Good day, and welcome to the CEVA, Inc. First Quarter 2022 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence, Investor and Public Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to CEVA's first quarter 2022 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 first quarter and provide general qualitative data. Yaniv will then cover the financial results for the first quarter and also provide guidance for the second quarter and the full year 2022. I'll start with the 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 statements regarding our market position and strategy, including efforts with respect to 5G and edge AI innovation, demand for and benefits of our technologies, expectations regarding market dynamics and expectations and financial guidance regarding future performance, including for the full year and the second quarter of 2022. 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 scope and duration of the pandemic, including continued restrictions in China, the extent and length of the restrictions associated with the pandemic and the impact on customers, consumer demand, and the global economy generally; the ability of CEVA's IPs for smarter connected devices to continue to be strong growth drivers for us; 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; the speed and extent of the expansion of the 5G and IoT markets; our ability to execute more base station and IoT license agreements; the effect of intense industry competition and consolidation, global chip market trends, including supply chain issues as a result of COVID-19 and other factors, and our ability to successfully integrate Intrinsix into our business. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. With that said, I'll now hand the call over to Gideon.

Thank you, Richard. Good morning, everyone, and thank you for joining us today. We delivered a strong start for 2022 with a record high revenue of $34.4 million, up 35% on a year-over-year basis, driven by better-than-expected smartphone shipments and strong licensing execution. The licensing and NRE environments continue to be strong, delivering $22.4 million in quarterly revenue, up 56% year-over-year with 14 new agreements, of which 3 were with first-time customers. We continue to bolster our relationship with key customers, signing a comprehensive agreement for a new generation of DSP, CEVA’s IP DSP technology with a top-tier base station OEM and with a lead customer for NeuPro Edge AI platform targeting the automotive market in China. We continue to experience strong demand for our wireless and Edge AI platform technologies by customers targeting a broad range of markets and applications, including smartphones, smart homes, PCs, ADAS, 5G IoT, and Low Earth Orbit (LEO) satellite communications. Royalty revenue came in at $12 million, up 9% year-over-year with a record of 531 million CEVA-powered shipments, up 56% versus last year. In the smartphone space, we experienced better-than-expected shipment as a key customer of ours is gaining share with top-tier OEMs. Royalties from the base station and IoT product category were impacted by our customers' ability to ship products to OEM and ODM in China, resulting from the lockdown there and due to supply chain constraints that our 5G base station customers are facing. Despite these headwinds, the base station and IoT category was up 24% in revenue versus the respective quarter last year. Let me take the next few minutes to add more perspective on our market position and strategy. Wireless connectivity is vital to drive IoT proliferation. It is a fast-growing market that is forecasted to reach 15 billion units annually by 2026. In the last few years, CEVA has emerged as a prime wireless IP vendor with the position and market dominance similar to ARM Ltd. Our indisputable ability to offer comprehensive wireless solutions for the most advanced and complex wireless protocols for 5G, WiFi, Bluetooth, and UWB lowers the entry barrier for a growing number of OEMs and semiconductor companies to incorporate wireless technologies for sizable markets of smart homes, wearables, automotive, industrial, and more. Underpinned by this powerful foundation we have built, we are intensifying our 5G innovation and looking to realize the full potential of 5G New Radio in enabling new industries and applications such as broadband satellite communications and supporting pedestrian safety for direct cellular connection of smartphones and wearables to vehicles. We recently announced the PentaG2, our second-generation 5G to baseband processor platform. PentaG2 is a comprehensive 5G architecture that integrates multiple CEVA DSP, highly efficient hardware, and AI coprocessor, along with the associated software. PentaG2 streamlines the complexity of developing and integrating 5G modems into a new class of 5G cellular IoT devices across its 2 main segments: broadband IoT and massive IoT. We also made noteworthy progress in the past quarter in the AI space. In our prior earnings call, we outlined our AI strategy, which focuses on AI at the edge, a fast-growing market forecasted by ABI Research to surpass 1.3 billion units by 2026. To capitalize on this sizable opportunity, we unveiled a NeuPro Edge AI processor architecture, the new platform with scalable performance starting from 20 tera operations per second and going up to 1,200 tops. NeuPro addresses the AI requirements of a broad market and applications, including smartphones, autonomous cars, mixed reality, 5G, and more. As noted earlier, we signed a lead customer license agreement with a semiconductor targeting the ADAS and the intelligent cockpit market in China. This marks our first entry into the vibrant automotive market in China, which leads the transformation of cars into software-defined architectures and electrification. In summary, CEVA continued to execute well in the first quarter with strong performance and financials, even in the face of challenging macro events. We have the vision, market reach, and execution capability to monetize our technological innovations. While the lockdown in China has impacted our customers there, the end market demand for our products continues to show strength, positioning us to continue to outperform through 2022. With that said, let me hand over the call to Yaniv for the financials.

