8-K
CEVA INC (CEVA)
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934
Date of report (Date of earliest event reported): November 5, 2020
CEVA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
| 000-49842 | 77-0556376 |
|---|---|
| (Commission File Number) | (I.R.S. Employer Identification No.) |
| 1174 Castro Street , Suite 210, Mountain View, | 94040 |
| CA | (Zip Code) |
| (Address of Principal Executive Offices) |
650 /417-7900
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which<br><br> <br>registered |
|---|---|---|
| Common Stock, $.001 per share | CEVA | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Security Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On November 5, 2020, CEVA, Inc. (the “Company”) announced its financial results for the quarter ended September 30, 2020. A copy of the press release, dated November 5, 2020, is attached and filed herewith as Exhibit 99.1. On the same day, the Company will hold a conference call to discuss its financial results for the third quarter of 2019. A copy of the script of the conference call is attached hereto as Exhibit 99.2. This information, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.
In addition to the disclosure of financial results for the quarters ended September 30, 2020 and 2019 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release and script also included non-GAAP net income and diluted earnings per share (EPS) figures for the referenced periods.
Non-GAAP net income and diluted earnings per share for (1) the third quarter of 2020 excluded (a) equity-based compensation expenses, net of taxes, and (b) the impact of the amortization of acquired intangibles, net of taxes, associated with the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies; and (2) the third quarter of 2019 excluded (i) equity-based compensation expense, net of taxes, and (ii) the impact of the amortization of acquired intangibles associated with the acquisition of RivieraWaves, the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies, and (iii) deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction.
The Company believes that the reconciliation of financial measures in the press release and script is useful to investors in analyzing the results for the quarters ended September 30, 2020 and 2019 because the exclusion of such expenses may provide a more meaningful analysis of the Company’s core operating results and comparison of quarterly results. Further, the Company believes it is useful for investors to understand how the expenses associated with the application of FASB ASC No. 718 are reflected on its statements of income. The reconciliation of financial measures should be reviewed in addition to and in conjunction with results presented in accordance with GAAP, and are intended to provide additional insight into the Company’s operations that, when viewed with its GAAP results and the accompanying reconciliation, offer a more complete understanding of factors and trends affecting the Company’s business. The reconciliation of financial measures should not be viewed as a substitute for the Company’s reported GAAP results.
ITEM 9.01. Financial Statements and Exhibits.
| (d) Exhibits. | |
|---|---|
| 99.1 | Press release of CEVA, Inc., dated November 5, 2020. |
| --- | --- |
| 99.2 | Script of the conference call of CEVA, Inc., dated November 5, 2020. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CEVA, INC. | ||
|---|---|---|
| Date: November 5, 2020 | By: | /s/ Yaniv Arieli |
| Yaniv Arieli | ||
| Chief Financial Officer |
ex_211832.htm
Exhibit 99.1
CEVA, Inc. Announces Third Quarter 2020 Financial Results
| ● | Total revenue of $ 25.0 million, up 6 % year-over-year, record high for third quarter revenue |
|---|---|
| ● | R ecord high royalty revenue contribution from b ase station & IoT product category up 86% sequentially and 105% year-over-year |
| --- | --- |
| ● | Strategic licensing agreement for ADAS with one of the l argest automotive semiconductor companies, reinforcing our market leadership for automotive processor IP |
| --- | --- |
MOUNTAIN VIEW, Calif., November 5 , 2020 ****** – CEVA, Inc. (NASDAQ: CEVA), the leading licensor of wireless connectivity and smart sensing technologies, today announced its financial results for the third quarter ended September 30, 2020.
Total revenue for the third quarter of 2020 was $25.0 million, a 6% increase compared to $23.5 million reported for the third quarter of 2019. Third quarter 2020 licensing and related revenue was $12.4 million, an increase of 10% when compared to $11.3 million reported for the same quarter a year ago. Royalty revenue for the third quarter of 2020 was $12.5 million, an increase of 3% when compared to $12.2 million reported for the third quarter of 2019.
