Good day and welcome to the CEVA, Inc. Fourth Quarter and Year End 2023 Earnings Conference Call. All participants will be in a listen-only mode. 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. Good morning everyone and welcome to CEVA's fourth quarter and full year 2023 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone 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. These forward-looking statements include statements regarding our market positioning, strategy and growth opportunities, including expectations for expansion into new markets and use cases, as well as expectations regarding our customers' production of products using our IP, market trends, and dynamics, demand for and benefits of our technologies, and our expectations and financial goals and guidance regarding future performance. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. In addition, following the divestment of Intrinsix's business to Cadence, financial results from Intrinsix were transitioned to discontinued operations beginning in the third quarter of 2023, and all prior period financial results have been recast accordingly. We will also be discussing certain non-GAAP financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our Investor Relations website. With that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter, review the year, and provide some insight into our ongoing business. Amir?

Thank you, Richard and good morning everyone and thank you for joining us today. 2023 was the beginning of a transformational journey for CEVA, and I am very pleased with the progress we made in my first year with the company. Following the recent in-depth strategic review to really understand our strengths and technology leadership, we have positioned CEVA as the trusted partner for semiconductor companies and OEMs who need our IP to enable three fundamental use cases for smart edge devices: the abilities to connect, sense and infer data, more reliably and efficiently. We have realigned our business to focus our investments and R&D efforts around these use cases and on mega end markets where we see very strong growth opportunities: consumer, automotive, industrial, and infrastructure. Even against a difficult business backdrop in 2023 that continues to affect the semiconductor industry and its end markets, we are already seeing evidence that our updated strategy is producing results. Our customer engagements are deeper, across the value chain, across our entire technology portfolio and expanding into new end markets and strategic opportunities. I'll provide a review of the year shortly, but before that I will review the fourth quarter. For the fourth quarter, our total revenues were in line with our expectations. I am proud of how we have and continue to manage through the challenges in the markets we serve and significantly improve our profitability and earnings power through our focus on operating efficiency. In licensing, while the total licensing revenue recognized in the quarter was lower than usual, the interest in our diversified portfolio and potential new customer opportunities remains solid. We saw good progress on a number of fronts, including a strategic license deal with a US-based MCU leader for our Wi-Fi 6 IP and a licensing deal with one of our major automotive customers to integrate our AI software compiler into their ADAS chips. In royalties, we saw a return to year-over-year growth for the first time since Q3 2022, with a rebound in mobile and across consumer IoT and industrial IoT, where we have a large and diversified customer base. Both mobile and the IoT markets produced their strongest royalty revenues of the year. Unit volumes in the quarter were up 21% from the fourth quarter 2022 level. Overall in licensing, we signed 17 deals in the quarter, 11 of which were for our IPs enabling connect use cases, where we continue to leverage our broad portfolio of long and short range wireless IPs to build our leadership position and market share in connectivity for smart edge devices. This is evidenced by agreements spanning Bluetooth, Wi-Fi, UWB, cellular IoT, and 5G RedCap signed in the quarter, as more and more chip designs integrate connectivity as a mandatory requirement. As I mentioned a few moments ago, one of the deals was with a leading US MCU company for our Wi-Fi 6 IP. This company licensed our Wi-Fi 6 IP to augment their internal wireless connectivity development efforts and ensure they have a leading solution for their customers. This is a trend that we are seeing more and more recently, where established companies with internal R&D teams and major investments around wireless connectivity need help to advance their product roadmaps and stay competitive. CEVA is consistently at the leading edge, with the latest standards developed in the same timeframe as the market leaders. As these technologies become more complex and the demands on the customers to consistently be in the market with the latest features, we are viewed as a trusted partner who can help these companies reach their product development goals while reducing their risk and time-to-market. This is why we are increasingly being recognized as the de facto choice for wireless connectivity IP globally, which forms the backbone of our smart edge strategy. We also had a good quarter in licensing for our hardware and software IPs for sensing and inference, with six deals signed, highlighted by a licensing deal with one of our major automotive customers to integrate our AI software compiler into their ADAS chips. This customer had already licensed and