Good day, and welcome to the Second Quarter 2022 Earnings Conference Call. Please note today's event is being recorded. I would now like to turn the conference over to Richard Kingston. Please go ahead. Thank you, Ako. Good morning, everyone, and welcome to CEVA's second 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 of the second quarter and provide general qualitative data. Yaniv will then cover the financial results for the second quarter and also provide guidance for the third quarter and full year 2022. I'll start with the forward-looking statements. Please note that today's discussions contain 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 market trends and dynamics, including anticipated growth in the wireless component of the global semiconductor market, our customers' gain in market share and the future of 5G and Wi-Fi, our market position and strategy, including the strength of our technology offerings and efforts with respect to our co-creation business proposition, impacts of global economic uncertainty and COVID on our business, including royalties, demands for and benefits of our technologies, and expectations and financial guidance regarding future performance, including for the full year and third 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 the duration of the pandemic, including continued restrictions in China, the extent and the 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 entering 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 enhanced 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 will produce solid second quarter financial results despite the challenging macroeconomic backdrop and disruption in the production schedule because of the lockdown in major cities in China. Our strength in the wireless space, according to a recent study by McKinsey, would be responsible for 25% of the growth in the global semiconductor market over the next five years. This continues to drive our business and enables us to expand our footprint in the growing market of 5G, wearable, automotive applications. Revenue for the second quarter came in at $33.2 million, up 9% on a year-over-year basis. The licensing environment continues to be strong, delivering $22.1 million in quarterly revenue at the back of our licensing agreement with customers targeting a multitude of wirelessly connected devices, AI-driven sensors, satellite communication, and more. We also signed a strategic agreement for our Bluebud wireless audio technology in the wearable space, which I will touch on later. Asia continues to be a major driver of our business, but our activities and scope of engagement with U.S.-based customers are picking up. Royalty revenue came in at $11.1 million, down 26% on a year-over-year basis. The second quarter 2021 royalty revenue included revenue of approximately $3.3 million following the resolution of disagreements on royalty rates with a customer. Excluding the $3.3 million, royalty revenue for the second quarter of 2022 was down only 4% versus the second quarter of 2021. In handsets, global economic uncertainty and the impact of COVID measures in China are causing consumers to adopt a cautious approach with their disposable income, which adversely impacts handset shipments, particularly in the low and mid tiers. Our base station IoT royalty category showed resilience as the 5G RAN rollout continues in China and into countries with low 5G penetration rates today. Our cellular IoT and Bluetooth customers continue to gain market share, with both categories delivering year-over-year unit growth. Let me spend the next few minutes to highlight recent dynamics in the wireless space and how we are addressing them. Unarguably, wireless continues to be a cornerstone in the proliferation of intelligent IoT products that bring together wireless connectivity, sensors, and AI into highly efficient System-on-Chip (SoC). At the back of this trend, CEVA has become the wireless anchor to more than 300 semiconductor companies as they shape the intelligent IoT ecosystem by being at the forefront of wireless standards and offering it under the IP business model. CEVA lowered the entry point for embedding wireless connectivity in SoC and enabling many semiconductor companies to come out with more cost-effective and power-efficient chips than the repurposed smartphone connectivity chips that Qualcomm, Broadcom, and MediaTek are selling into these markets. In that sense, by being focused on wireless IP with the critical role it plays in IoT SoC, we open up the opportunity for us to elevate our business engagement from merely delivering IP to co-creating with the customer their own wireless system. We are already experiencing very good interest in this business proposition and see this as a vehicle to grow our revenue base. In the quarter, we concluded a comprehensive agreement along the co-creation business model with a U.S.-based customer. This agreement was driven by a top-tier OEM who will deploy our Bluebud integrated wireless and audio IP platform across multiple SKUs for smartwatches, hearables, and other wearable devices. The wearables market is the second largest market after mobiles in terms of volume, and recent devices offer high-quality 3D audio, AI-based noise cancellation, voice recognition, and IM-based contextual elements. These are technologies that CEVA offers to customers in addition to our processors and hardware IP technologies. Another discussion that we are having with wireless customers these days is about the coexistence of 5G and Wi-Fi and whether one will eclipse the other. Our view is that they will continue to coexist and in many use cases, they are, in fact, complementary to each other. 5G offers robustness in terms of security and low latency with its ultra-reliable low latency standard. Wi-Fi networks, on the other hand, are simpler, as IT departments are more familiar with it than with 5G. At the Mobile World Congress (MWC) event earlier this year, which is historically dedicated to cellular, there were a number of major Wi-Fi 7 announcements indicating that the cellular industry understands that 5G and Wi-Fi coexistence will continue to play an important role. Cisco, a long-term and dominant Wi-Fi player, commented at MWC that 5G and Wi-Fi must coexist in private networks. These market dynamics and our strengths in both 5G and Wi-Fi IP provide us with significant potential to expand our relationship with new customers by offering them a one-stop shop for both technologies. In summary, we are satisfied with our financial performance in the second quarter despite the challenging and uncertain macroenvironment. Our IP portfolio is attempting to address the most exciting and crucial technology trends. Our ability to step up and partner with customers for their wirelessly connected SoC design through our co-creation business model is compelling. We will continue to focus on driving our strategic vision of enabling semiconductors to make their products smart and wirelessly connected. With that said, let me hand over the call to Yaniv for the financials.