Thirteen license agreements were concluded during the quarter, of which eight were for smart sensing products and five were for connectivity products. Six of the agreements were with first-time customers. Customers’ target applications include ADAS, digital imaging, true wireless stereo earbuds, digital conferencing systems for home office upgrades and a range of other smart IoT devices. Geographically, six of the deals signed were in APAC, four in the U.S, and three were in China.
Gideon Wertheizer, CEO of CEVA, stated: “Our third quarter results are a firm endorsement of our technology strengths and the hard work of our employees. We have made tremendous progress in our base station and IoT product category, whose royalty revenues grew 86% sequentially and 105% year-over-year, reflecting the fast deployment of 5G base stations in China and record contributions from our Bluetooth, Wi-Fi and sensor fusion technologies. We continue to capitalize on our broad portfolio and industry reach to expand our customer base and future royalty potential. Of note, we signed a strategic agreement with a leading automotive semiconductor player for driver assistance capabilities in new cars, further reinforcing our leadership position in this highly lucrative market.”
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GAAP net loss for the third quarter of 2020 was $0.7 million, as compared to a GAAP net income of $0.8 million reported for the same period in 2019. GAAP diluted loss per share for the third quarter of 2020 was $0.03, as compared to a GAAP diluted earnings per share of $0.03 for the same period in 2019. Third quarter 2020 financials included a $1 million tax expense due to withholding tax which cannot be utilized in future years. Third quarter 2019 financials included a tax benefit of approximately $1 million as a result of the successful conclusion of a tax audit.
Non-GAAP net income and diluted earnings per share for the third quarter of 2020 decreased 29% and 27%, respectively, to $3.6 million and $0.16, respectively, from $5.1 million and $0.22 reported for the third quarter of 2019. Non-GAAP net income and diluted earnings per share for the third quarter of 2020 excluded: (a) equity-based compensation expenses, net of taxes, of $3.7 million, (b) the impact of the amortization of acquired intangibles, net of taxes, of $0.7 million associated with the acquisition of the Hillcrest Labs business and investments in NB-IoT and Immervision technologies. Non-GAAP net income and diluted earnings per share for the third quarter of 2019 excluded: (a) equity-based compensation expense, net of taxes, of $2.6 million, (b) the impact of the amortization of acquired intangibles of $0.8 million associated with the acquisitions of RivieraWaves and the Hillcrest Labs business, and investments in NB-IoT and Immervision technologies, and (c) deal expenses and write-off of an acquired lease associated with the Hillcrest Labs transaction of $0.8 million.
Yaniv Arieli, Chief Financial Officer of CEVA, stated: “We are pleased with our strong financial performance in the third quarter, the highest third quarter revenue on record. The royalty contribution from base station & IoT product category was a record $7.9 million, derived from an all-time quarterly high 200 million units shipped in this product category. At the end of the quarter, our cash and cash equivalent balances, marketable securities and bank deposits were approximately $153 million, with no debt.”
CEVA Conference Call
On November 5, 2020 CEVA management will conduct a conference call at 8:30 a.m. Eastern Time to discuss the operating performance for the quarter.
The conference call will be available via the following dial in numbers:
| ● | U.S. Participants: Dial 1-844-435-0316 (Access Code: CEVA) |
|---|---|
| ● | International Participants: Dial +1-412-317-6365 (Access Code: CEVA) |
| --- | --- |
The conference call will also be available live via webcast at the following link: https://www.webcaster4.com/Webcast/Page/984/37971. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.
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For those who cannot access the live broadcast, a replay will be available by dialing +1-877-344-7529 or +1-412-317-0088 (access code: 10148556) from one hour after the end of the call until 9:00 a.m. (Eastern Time) on November 12, 2020. The replay will also be available at CEVA's web site www.ceva-dsp.com.