deployed our AI engine to add high-compute performance in their automotive system on chips product family targeting ADAS and autonomous driving. These SoCs are now in production and are expected to be deployed in mass-market vehicles by the end of 2024. The licensing deal we completed this quarter with this customer enables automotive Tier 1 suppliers and OEMs direct access to our AI engine in the SoC to deploy their proprietary AI software algorithms and allows them bring value-add functionality and differentiation to the performance of the production vehicle. This is an important milestone for our customer and for CEVA, as the automotive industry is constantly looking for open ADAS architectures as an alternative to closed, vertical solutions that don't allow for differentiation. We anticipate that we will generate meaningful royalty revenues from automotive SoCs, with initial royalties contributing to our growth in 2024, and continuing to grow in 2025 and beyond. Other deals in the quarter under this category include customers for our audio AI and sensor fusion AI DSPs and our voice processing software. At CEVA, when we speak about Edge AI and smart edge devices, we are not just focusing on the inference workload that most people associate with these devices. Every one of these devices needs to be connected, in order to get data off the device and connect via the internet. Every one of these devices needs to be able to sense its environment using vision, sound, and motion and generate data. Every one of these devices will increasingly need some inference capabilities to interpret and act upon this data. This is what the smart edge is and we are the only IP company capable of delivering the technology required to address all three use cases. Turning to royalties for the quarter, we saw a strong recovery in mobile, driven by restocking demand for Android smartphones in emerging markets. In consumer IoT, and the broad Industrial IoT markets, demonstrating our diversified offering and customer base, we recorded our best quarter of the year, with notable strength for our connectivity customers. This was our third consecutive quarter of royalty growth, as we built momentum throughout the year. More significantly, this was the first quarter to surpass $12 million in royalties since Q4 2021, and serves as a strong proof point for our royalty business potential going forward. For the full year 2023, we reported total revenue of $97.4 million, 19% lower than 2022, primarily due to a return to a more normal licensing environment following a couple of years in which we were able to capitalize on a surge in design activity, driven by exceptional consumer end market demand resulting from post-COVID spending and the shift to work-from-home. Licensing and related revenue was $57.6 million, down 23%. We signed 53 licensing agreements across our extensive IP portfolio; 10 of those deals were with OEMs who are integrating our IP's into their end products. In terms of end markets, 29 of the deals target consumer and 23 for industrial IoT, including seven for automotive, and one for other markets. This deal breakdown serves as another indicator of our focus on the end markets with the largest licensing base and the greatest projected growth potential. In full year royalties, despite the slow start to the year, and the soft end markets throughout 2023, royalties grew sequentially each quarter throughout the year, to reach $39.8 million, down 12% year-over-year. The decline is mainly attributable to mobile and 5G RAN-related royalties, which combined to be down 22% year-over-year. On the positive side and in line with the strength of our connectivity products, royalty revenues related to our Bluetooth, Wi-Fi, and cellular IoT business lines combined to grow 5% year-over-year, mainly due to higher royalty rate contribution from our new Wi-Fi 6 customers. In terms of end markets, consumer IoT was 41% of royalties, followed by mobile at 36%, and the growing industrial IoT end markets at 23%. Looking ahead to 2024, we are excited by the royalty growth potential of our Wi-Fi 6 royalties, the continued momentum in our Bluetooth and cellular IoT customer base across consumer and industrial markets, and the expected initial ramp of automotive ADAS royalties in the second half of the year. Looking back on the year in terms of achievements and milestones, there are a few that I would like to elaborate on. As I mentioned earlier, we started the year with a strategic review of the business and decided to focus all our efforts on being a pure IP player. This led to the decision to divest the Intrinsix aerospace and defense design services business. In line with this strategy, in April we acquired VisiSonics, a small spatial audio software business, which bolstered our software business and enabled us to address the high-volume headset and earbuds space with value-add software. This culminated with our first spatial audio deal with boAt, India's number one wearables and hearables OEM and number two worldwide behind only Apple. The strategic review also led to the decision to give the company a brand refresh to better reflect our position as the trusted partner for transformative IP for the smart edge. Collectively, these efforts have enabled us to align our investments and focus and were implemented in tandem with a stringent plan to control expenses and ensure we create operating leverage for the betterment of our shareholders. All of this culminated in our investor and analyst day in December, where we shared our vision and strategy for the company.

