue reflected a strong uptick in cellular baseband, and a growing contribution from the non-handset segment from new product ramps, new customers getting into production and from Hillcrest Labs’ OEM customers.

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CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

With that said, I’ll now turn the call over to Yaniv, who will outline our financials and guidance.

Yaniv

Thank you Gideon, I’ll start by reviewing the results of our operations for the third quarter of 2019.

- Revenue for the third quarter was $23.5 million, up 10% as compared to $21.4 million for the same quarter last year. The revenue breakdown is as follows:

o Licensing and related revenue was approximately $11.3 million, reflecting 48% of total revenues, 15% higher as compared to the third quarter of 2018.

o Royalty revenue was $12.2 million, reflecting 52% of total revenues, up 5% from $11.6 million for the same quarter last year and up 61% sequentially.

o Non-handset baseband royalty revenue reached an all-time high of $3.9 million in the quarter.

o Quarterly gross margin was 88% on a GAAP basis and 89% on a non-GAAP basis, as projected. Non-GAAP quarterly gross margin excluded approximately $0.1 million of equity-based compensation expenses and $0.1 million of the impact of the amortization of acquired intangibles of our investment in NB-IoT technologies.

- Total operating expenses for the third quarter came in at approximately $21 million. OPEX also included an aggregate equity-based compensation expense of approximately $2.6 million, deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction of $0.8 million, amortization of acquired intangibles associated with the acquisition of the Hillcrest Labs business and Immervision investment of $0.5 million, and the amortization of acquired intangibles of RivieraWaves of $0.2 million. Total operating expenses for the third quarter, excluding equity-based compensation expenses, deal related costs and amortization of intangibles, were $16.8 million, just below the mid-point of our guidance.

- In the third quarter, we concluded a tax audit, following which, we recorded a tax benefit of approximately $1 million on both GAAP and non-GAAP basis. We currently have no other pending tax audits.

- U.S. GAAP net income for the quarter was $0.8 million, and diluted earnings per share was 3 cents compared to net income of $2.5 million and 11 cents for the third quarter of 2018.

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CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

- Non-GAAP net income and diluted EPS for the third quarter of 2019 were slightly down 2% and 4% to $5.1 million and 22 cents, respectively, from net income and diluted EPS for the third quarter of 2018 of $5.2 million and 23 cents, respectively. Non-GAAP net income and diluted earnings per share for the third quarter of 2019 excluded: (a) equity-based compensation expense, net of taxes, of $2.6 million (b) the impact of the amortization of acquired intangibles of $0.8 million associated with the acquisitions of RivieraWaves and the Hillcrest Labs business, and investments in NB-IoT and Immervision technologies, and (c) deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction of $0.8 million. Non-GAAP net income and diluted earnings per share for the third quarter of 2018 excluded equity-based compensation expenses, net of taxes, of $2.5 million, and the impact of the amortization of acquired intangibles of RivieraWaves and our investment in NB-IoT technologies, in the aggregate amount of $0.3 million.

Other related data

- Shipped units by CEVA licensees during the third quarter of 2019 were 292 million units, up 35% sequentially and up 11% from third quarter 2018 reported shipments.

- Of the 292 million units shipped, 169 million units, or 58%, were for handset baseband chips, reflecting a sequential increase of 38% from 122 million units of handset baseband chips shipped during the second quarter of 2019 and a 2% increase from 165 million units shipped year over year.

- As Gideon stated earlier, our non-baseband shipments reached an all-time record high of 123 million units, up 27% sequentially and up 27% annually.

- Of non-baseband units, 92 million were related to Bluetooth shipments, also an all-time record high.

As for the balance sheet items

As of September 30, 2019, CEVA’s cash and cash equivalent balances, marketable securities and bank deposits were $148 million, down from $166 million in the prior quarter following our recent $21 million investments in sensor fusion and wide-angel distortion correction technologies. As we focused our attention and financial resources on the acquisition of the Hillcrest Labs business during the third quarter, we did not execute any share buybacks during the period. Nonetheless, for 2019 to date, we repurchased approximately 194,000 shares for approximately $4.9 million. Moreover, our Board of Directors a year ago approved the expansion of our buyback program and as of September 30, 2019, we had a total of 161,000 shares of common stock available for repurchase.

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CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

Our DSO for the third quarter of 2019 improved to 31 days. During the quarter, we generated $3 million of net cash from operations; depreciation was $0.8 million; purchase of fixed assets was $1.3 million and investments in new technologies were $21 million. At the end of the quarter, our headcount was 383 people, of which 318 were engineers, including people from Hillcrest Labs, which we welcomed on board in July.

Qualitative data specifically for the fourth quarter of 2019

- On licensing and related revenue, as Gideon alluded to, we continue to experience healthy demand for our technologies across all geographies.

- On royalties, we forecast a 10% sequential increase after recording 61% sequential growth in the third quarter. This should equate to a new all-time high in royalty revenue.

- Gross margin is expected to be approximately 89% on a GAAP and 90% on non-GAAP basis, excluding an aggregate of $0.2 million of equity-based compensation expenses and $0.1 million of amortization expense associated with acquired intangibles of our investment in NB-IoT technologies.

- Overall, OPEX is expected to be in the range of $20 million to $21 million. Of our anticipated total operating expenses for the fourth quarter, $2.7 million is expected to be attributable to equity-based compensation expenses, $0.9 million to the amortization of acquired intangibles for RivieraWaves, Hillcrest Labs and Immervision. Non-GAAP OPEX is expected to be similar to the third quarter level, in the range of $16.3 million – $17.3 million.

- Net interest income is expected to be approximately $0.7 million.

- Taxes for the fourth quarter: $0.8 million on GAAP basis and $0.9 million on a non-GAAP basis.

- Share count for the fourth quarter of 2019 is expected to be similar to the third quarter, 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. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the Current Report on Form 8-K and accessible through the investor section of our website at https://investors.ceva-dsp.com.

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CEVA, Inc. Q3 2019 Financial Results Conference Call – Prepared Remarks :: November 7, 2019

With regards to upcoming events we will be attending, these include:

● Barclay’s Global Technology Conference, December 11^th in San Francisco, California.

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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