Thank you, Gideon. I'll start by further reviewing our results of operations for the first quarter of 2022. Revenue for the first quarter was a record high of $34.4 million, up 35% compared to $25.4 million for the same quarter last year. The revenue breakdown is as follows: Licensing, NRE, and related revenues was a record high of $22.4 million, reflecting 65% of our total revenues, up 56% as compared to $14.4 million for the first quarter of 2021. Royalty revenue was $12 million, reflecting 35% of our total revenues, up 9% from $11 million in the first quarter of 2021. Base station and IoT royalty revenue contributed $7.1 million in the quarter, up 24% year-over-year despite headwinds from supply chain constraints in the 5G base station RAN space and the impact of the lockdown in China on some of our customers. The gross margin was 81% on a GAAP basis and 84% on a non-GAAP basis, both better than expected. Non-GAAP quarterly gross margin excluded approximately $0.3 million of equity-based compensation expenses and $0.5 million of amortization of assets associated with the Intrinsix acquisition and Immervision investments. Total operating expenses for the first quarter were $27.5 million, at the higher end of our guidance due to lower allocation of Intrinsix NRE costs from R&D into cost of revenues per our prior quarter's guidance. OpEx also included aggregated equity-based compensation of approximately $3.1 million, amortization of acquired intangibles of $1.1 million, and $0.3 million for the costs associated with the Intrinsix acquisition. Total operating expenses for the first quarter, excluding these items, were $23.4 million, just over the high end of our guidance due to the same reason I just discussed for GAAP. On the tax front, there were a few developments in the quarter. We have implemented new tax regulations in France, named IP Box Tax Regime, enabling our corporate tax rate to be lower than the statutory 25% on specific types of revenues. This was offset by higher withholding tax associated with our future utilization in our Israeli subsidiary. GAAP other income included a $1.1 million loss from the revaluation of the investment in CPR, formerly iSIGHT technologies, a leading provider of in-cabin sensing solutions for the automotive industry that went public in the fourth quarter of 2021. As we explained last quarter, we will continue to adjust our investment quarterly, up or down based on the market valuation of these shares. GAAP net loss for the quarter was $1.7 million, and diluted loss per share was $0.07 compared to a net loss of $3.6 million and diluted loss per share of $0.16 for the first quarter last year. Non-GAAP operating income more than doubled to $5.5 million from $2.6 million reported in the first quarter of 2021. Our non-GAAP net income and diluted EPS for the first quarter of 2022 was $4.2 million and $0.18, respectively. During the first quarter, our shipped units by CEVA licensees reached a record 531 million units, up 21% sequentially and 56% year-over-year. Of the 531 million units shipped, $100 million, or 19%, were for handset baseband chips, reflecting a sequential increase of 20% from 83 million units of handset basement chips shipped in the fourth quarter of '21 and a 22% decrease from 129 million units shipped a year ago. Our base station and IoT product shipments were 431 million units in the quarter, up 21% sequentially and 104% year-over-year. Of note, Bluetooth shipments reached a record 333 million units in the quarter, an all-time record high, with sensor fusion, WiFi, and cellular IoT also delivering strong contributions. At the end of March 2022, our cash, cash equivalents, balances, marketable securities, and bank deposits totaled $162 million. Our DSO for the first quarter of 2022 continued to be lower than the norm at 32 days compared to the first quarter of 39 days. During the first quarter, we generated $9.8 million of cash from operations. Our depreciation and amortization was $1.9 million and the purchase of fixed assets was $0.9 million. At the end of the first quarter, our headcount was 476 employees, of which 391 are engineers, slightly lower than the total of 475 employees at the end of December '21. Regarding our yearly guidance, as Gideon explained, the fundamentals of our business are strong, evidenced by record revenue in the first quarter. We continue to dominate the wireless IP space, strengthening our relationships with top-tier customers and are encouraged by the market share gains by our key handset customer, the Tier 1 smartphone OEMs. We are therefore raising our annual revenue guidance to a range of $142 million to $146 million versus $122.9 million for 2021. This guidance anticipates a consistent recovery in China as the restrictions there are gradually lifted throughout the year. Specifically for the second quarter of 2022, gross margin is expected to be approximately 78% on a GAAP basis and 82% on a non-GAAP basis, excluding approximately $0.3 million of equity-based compensation and $0.5 million for amortizations. OpEx for the second quarter is forecasted to be similar to the first quarter of 2022. GAAP-based OpEx is expected to be in the range of $27.1 million to $28.1 million. Total operating expenses for the second quarter are expected to include $3.3 million attributed to equity-based compensation, $0.8 million for amortization, and $0.3 million for costs related to the Intrinsix acquisition. Our non-GAAP OpEx, excluding all these items, is expected to range from $23 million to $24 million. Net interest income is expected to be approximately $0.4 million, and taxes for the second quarter are expected to be similar to the first quarter. Taxes generated from the new 10% significantly lower tax rate on specific revenue sources for our French operations offset by tax expenses associated with withholding taxes and their future utilization in our Israeli subsidiary. Share count for the second quarter is expected to be 24 million shares for GAAP and non-GAAP EPS calculation purposes. Betsy, you may now open the Q&A session.