Pardon me, it seems like we've lost connection with our speaker. Please wait while we reconnect. Pardon me, ladies and gentlemen, we've reconnected with our speaker line.

So, let me continue from where you last heard us. In terms of new product launches, we achieved several milestones. For connectivity, we introduced our most powerful DSP architecture to date, which addresses 5G Advanced use cases for infrastructure, industrial, mobile, and new applications like 5G satellite communications and 5G vehicle-to-everything. Our UWB Radar platform is designed for automotive child presence detection, and we also launched our Bluetooth solution for Electronic Shelf Labels, which is an emerging, high-volume market. For sensing, we released our Channel sounding Bluetooth solution that enables high-accuracy secure positioning for automotive, industrial, and IoT applications. In terms of inference, we rolled out our scalable NPU AI architecture, capable of running generative AI in smart edge devices with industry-leading efficiency. All these product introductions illustrate our commitment to the smart edge and highlight our diverse IP portfolio position, receiving positive feedback from our customers. Furthermore, these products will support our licensing business in 2024, along with recent product launches like our Wi-Fi 7 IP. Overall, reflecting on our corporate, product, customer, and market milestones in 2023, I am extremely proud of our accomplishments and eager about the future for 2024 and beyond. This success could not have been achieved without the dedication, passion, and hard work of our employees worldwide, and I would like to take this moment to express my gratitude to them. Looking toward 2024, the Semiconductor Industry Association predicts that the global semiconductor industry will experience healthier growth following a difficult 2023. However, there are still some short-term challenges in the industrial and automotive end markets, which are not expected to resolve until the second half of the year, alongside potential inventory buildup that will need to be addressed in the early part of the year. Yaniv will soon provide specific financial guidance. Finally, I genuinely wish you and your families a successful and peaceful 2024. I look forward to seeing many of you at conferences, tradeshows, and other industry events throughout the year. Now, I will hand the call over to Yaniv for the financial details.