Forward Looking Statement
This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include Mr. Wertheizer’s statements about (i) optimism associated with CEVA’s base station and IoT product category that capitalizes on the fast deployment of 5G base stations in China and record contributions from its Bluetooth, Wi-Fi and sensor fusion technologies, (ii) capitalizing on CEVA’s broad portfolio and industry reach to expand its customer base and future royalty potential, and (iii) reinforcing CEVA’s leadership position in the highly lucrative automotive semiconductor market. The risks, uncertainties and assumptions that could cause differing CEVA results include: the scope and duration of the COVID-19 pandemic; the extent and length of the restrictions associated with the COVID-19 pandemic and the impact on customers, consumer demand and the global economy generally; the ability of the CEVA DSP cores and other technologies to continue to be strong growth drivers for us; our continued success in penetrating new markets and maintaining our market position in existing markets; our ability to diversify the company’s royalty streams, the ability of products incorporating our technologies to achieve market acceptance, the effect of intense industry competition and consolidation, global chip market trends, the possibility that markets for CEVA’s technologies may not develop as expected or that products incorporating our technologies do not achieve market acceptance; our ability to timely and successfully develop and introduce new technologies; and general market conditions and other risks relating to our business, including, but not limited to, those that are described from time to time in our SEC filings. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.
About CEVA, Inc.
CEVA is the leading licensor of wireless connectivity and smart sensing technologies. We offer Digital Signal Processors, AI processors, wireless platforms and complementary software for sensor fusion, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling technologies for a smarter, connected world. We partner with semiconductor companies and OEMs worldwide to create power-efficient, intelligent and connected devices for a range of end markets, including mobile, consumer, automotive, robotics, industrial and IoT. Our ultra-low-power IPs include comprehensive DSP-based platforms for 5G baseband processing in mobile and infrastructure, advanced imaging and computer vision for any camera-enabled device and audio/voice/speech and ultra-low power always-on/sensing applications for multiple IoT markets. For sensor fusion, our Hillcrest Labs sensor processing technologies provide a broad range of sensor fusion software and IMU solutions for AR/VR, robotics, remote controls, and IoT. For artificial intelligence, we offer a family of AI processors capable of handling the complete gamut of neural network workloads, on-device. For wireless IoT, we offer the industry’s most widely adopted IPs for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6 (802.11n/ac/ax) and NB-IoT. Visit us at www.ceva-dsp.com and follow us on Twitter, YouTube, Facebook, LinkedIn and Instagram.
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For More Information Contact:
| Yaniv Arieli<br><br> <br>CEVA, Inc.<br><br> <br>CFO<br><br> <br>+1.650.417.7941<br><br> <br>yaniv.arieli@ceva-dsp.com | Richard Kingston<br><br> <br>CEVA, Inc.<br><br> <br>VP Market Intelligence, Investor & Public Relations<br><br> <br>+1.650.417.7976<br><br> <br>richard.kingston@ceva-dsp.com |
|---|
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CEVA, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME – U.S. GAAP
U.S. dollars in thousands, except per share data
| Three months ended | Nine months ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||
| Revenues: | ||||||||||||
| Licensing and related revenues | $ | 12,420 | $ | 11,269 | $ | 40,445 | $ | 33,084 | ||||
| Royalties | 12,540 | 12,202 | 31,736 | 25,756 | ||||||||
| Total revenues | 24,960 | 23,471 | 72,181 | 58,840 | ||||||||
| Cost of revenues | 2,503 | 2,767 | 8,259 | 7,283 | ||||||||
| Gross profit | 22,457 | 20,704 | 63,922 | 51,557 | ||||||||
| Operating expenses: | ||||||||||||
| Research and development, net | 15,603 | 13,873 | 45,695 | 38,593 | ||||||||
| Sales and marketing | 2,711 | 2,832 | 8,772 | 8,809 | ||||||||