Thank you, Gideon. I'll start by further reviewing the results of our operations for the second quarter of 2022. Revenue for the second quarter was $33.2 million, up 9% compared to $30.5 million for the same quarter last year. The revenue breakdown is as follows: Licensing, NRE-related revenue was $22.1 million, reflecting 67% of our total revenue, up 42% compared to $15.5 million in the second quarter of 2021. Royalty revenue was $11.1 million, reflecting 33% of our total revenues, down 26% from $14.9 million in the second quarter of 2021. The second quarter 2021 royalties included revenue of approximately $3.3 million following the resolution of a disagreement on royalty rates with the customer. After excluding the $3.3 million, royalty revenue for the second quarter of 2022 was down only 4% versus the second quarter of 2021. Base station and IoT royalty revenue contributed $7 million in the quarter, remaining flat from the first quarter and up 6% year-over-year despite the impact of the lockdown in major cities in China on some of our Chinese customers and the overall challenging macroeconomic environment. Gross margin was 79% on a GAAP basis and 82% on a non-GAAP basis, slightly better on GAAP and in line with our non-GAAP expectations. 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 investment. Our total operating expenses for the second quarter were $26.6 million, below the low end of our guidance of $27.1 million and the first quarter expenses of $27.5 million, mainly due to improved FX environment and the timing of the Israel Innovation Authority grants received in the second quarter. Operating expenses also included aggregated equity-based compensation expenses of approximately $3 million, amortization of acquired intangibles of $0.8 million, and $0.3 million associated with the cost of the Intrinsix acquisition. Our total operating expenses for the second quarter, excluding equity-based compensation and amortization of intangibles, were $22.6 million, also below the low end of our guidance of $23 million and the first quarter expenses of $23.4 million due to the same reason I just stated. On the tax front, we continue to implement the tax regulations in France, known as the IP box tax regime, enabling our corporate tax rate to be lower than the statutory 25% on specific types of revenue. We also recorded a benefit related to a true-up of the French 2021 tax return, which was partially offset by higher withholding tax expenses associated with future utilization in our Israeli subsidiary. GAAP other income included a $0.5 million net loss from the remeasurement of a marketable security associated with Cigna following EyeSight Technologies, a leading provider in in-cabin sensing solutions in the automotive industry that went public on the Tel Aviv Stock Exchange in the fourth quarter of 2021. As we explained in the past, we continue to adjust our investment quarterly up or down based on the market valuation of those shares. GAAP net loss for the quarter was $1.1 million and diluted loss per share was $0.05, compared to a net income of $3 million and $0.01 for the second quarter of 2021. Our non-GAAP operating income was $4.6 million, down from $6.3 million for the second quarter of 2021. Our non-GAAP net income and diluted EPS for the second quarter of 2022 was $4.3 million and $0.18, respectively. Other related data: System-in-Package (SiP) units by CEVA's licensees during the second quarter of 2022 were 433 million units, down 18% sequentially and down 4% from the second quarter of 2021 reported shipments. Of the 433 million units shipped, 83 million units or 19% were for handset baseband chips, reflecting a sequential decrease of 17% from 100 million units of handset baseband chips shipped during the first quarter of 2022 and a 40% decrease from 138 million units shipped year-over-year. Our base station and IoT product shipments were $349 million in the quarter, down 19% sequentially and up 11% year-over-year. Notably, Bluetooth shipments were up 35% year-over-year to 255 million units, and cellular shipments were up 12% year-over-year to 20 million units. As for the balance sheet, at the end of June 2022, our short-term and long-term cash and marketable securities balances were approximately $146 million. With last quarter's share price level, we activated our buyback program and repurchased approximately 136,000 shares during the quarter for approximately $4.5 million. As of today, 362,000 shares are available for repurchase. Our days sales outstanding (DSO) for the second quarter were slightly higher than the last two quarters due to the lockdown in China that caused slower collections and came in at 42 days for the quarter compared to 32 days in the prior one. During the second quarter, we used $8.1 million of cash from operations. Depreciation and amortization were $2 million, and the purchase of fixed assets was $1.2 million. At the end of the second quarter, our headcount was 492 employees, of which 411 are engineers, slightly higher than the total of 487 employees at the end of March. Regarding guidance, as evidenced in the first half of the year, our licensing, NRE, and related revenues were strong. Also, as Gideon explained, our technology offering and co-creation business proposition resonate well with our customers and present new opportunities to grow our revenues. On royalties, despite the macroeconomic challenges, we continue to expand in the base station and IoT segment through the gradual rollout of 5G base stations, enabled by our technology, and see continued share gains in wearable, hearable, and IoT products at large. With that said, we are monitoring the implications of the economic uncertainty that we experienced in the second quarter associated with the handset royalties as we get closer to the holiday season and as COVID restrictions in China are being lifted. Specifically for the third quarter, gross margin is expected to be slightly better than that of the second quarter, approximately 81% on a GAAP basis and 83% to 84% on a non-GAAP basis, excluding an aggregate of $0.3 million of equity-based compensation expenses and $0.5 million of amortization of other assets associated with the Intrinsix acquisition. Operating expenses for the third quarter of 2022 are forecast to be slightly higher than the first quarter of this year. GAAP-based OpEx is expected to be in the range of $27.6 million to $28.6 million. Of the anticipated OpEx for the third quarter, $3.4 million is expected to be attributed to equity-based compensation expenses, $0.8 million to the amortization of acquired intangible assets, and $0.3 million associated with the Intrinsix acquisition. Our non-GAAP OpEx is expected to be in the range of $23.1 million to $24.1 million. Net interest income is expected to be approximately $0.4 million, and taxes for the third quarter are expected to be similar to the first quarter, approximately 25% to 27% of the non-GAAP tax rate or about $1.7 million. Taxes generated from the new 10% lower tax rate on specific revenues from our China and French activities would be offset by tax expenses associated with withholding and the future utilization in our Israeli subsidiary. The share count for the third quarter is expected to be approximately 24.2 million shares for non-GAAP EPS calculations. Rocco, you can now open the Q&A session.