Thank you, Amir. I'll now begin by reviewing the operational results for the fourth quarter of 2023. Revenue for this quarter reached $24.2 million, down from $30.3 million in the same quarter last year. The revenue composition includes $11.8 million from licensing and related revenues, which accounts for 49% of total revenues, compared to $19.4 million in the fourth quarter of 2022. Royalty revenue was $12.3 million, representing 51% of total revenues, a 13% increase from $10.9 million in the same quarter last year. This marks a return to year-over-year growth in royalties for the first time since Q3 2022. Quarterly gross margins slightly exceeded expectations on a GAAP basis and aligned with non-GAAP, with gross margins reported at 91% for GAAP and 92% for non-GAAP. Our total operating expenses for the fourth quarter were consistent with the mid-range of our guidance at $24.7 million. Total non-GAAP operating expenses for the fourth quarter, which exclude equity-based compensation expenses, amortization of intangibles, and deal costs, were $20.3 million, at the lower end of our guidance. The GAAP operating loss for the fourth quarter was $2.8 million, down from a GAAP operating profit of $1 million in the same quarter a year earlier. Our GAAP taxes were $7.2 million, while non-GAAP taxes were $1.4 million. GAAP tax expenses included $1.3 million related to the completion of a tax audit for prior years and a $4.5 million tax charge, which included a one-time write-off of a deferred tax asset linked to Section 174 of the US tax code. The GAAP net loss for the fourth quarter of 2023 was $8.1 million, and the diluted loss per share was $0.34, compared to a net income of $4.5 million and diluted income per share of $0.19 for the fourth quarter of 2022. Non-GAAP net income and diluted EPS for the fourth quarter of 2023 were $2.4 million and $0.10, respectively, compared to $7 million and $0.29 reported for the same quarter last year. Concerning other relevant data, shipped units by CEVA licensees during the fourth quarter of 2023 totaled 453 million units, reflecting a 21% increase from the fourth quarter of 2022. Of the 453 million units, 101 million units, or 22%, were linked to mobile handset modems. 325 million units were for consumer IoT products, an increase from 286 million units in Q4 2022. There were 27 million units for industrial IoT products, up from 21 million in Q4 2022. Bluetooth shipments reached 244 million units in the quarter, up 11% year-over-year. Cellular IoT shipments hit a quarterly record high with 45 million units, representing an 82% increase year-over-year. Wi-Fi shipments totaled 31 million units, down 17% year-over-year. However, Wi-Fi royalties grew by 86% year-over-year, reflecting the higher per-unit royalty for Wi-Fi 6 shipments compared to older Wi-Fi standards. For the year, our total units shipped amounted to 1.6 billion units in 2023, a slight decrease from 1.7 billion in 2022, equating to around 50 CEVA-powered devices sold every second in 2023. Annual mobile modem shipments declined by 13% year-over-year to 286 million units, reflecting a sluggish smartphone market in 2023, especially in the first half of the year. Annual consumer IoT-related shipments were 1.25 billion units, only down 4% year-over-year. Meanwhile, annual industrial IoT-related shipments increased to 84 million units, up 17% year-over-year. Cellular IoT and audio AI DSP shipments both saw robust growth in 2023, increasing 64% and 56%, respectively, from 2022. In terms of royalty contributions, cellular IoT royalty revenues reached an all-time high, up 47% year-over-year, audio AI DSP royalty revenues increased by 111% year-over-year, and Wi-Fi royalty revenues rose by 40% year-over-year. Regarding balance sheet items, as of December 31, 2023, CEVA's cash, cash equivalents, marketable securities, and bank deposits totaled $166 million. In 2023, we repurchased around 279,000 shares for about $6.2 million. Currently, we have approximately 700,000 shares available for repurchase under our expanded program initiated in November 2023. Our Days Sales Outstanding (DSO) for the fourth quarter of last year were consistently lower than average at 32 days, similar to the previous quarter. During the fourth quarter, we generated $5.5 million in cash from operating activities. Our ongoing depreciation and amortization expenses amounted to $1 million, while fixed asset purchases totaled $0.8 million. By the end of the fourth quarter, our workforce comprised 424 individuals, of which 350 were engineers. Now, regarding guidance, as we recently presented during our December 2023 Analyst Day, CEVA's long-term vision is to achieve a revenue growth rate of 8% to 12% CAGR over the next four years. This will facilitate significant earnings power, operating leverage, and net income growth. Amir previously highlighted our key achievements for 2023 and our new focus on pure IP play, which we are advancing step by step to address the three pillars of connect, sense, and infer. Our licensing-related revenue stream will continue to expand into new markets and use cases within industrial IoT and consumer IoT, providing connectivity platforms, AI solutions, including AI engines, NPUs, software, audio AI, and more. For royalties, we anticipate that our connectivity products will maintain their strength in 2024, with expected growth in royalty revenues associated with our Bluetooth, Wi-Fi, and cellular IoT business lines. Despite the known seasonality patterns and challenges in the smartphone market, the consumer IoT and industrial IoT sectors are vast, diversified, and provide a robust foundation for long-term growth. On an annual basis, we expect revenue growth between 4% and 8% over 2023, with a lower growth projection for the first half of the year and a higher growth rate in the latter half. In terms of expenses, as discussed, we are implementing cost-control measures aimed at maintaining overall 2023 expense levels, including both revenue cost and operating expenses flat at a range of $93 million to $96 million on a non-GAAP basis. Overall, non-GAAP cost of goods sold is projected to decrease by approximately $1.5 million year-over-year, while our non-GAAP operating expenses are expected to increase by about $2 million year-over-year. Specifically for the first quarter of 2024, considering the typical seasonality in consumer IoT and mobile product shipments after the holiday season, we anticipate overall revenue to decline by 2% to 6% sequentially, along with a different mix of licensing and royalty revenues compared to the prior quarter. Gross margin is forecasted to be around 91% on a GAAP basis and 92% on a non-GAAP basis, excluding approximately $0.2 million of equity-based compensation expenses and $0.1 million of amortization of acquired intangibles. Our GAAP operating expenses for the first quarter of 2024 are expected to fall between $24.5 million and $25.5 million. Out of the anticipated total operating expenses for the first quarter, $4 million is expected to be from equity-based compensation expenses, and $0.2 million for amortization of acquired intangibles. Consequently, our non-GAAP operating expenses are expected to range from $20.3 million to $21.3 million. We project net interest income of around $1.4 million, taxes for the first quarter to be approximately $1.2 million, and a share count for the first quarter of 2024 expected to be 25.3 million shares.