Thank you. We will now begin the question-and-answer session. The first question today comes from Kevin Cassidy with Rosenblatt Securities. Please go ahead.

Thank you for taking my questions. Congratulations on a great quarter. Regarding the earnings season and the shutdowns in China, are you experiencing feedback from your customers that indicates a positive change in their government policy?

Hi, Kevin, thank you for your remarks. Government policy is not something that our customers can control; the lockdown in the Shanghai area is still in place, although there are few areas that are seeing some releases. When it comes to our customers, as we pointed out in the prepared remarks, things are happening when people cannot go to work, and manufacturing is basically almost shut down. So, there's no point in assembling products and shipping chips when nobody is there to work. However, we do not see a decline in demand reported by our customers. The demand is still there. Keep in mind that our technology is being used in various new applications in IoT and industrial areas, which are in high demand. We believe that once they get back to work, things will recover.

Okay, great. So no demand destruction. And regarding your acquisition of Intrinsic, which I find extremely important, can you discuss the funnel of opportunities that you're working on and what might have changed during the quarter?

Yes, there are two aspects to the dynamics we see with Intrinsic. The first is a solid position in the defense market. We see from the U.S. the ambitions and the need to ramp up investments in defense, given the current situation in Europe, as well as building semiconductor infrastructure. This is positively impacting our engagement with Intrinsic. The other aspect we are now promoting is a new business model called integrated IP solutions. This means we take our capabilities in chip design, which involves a combination of RF, mixed-signal, and digital processors, and offer our customers a comprehensive design for their SoCs. We're getting good feedback, particularly from U.S. OEMs and semiconductor companies that are looking for some guidance and resources due to the current scarcity of engineers. The Intrinsic acquisition has elevated our relationship into more of a trusted partnership rather than a supplier-customer dynamic.

Great. Thank you.

Thank you, Kevin.

Hi, thanks. Congratulations as well. Following up on Kevin's question regarding Intrinsic, are you seeing a shift towards more upfront licensing in your business model? Is that starting to take hold, or do you expect it to take some quarters to materialize?

It is an ongoing process. We believe that over time, as we promote integrated IP solutions, we will see larger deal sizes overall, both in the upfront payments and the royalties. There's a gradual shift expected, but the first deal we executed with the integrated IP model was in Q4 of last year, and we expect to see royalties flowing once that chip goes into production. Hence, we will likely discuss more deals every quarter as we progress.

Okay, great. That’s very helpful. In the automotive and IoT markets that are poised to grow, could you share which segments might have the most opportunity in the second half of this year?