Operator instructions. Today's first question comes from Matt Ramsay at Cowen.

Yaniv, I couldn't help but notice there in your guidance commentary for the third quarter and the back half of the year that you guys didn't really talk about revenue. So I'd be remiss if I didn't ask the question. If you could give us a little bit of help there on just the trends you're seeing in the different end markets and how you guys think about revenue trending. Obviously, there's caveats around the macro, but I think that's going to be the question that most folks want to ask here. So let's just see what we have to say on revenue.

Sure, I'll start and maybe Gideon will jump in as well. We are not providing guidance on a quarterly basis because for many years, our revenue recognition aligns with what our customers report during the same quarter. Thus, we don’t have, and neither do you, visibility from cell phone manufacturers, OEMs, and other Bluetooth-enabled devices regarding their actual sales plans. Consequently, offering guidance on a significant portion of our royalties, which fall under the revenue recognition rules, has become quite challenging, leading us to refrain from doing so since the necessary data is unavailable. Despite this, we are observing some positive trends in our royalty business, especially in the base station IoT segment. Despite the uncertainty you've mentioned, we managed to achieve a 6% growth in this area, even amid lockdowns and broader macro concerns. Notably, the growth is coming from a different market this time, particularly in 5G base stations. We also continue to see year-over-year growth in Bluetooth devices and cellular IoT devices. I anticipate this trend will continue for quite some time, although different markets or segments may drive those royalties each quarter. The weakest part of our other royalties category isn’t from base station IoT but rather from handsets. In the handset market, numerous companies have entered and expanded, leading to observed weakness in China and regions connected to it, particularly in low-end and mid-tier smartphones. This area is where the uncertainty resides, as it could change due to various factors, including lockdowns and concerns around the need for low-end phones. However, the high-end market has shown more resilience, as seen in Samsung's results. In the second quarter, we noted less demand in the low-end market, which may stabilize later this year.