We can open the Q&A session please. Betsy?

Hi Amir, hi Yaniv. Congratulations on the progress made. I'd like to discuss the guidance for the first quarter and the full year. Yaniv, you mentioned a different mix and the 2% to 6% decline, so I'm curious about the implications for license royalties. Additionally, what are the expectations for mobile for the quarter and full year, especially in comparison to non-mobile? It would be helpful to get some insight on that.

Sure. Good morning. So, overall, we're talking about 4% to 8% annual revenue growth for 2023. We're looking at similar start than we had in 2023 that the first half may be a bit more milder and then things will pick up. Some of the products we are in and the consumer side also have that typical seasonality, and we have seen that in the past. So, those are some of the assumptions that we have built in the model. Obviously, licensing is a lumpy type of business. When we look at it on an overall longer basis, that generates the revenues. Although in the last couple of years, we also added software solutions and capabilities, which have a limited licensing, if at all, upfront fee, but a much, much higher royalty contribution. And the immediate effect on an annual basis, for example, our audio and AI royalties grew more than double in dollars year-over-year, but they don't necessarily contribute to licensing. So, when we look at the full mix, we're looking at growth in both of these segments, both licensing and royalties. On a quarterly basis, it's harder to guess upfront and ASC 606 made our lives more difficult to know in advance how the royalty are going to look like. So, our starting point is coming with the strongest quarter in royalties in 2023 and a gradual improvement from Q1 all the way to Q4, that would probably go down due to the typical seasonality in consumer and mobile that you asked about. And with that said, licensing should be higher Q1 over Q4 for sure. That is the plan. A lot of moving pieces, but from the product portfolio and the revenue mix, these are sort of the high pieces in the puzzle.

And maybe I can add a little bit more color here, Suji. First, good morning to everyone. On top of what Yaniv said, so if we look at royalty going to 2024, there are several things that we are very encouraged by and we see as a potential growth in 2024 versus last year. One that we talked about quite a bit is our Wi-Fi penetration and the transition from Wi-Fi 4 to Wi-Fi 6 and with that higher average ASP and volume increase. The other thing that will probably come more towards the end of the year is the automotive AI, some of those products going into production. As well as I would say, overall, our customer base in the consumer and industrial IoT on average are doing quite well, and we expect that to be a good tailwind and a strong for us to go the royalty moving forward. On the more commuted side, it's really the situation with the whole 5G installment base. That's a market that probably in 2024 as far as what we see today is not going to recover significantly, maybe more towards the second half and then probably more in 2025, which is the overall mix. In terms of licensing, we have several new products that will and should generate for us increased licensing in 2024. Wi-Fi 7 that we already start licensing as well as the new AI products that right now in a significant evaluation across multiple potential customers, and we expect to be able to close some of those deals in 2024.

Okay, great. My other question is about the recent auto ADAS win. Congratulations on that achievement. I would like to understand the details behind it. Was this a customer who replaced their own AI with yours? You mentioned seven auto wins; are they all ADAS AI, or do they include a variety of products?