Wireless and AI are two hot spots right now. Our technology is very diverse, including 5G, WiFi, UWB, and Bluetooth. In 5G, we see significant interest in IoT. The upcoming standards in 5G Release 17 and 18 will enable many new use cases, leading to increased customer interest. WiFi shows growth in China across smart homes and industrial applications. UWB is emerging as a standard in automotive, and people are discussing its potential in the Metaverse. Overall, we have a dominant position in wireless IP space, and every SoC will likely include an AI processor in various forms going forward.

Okay. Thank you, Gideon. I’ll get back in the queue. Thanks a lot.

Thank you.

Hi, thank you for taking my questions. Congratulations on the quarter. Can you provide more color on the impact of the COVID restrictions in China, specifically how it is affecting your business operations?

Sure, Chris. On the guidance perspective, we raised our forecast significantly from the beginning of the year based on a strong Q1. Regarding China, we have been conducting business through the pandemic, but the recent lockdowns have impacted operations. On the licensing front, we've continued to see strong activity; however, some design work is being done remotely due to the lockdowns. Our royalty revenues may be impacted, but the demand for products remains strong overall. Once the restrictions ease, we expect a quick recovery.

Thanks. Just one more, how are you viewing the M&A pipeline? Has anything changed?

When it comes to M&A, it's a valid strategy for us, and we are looking at various options. We don't see any change in attitudes towards selling companies or ambitions to acquire. We have completed three successful acquisitions over the last year, all of which have significantly contributed to our business growth.

Okay, great. Thanks. That's all for me. I’ll get back in the queue.

Thank you.

Hey, good morning. This is Sean Oakland on for Matt. Thanks for taking my questions. I wanted to talk about ASPs quickly. The license ASP in the quarter seems strong, but there seems to be more NRE than in the past, especially with Intrinsic. Can you speak to the split between license versus NRE in that line?

Good question. On licensing, we've always said that the average doesn't reflect everything as some deals are service-oriented and don't generate revenue upfront. Still, on a broad scale, $22.4 million is indicative of our diverse portfolio. Regarding royalties, Bluetooth shipments are contributing to higher unit volumes and are reflective of strong customer demand.

Thank you. That’s helpful. Also, how are you viewing the timeline for license revenue from 2021 flowing into royalties? Are you already seeing revenue from those licenses or is it more of a 2022 or beyond view?

In general, connectivity technologies have shorter design cycles compared to 5G. For 5G, it may take between 18 to 24 months for certifications, while connectivity deals signed last year may start flowing into royalties in early 2023, as product certification and production tend to move faster.

Hi, good morning, and thank you for taking the questions. Regarding Bluetooth strength in the first quarter, could you discuss where that trend originated and how sustainable it is?

Bluetooth is powerful in terms of diverse applications. Current customer shipments relate to TWS and other audio sectors, which are expected to grow. This is sustainable as we see applications expanding beyond audio, including location services. Bluetooth is competitive with expectations nearing 4 billion units annually and poised for significant growth.

Understood. Also, on your AI comment, do you imply that Edge AI implementations will mostly focus on camera-related applications? Which market segment do you think will get adopted first beyond cameras?

Initially, Edge AI focused on camera applications such as ADAS, but now we're seeing interest in optimizing network performance and other areas, including devices in smartphones. Our new products cater to a wider range of applications, treating AI processing more like a CPU function.

To add to your earlier question about Bluetooth, we recently secured significant design wins in the cellular space, which has broadened the technology's potential application.

Makes sense. Thank you.

Yes. Thanks for taking my questions. I would like clarification on royalty revenue recognition. Do you receive all necessary reports from customers in time to report accurately?

This is an excellent question. The process is indeed complex. We don't always receive all reports on time, especially during periods like lockdowns when customers can't operate. We assess based on verbal estimates and prior performance. Any discrepancies will be addressed in the next quarter's financials.

Got it. Thank you.

Thank you.

Thank you, and thank you all for joining us today and for your continued interest in 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 Investors section of our website. Regarding upcoming events, we will be participating in the following investor conferences: The Oppenheimer 23rd Annual Israeli Conference May 22 to May 24 in Tel Aviv; Cowen's 50th Annual TMT Conference, June 1 and June 2 in New York; and Rosenblatt Securities Technology Summit – the Age of AI Conference, June 9 and June 10. For further information on these events and all events we will be participating in, it can be found on the Investors section of our website. Thank you, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.