Yes, let me just highlight two things regarding the royalties. Obviously, Q2 was a tailwind or headwind, I would say, on handset revenue, impacting the low-end segment while concentrating on the lower end. The way we see it is that OEMs are being a bit prudent in piling up inventories or prefer to clean up inventory in preparation. We're approaching the second half of the year, and we see more prudency there at the OEM level. When it comes to the market, we have seen this position several times when there is some kind of macro event affecting the economy. The low end of the handset segment is the first to be impacted, but it's also the first to recover, so it could swing back quickly once this uncertainty clears up. We have the product. 5G is an opportunity to enhance 5G applications, which is where our customers are focusing and they have the product in place. We will be discussing new design wins and, of course, there is the India side of things. So as soon as this cloud of uncertainty somehow clears up, we expect to see a strong recovery.

Just as my follow-up question, I'll keep it quick, and I'll get back in the queue. Yaniv, I think you guys gave some commentary in the script about the amount of smartphone units that were in your royalties. Could you also quantify how much of the royalty revenue in the second quarter was in the handset market just so we can calibrate risks there?

Yes, sure. We continue to provide these numbers quarter after quarter. Out of the $11.1 million, $7 million were from base station IoT and the $4.1 million were handset-related.

Our next question today comes from Kevin Cassidy with Rosenblatt Securities.

You showed 22 new IT deals, and that's very impressive. Last quarter, it was only 14 new deals, but the revenue is about the same. Can you say if there is a trend there for smaller deals? Or could you give us a feel for what happened in that mix?

Yes, we have answered that from time to time. I don't think that taking the revenue and dividing it by the number of deals gets you anywhere. Some deals that were signed are not delivered because if we don't know the customer, we don't know its financial background, we don't recognize and don't deliver the technology before we actually get paid. So there is a little bit more complexity around the number of deals that get signed versus the average amount. I would say that in each quarter, we have one or two bigger deals for millions of dollars, and we could have smaller deals for a single user for some software elements or work in the hundreds of thousands of dollars, and we usually do have deals in the $2 million or $3 million range. I wouldn't derive one solid answer from these numbers; rather, it's a combination of large deals, small deals, and recurring customers along with five new customers that we have never had any business with. Some we deliver immediately and recognize, some we don't deliver because we don't know the customer or its financial background yet, and we want to wait for the payment. Some involve work that we undertake, whether it is Non-Recurring Engineering (NRE) services or customizations that get recommended, without counting that in the new deal figures every quarter.

Okay. I understand. Just making sure it's not a trend. And about Intrinsix. You didn't say much about the pipeline that you're working on there. Can you provide some insight into the Intrinsix opportunities?

Intrinsix has a strength in the defense market. The defense market has its own dynamics and usually consists of long projects. What we're observing now is that under our leadership, we see a new customer base and we've already signed a few designs based on understanding what they need from us. After understanding what we can increase, we are seeing requests for such designs. With regards to the co-creation business model that was discussed earlier, where we take the lead on the wireless system, Intrinsix plays a significant role because they are the integrators of the IPs.

And our next question today comes from Suji Desilva at Roth Capital.

Gideon, you talked in the prepared remarks about having cellular and Wi-Fi and their coexistence. Can you discuss the advantages of CEVA's presence in both markets and how you leverage these opportunities?

Well, there is a lot of technological synergy between Wi-Fi and 5G. They use the same modulation mechanisms, especially Wi-Fi 7 and 5G. That said, we deal with customers by seeing Wi-Fi as the local area network and 5G as the broader network. So when we present our customer proposition, we basically combine both technologies in our offering. We are increasingly seeing customers asking for both technologies either to address larger markets or to develop access points or fixed wireless access, where the Internet is brought into homes via 5G and then disseminated throughout using Wi-Fi.

Can you also discuss how many customers you are ramping today versus 12 months ago in the 5G base station market? And do you foresee any inflection due to upcoming quarters, or might the macro impact that?

First of all, in terms of customers, we have two large customers that are taking us to the macro base station segment, which includes the largest base station vendors. We have several other customers that expose us to different markets like small cells in 5G, and we believe that 5G presents a massive opportunity both in terms of scale and in new form factors. We are addressing all vectors that extend the Total Addressable Market (TAM) for 5G. As reported by Nokia, outside of China, the 5G network is only deployed in 15% of the available market. So, think about the opportunity ahead of us in terms of geographic expansion, especially in India, which is a significant market. Additionally, the entry barriers are high, as forming relationships with these players is very challenging, making it harder to create alternatives.

Next question comes from Chris Reimer with Barclays.