Let's start with the first. The first thing is an existing customer. They appreciated our technology in power hardware a while back and developed their own chip. The interesting aspect for them is that the chip is programmable. The deal we just closed involved adding software capabilities that allow their customers to incorporate various AI use cases and customize the final product for greater flexibility. This existing customer is going into production this year and has integrated the software component with the hardware solution that is now ready. It’s a significant achievement that they are now offering this type of solution in cars this year. Overall, Amir, would you like to discuss the broader picture?

Yes, the other seven deals are not AI only. It's across our product portfolio. Overall, we signed, I believe, four AI deals this quarter, three of them related, let's call it, more to vision AI capabilities and ADAS and one related to audio AI capabilities.

Okay. Thanks guys.

You're welcome.

Thank you.

Hi. Congratulations on the good quarter. Can you let us know how is the trend for licensing? Are there customer programs that are getting delayed or even being canceled? In this market are you seeing more deals or fewer deals? And what are the issues that your customers are saying?

Yes, Kevin, a few things I would say. First, if we take a step back and look at 2023 overall, definitely, that was a year that started with lots of inventory corrections that our customers need to go to that so-called more pressure on the business overall. And with that, generally speaking, the customers on average, taking more time to go and launch new products and new programs in place. So, that definitely drove some of the delays in 2023. Specifically, for Q4, we are actually very encouraged with the number of deals that we signed, 17 deals in the quarter. And more specifically, we had at least one deal for each of our product technology category. So, really, across our diversified product portfolio, very good engagement with customers with a good significant number of deals. Just the mix every quarter can change in terms of the type of deals and the size of deals. And definitely, as we go to 2024, from the first half to the second half, we expect also to see the larger or more meaningful deals also in that mix, which will drive overall with the rest of our deals at the growth between 2023 and 2024. So, overall, I would say, if we look at the different market segments, automotive and industrial are a little bit weaker in the first half, and we expect inventory correction and overall interest to go back in second half. Consumer IoT and consumer overall is holding up very nicely for us. So, that we expect it to be with the same seasonality of typically the Q1 and with that specifically more in mobile. Beyond that, we expect a good growth during the rest of the 2024.

The last part of Amir's answer that was related to royalties, not necessarily to the licensing question that you had. So, you got both angles.

Right. Okay, great. And maybe just geographically, how is China's licensing opportunities?

Go ahead.

China remains a significant and large market for us, with a lot of innovation and loyal customers returning for new generations of technologies, whether it's Bluetooth, Wi-Fi, or other connectivity solutions. We have a strong portfolio in this area. Interestingly, in this quarter, our performance in the US exceeded expectations, particularly due to a strategic deal with an MCU player mentioned earlier in Amir's remarks, which positively impacted our Q4 revenue mix. It's not only about China; we also observed notable developments in the US.

Great. Okay. Thank you.

Thank you.

The next question comes from Martin Yang with Oppenheimer. Please go ahead.

Thank you for taking my question. Can you first talk about the revenue outlook broken down by consumer IoT and industrial IoT in 2024, which segment should we expect stronger relative trend compared to your overall revenue growth outlook?

Great question, Martin. Thank you for that. Let’s recap some of the highlights from 2023. It wasn’t an easy year for us; rather, it was a year of transition. At the end of the year, our analysis shows the following: On the audio AI side, royalties more than doubled for us. We experienced a 56% growth in units and revenues increased by over 100%. In the cellular IoT market, which we continue to track separately from Modem, Bluetooth, and Wi-Fi, units rose by 64% and revenues were up 47%, nearly reaching 50%. This area has been performing well. Bluetooth remained flat year-over-year due to a slow start in 2023, with revenues at about 1 billion units, similar to last year but slightly lower. Wi-Fi has continued to be a strong contributor to royalties and licensing, although unit figures dropped year-over-year due to the transition to Wi-Fi 6. However, thanks to new products and customers, our average selling price significantly increased, resulting in a 40% rise in Wi-Fi royalty revenues for 2023. We see three substantial royalty contributors that should carry into 2024, although we are uncertain about the pace of growth and when it will accelerate. The industrial sector remains strong, and our various connectivity solutions cater to both industrial and consumer markets. A downside, as Amir noted, is the mobile segment, which began weak but has since improved. However, it remains unclear how 2024 will shape up since forecasting is challenging, and this segment is not expected to drive growth. The base station market faced challenges, not just for CEVA, but across the board, resulting in a quiet and lower performance in 2023, largely because 5G has not yet presented key use cases that would boost deployment. This softness is likely to continue into 2024. On the other hand, we anticipate a favorable outcome for our technologies and markets focusing on edge AI.

Maybe just another comment to that, Martin. Related to the industrial IoT, I would say overall, we finished this year with 23% of our total revenues. So, this is definitely a significant portion of our revenue also moving forward, we expect it to grow in 2024. And more specifically, if you look at the technologies that we're offering, we are getting more and more embedded with the MCU ecosystems and specifically in the industrial and automotive MCU ecosystem started with some of our connectivity offerings, extended to Wi-Fi more recently, and now also to some audio capabilities and in the future, we expect also infer. And that's where we see also the synergy of our technology into the smart edge and MCU ecosystem and specifically there for the industrial IoT market space.

Thank you very much. Next question for mobile. In the longer term, over the next two to three years, do you think mobile could return to the levels seen in 2021? How should we view mobile in the long run in terms of its contribution to your company?

The mobile market has undergone significant consolidation in recent years, with only a few key players such as Qualcomm and MediaTek. Additionally, there are several successful lower-cost alternatives like UNISOC and, more recently, ASRs. There remains a substantial market for low-cost feature phones, as not everyone opts for high-end devices priced at $1,000. We have established a strong presence in those markets, which could continue to be fruitful. However, the pace of growth is uncertain. The handset market has not been particularly exciting lately, and there may be another OEM that changes its approach to modems, potentially altering the landscape in the next two to three years, though this remains unpredictable. Meanwhile, the 5G use cases and connectivity have expanded into various segments and markets. Over the past two to three years, we have observed licensing activity in these areas, which should generate royalties, particularly from private RAN and other 5G-enabled solutions, rather than directly from the handset market. Reviewing our performance from the last three to four years, we see that CEVA's overall revenue has doubled, growing from just under $50 million to over $100 million, primarily driven by smart edge devices instead of mobile devices. While the mobile segment is still present, the significant growth is coming from these new markets we've entered.

Yes. And just more specifically on that Martin specifically on cellular IoT that is extension of the 5G and mobile, that's where we have seen already this year a very significant growth, both in consumer, industrial, consumer, more in smart watches and those type of things where 5G or other types of technology, so that technology is getting more and more embedded. And in the industrial space also for all the different type of logistics tracking, smart tracking and other so-called industry 4.0 use cases. And beyond, as we move towards this year and the next year also for decent type of satellite type of use cases where 5G, 5G advance will also propagate. We believe it can create for us a nice growth trajectory moving forward.

Got it. Great color. Thank you. That’s all for me.

Welcome Martin.

The next question comes from Chris Reimer with Barclays. Please go ahead.

Hi, thank you for addressing my question and congratulations on the impressive results. I'd like to inquire about your long-term outlook concerning operating margin. Recently at the conference, you mentioned a target of a 20% operating margin. I understand this is a long-term target, but could you share how you plan to achieve it? Will it involve increasing gross margins, or do you expect no expansion at all? I'm curious about the various factors influencing your ability to reach that target.

Deep magic. That's the way. One step at a time, and this is what Amir undertook last year, which we have shared with you in the prepared remarks. If you look at the overall non-GAAP operating margin for the year, we ended up with about 4%. It was stronger in the second half, reaching 7% and 8% in Q3 and Q4. Looking ahead to 2024, based on the guidance we provided, we plan to likely double that, possibly even exceed doubling it for the year. Achieving this milestone depends on reaching the revenue level we discussed, executing our R&D plans, and maintaining the right expense levels that we mentioned. If we sustain this over a few years, along with increased royalties that carry high gross margins and contribute to the pre-tax line, we can progress to our next goal of 20% non-GAAP operating margin. I hope that provides you with a clearer understanding of the timeline.