I wanted to ask about operating margin. You mentioned in your comments that you might be seeing some benefit or derisking. I was wondering if you could provide a bit of insight into what's going on there and what the moving parts are?

Yes, sure. Great question. When we added Intrinsix and combined both NRE services and the co-creation of licensing, both IPs and chip design, it naturally lowered our margins from the 90s that we had maintained for many years to the low 80s, typically between 80% and 84%. This is where we are currently situated and is our understanding of the existing market, until new royalty payers emerge from that new business model. With that said, maintaining a licensing level above 22% and higher royalties than our current $11 million for Q2 leads to slightly better margins. It's simply a theoretical aspect; nothing has changed fundamentally in the business. It's just the mix of licensing versus royalties, and the higher the royalties, the higher the margin will be; however, we don't see it going beyond 83% to 84% for a combination of factors in the various business areas.

Got it. And just touching on M&A, are you seeing any changes or perhaps any thoughts on the pipeline now that we've seen some valuations come down recently?

Our reluctance to pursue M&A initiatives is not solely based on valuations but rather revolves around determining the appropriate next steps for us—what the new technologies, markets, or add-ons might be that could expedite business growth and broaden our offerings in the semiconductor industry, whether through hardware, software, or IP. There is currently a more favorable environment to explore deals with better pricing, but our priority lies in identifying what is best for CEVA's continued growth and acceleration. We are actively seeking multiple ideas and have various projects under consideration, but there is nothing immediately on the agenda.

Our next question today comes from David O'Connor with BNP Paribas.

Gideon, maybe going back to the strategic agreement of co-creation with the customer, can you discuss the catalyst behind that decision? Why now? And could you describe how this impacts the overall model from the co-creation relationship? I have a follow-up.

Let me explain the rationale from a customer standpoint around this proposition, and perhaps Yaniv can shed light on the implications for the model as well. The rationale for a customer to engage in this way is if they wish to enter the wireless space and they are not Mediatek, Broadcom, or Qualcomm, the barriers are quite significant. They need to contend not only with complex technologies and RF integration but also skills and scalability. We figured out that we possess the required technologies and capabilities, so we step in and leverage our other competencies, such as Intrinsix with design and software, allowing us to show customers that we can create their wireless system. The result is a more substantial deal with a larger amount of royalties. From a business model perspective, there is no disruption because it remains focused on IP. We provide IP; we do not deliver chips or semiconductors to them, only the IP, but the customer sees substantial value in this arrangement.

I'll add that in a classic IP model, you license your IP and wait for the customer to finish their design. This might take one or two years. By being involved from an IT and service perspective here, we are taking some responsibility for that block's success. This change greatly enhances our visibility. One critical evolution in our business model is that as soon as that chip goes into production—which could be shorter than the customary two-year timeline—we will start receiving royalties. In our traditional NRE service setup, there were no royalties; it was essentially a one-time deal with maybe recurring engineering efforts. This new structure offers a win-win opportunity for enhanced involvement in customer R&D and a corresponding increase in royalty income.

Also, expanding on your earlier comments about engagements with U.S. companies picking up. Which technologies are these engagements centered around? What are you doing differently to capture these U.S.-based opportunities?

The specific engagements mentioned in the prepared remarks pertain to wireless audio, specifically Bluetooth and audio technology. This combination also introduces complexities. The target markets for these engagements include wearables and smartwatches.

Lastly, regarding the handset base spend royalties, how would you categorize that market between the low-end, mid-range, and high-end segments?

Most of our business today is concentrated in the mid-range segment. UNISOC is our largest customer, with a strong presence in markets like India, China, and Latin America through mid-range phones. The low-end phones are almost non-existent, as the 2G and 3G markets continue to decline. Thus, the focus is primarily on 4G and 5G, where they have a solid portfolio based on design wins. This presents significant potential for the coming years. Thank you.

This concludes our question-and-answer session. I'd like to turn it back over to Richard Kingston for closing remarks. Richard? Apologies. Sorry. Thank you all for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks from the conference call today are filed as an exhibit to the current report on Form 8-K and accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following conferences: the Oppenheimer 25th Annual Technology Internet and Communications Conference, being held virtually tomorrow, August 10; and we will also be present at the Rosenblatt Securities Technology Summit Age of AI Conference, on August 23 and 24. Additionally, we will attend the Jefferies 2022 Semiconductor IT Hardware and Communications Infrastructure Summit, on August 30 and 31 in Chicago, and the Jefferies Israel Tech Trek, which will take place on September 21 and 22 in Tel Aviv. Further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines, and have a wonderful day.