To add to that, last year we returned to a pure IP business model following the divestment of Intrinsix. With this transition, we projected a gross margin of 90% or higher. Regarding operating margin, it involves continuous improvement and the growth of our topline, supported by the guidance we provided for this year and the long-term model shared during Analyst Day. On the operating expenses side, we're focusing on areas where we foresee long-term growth potential. A prime example is our acquisition of VisiSonics last year, which enhanced our 3D spatial audio software capabilities. We quickly translated this into licensing agreements and royalty arrangements with customers, which has been synergistic for our operational expenses and will enhance profitability moving forward. Therefore, we are keenly focused on both organic and inorganic strategies to drive synergy and leverage our operational margins as we advance.

Got it. Thanks. That's great color. That's it for me.

Thank you.

The next question comes from Gus Richard with Northland. Please go ahead.

Yes, good morning or afternoon. Thank you for taking the question. I just want to make sure I understand the revenue guidance for the full year. Does the comp include Intrinsix revenue? Or is it just continuing ops in terms of the growth expectations?

Continuing, it's just the CEVA IP part. We removed Intrinsix last quarter as a discontinued operation, so it's not in your topline; it starts with your expense. It's only included in the GAAP one line before discontinued operations. Therefore, it's not part of the numbers. The overall net revenue for last year was $97.4 million, which serves as the basis for the growth percentages we provided.

That was the number I needed. Thank you so much.

No problem. Sure.

The next question comes from David O'Connor with BNP Paribas. Please go ahead.

Good morning or afternoon, gentlemen. Thank you for taking my questions. I have one or two to ask. Amir, I'll start with you. With the excitement surrounding the AI PC and AI smartphone, given your strong positioning at the edge and in IoT devices, do you believe there is a wave of edge AI licensing ahead that has yet to materialize? That's my first question. Then for Yaniv, regarding the model for the 6% sales growth for 2024, could you rank the contributions from licensing versus royalties, indicating if either is higher or lower than that 6%? I'm interested in understanding the trend. Also, do you anticipate growth in quarterly revenues throughout 2024? Thanks, everyone.

Sure David. I'll take the first one. Good morning. Sorry, can you repeat the question, David, sorry for that.

Yes, sure. With all the excitement around the AI PC and AI smartphone, and your focus on the edge, I’m wondering if there is a wave of licensing at the edge that has yet to occur. You mentioned in your opening comments that licensing can be inconsistent, so I’m trying to understand this in the context of what we’re hearing about AI.

Yes, this is definitely a crucial area for us in 2024, focusing on delivering our NPU and overall AI portfolio into smart edge market segments, including automotive, industrial, and consumer IoT, eventually expanding into infrastructure. We already have several customers who are deeply evaluating our technology, and we expect to finalize some of those deals during 2024. This is certainly part of our target and aligns with our revenue growth expectations for that year.

Regarding the model, we do not provide detailed breakdowns as we lack the ability to predict royalties and volumes between licensing and royalties annually. However, we believe both areas have the potential for year-over-year growth. Excluding Intrinsix, we achieved $57.6 million in licensing and related revenue for 2023, and we anticipate this figure will increase in 2024. The $39.9 million in royalties, which saw a decline year-over-year primarily due to the base station market, is also expected to contribute to our growth. While we cannot predict exact outcomes, we forecast growth in both categories. Our model indicates incremental growth quarter-by-quarter throughout the year, with Q1 typically being the lowest due to seasonality in modems and consumer devices. We have some insights from recent trends that support this outlook. I hope this provides clarity on our expectations for the model this year.

Yes, that's very clear. Thanks guys.

Thanks David.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks.

Thank you, Betsy, and thank you, everyone 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. And with regards to upcoming events, we will be participating in the following conferences. Mobile World Congress from February 26th to 29th in Barcelona, Spain. The Loop Capital Markets 5th Annual Investor Conference, March 12 in New York. The 36th Annual ROTH Conference, March 18 and 19 in Dana Point, California. And the Mizuho Americas Israel Growth Conference, March 25th in New York. For 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 all, and goodbye.

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