| General and administrative | 3,566 | 3,509 | 10,893 | 8,360 | ||||||||
| Amortization of intangible assets | 575 | 757 | 1,732 | 1,177 | ||||||||
| Total operating expenses | 22,455 | 20,971 | 67,092 | 56,939 | ||||||||
| Operating income (loss) | 2 | (267 | ) | (3,170 | ) | (5,382 | ) | |||||
| Financial income, net | 1,020 | 603 | 2,689 | 2,299 | ||||||||
| Income (loss) before taxes on income | 1,022 | 336 | (481 | ) | (3,083 | ) | ||||||
| Income tax expense (benefit) | 1,761 | (439 | ) | 2,533 | (49 | ) | ||||||
| Net income (loss) | $ | (739 | ) | $ | 775 | $ | (3,014 | ) | $ | (3,034 | ) | |
| Basic net income (loss) per share | $ | (0.03 | ) | $ | 0.04 | $ | (0.14 | ) | $ | (0.14 | ) | |
| Diluted net income (loss) per share | $ | (0.03 | ) | $ | 0.03 | $ | (0.14 | ) | $ | (0.14 | ) | |
| Weighted-average shares used to compute net income (loss) per share (in thousands): | ||||||||||||
| Basic | 22,163 | 21,953 | 22,059 | 21,936 | ||||||||
| Diluted | 22,163 | 22,404 | 22,059 | 21,936 |
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Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
U.S. Dollars in thousands, except per share amounts
| Three months ended | Nine months ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Unaudited | Unaudited | Unaudited | Unaudited | |||||||||
| GAAP net income (loss) | $ | (739 | ) | $ | 775 | $ | (3,014 | ) | $ | (3,034 | ) | |
| Equity-based compensation expense included in cost of revenues | 159 | 168 | 473 | 464 | ||||||||
| Equity-based compensation expense included in research and development expenses | 1,770 | 1,494 | 5,115 | 4,314 | ||||||||
| Equity-based compensation expense included in sales and marketing expenses | 533 | 362 | 1,496 | 1,112 | ||||||||
| Equity-based compensation expense included in general and administrative expenses | 1,084 | 728 | 2,986 | 1,957 | ||||||||
| Income tax (benefit) expense related to equity-based compensation expenses | 124 | (129 | ) | (60 | ) | (473 | ) | |||||
| Amortization of intangible assets, net of taxes, related to acquisitions of RivieraWaves and Hillcrest Labs business, investments in NB-IoT and Immervision technologies and deal costs and write off of an acquired lease related the Hillcrest Labs transaction | 684 | 1,680 | 2,061 | 2,258 | ||||||||
| Non-GAAP net income | $ | 3,615 | $ | 5,078 | $ | 9,057 | $ | 6,598 | ||||
| GAAP weighted-average number of Common Stock used in computation of diluted net income (loss) and earning per share (in thousands) | 22,163 | 22,404 | 22,059 | 21,936 | ||||||||
| Weighted-average number of shares related to outstanding stock-based awards (in thousands) | 1,004 | 489 | 983 | 850 | ||||||||
| Weighted-average number of Common Stock used in computation of diluted earnings per share, excluding the above (in thousands) | 23,167 | 22,893 | 23,042 | 22,786 | ||||||||
| GAAP diluted income (loss) earnings per share | $ | (0.03 | ) | 0.03 | $ | (0.14 | ) | $ | (0.14 | ) | ||
| Equity-based compensation expense, net of taxes | $ | 0.16 | $ | 0.12 | $ | 0.44 | $ | 0.32 | ||||
| Amortization of intangible assets, net of taxes, related to acquisitions of RivieraWaves and Hillcrest Labs business, investments in NB-IoT and Immervision technologies and deal costs and write off of an acquired lease related the Hillcrest Labs transaction | $ | 0.03 | $ | 0.07 | $ | 0.09 | $ | 0.11 | ||||
| Non-GAAP diluted earnings per share | $ | 0.16 | $ | 0.22 | $ | 0.39 | $ | 0.29 |
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CEVA, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands)
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2020 | **** 2019 (*) | |||||
| Unaudited | Unaudited | |||||
| ASSETS | **** | **** | **** | **** | **** | **** |
| Current assets: | ||||||
| Cash and cash equivalents | $ | 22,067 | $ | 22,803 | ||
| Marketable securities and short-term bank deposits | 119,664 | 121,782 | ||||
| Trade receivables, net | 15,538 | 11,066 | ||||
| Unbilled receivables | 13,441 | 17,241 | ||||
| Prepaid expenses and other current assets | 6,888 | 5,660 | ||||
| Total current assets | 177,598 | 178,552 | ||||
| Long-term assets: | ||||||
| Bank deposits | 11,376 | 5,368 | ||||
| Severance pay fund | 9,624 | 9,881 | ||||
| Deferred tax assets, net | 12,317 | 10,605 | ||||
| Property and equipment, net | 8,084 | 7,879 | ||||
| Operating lease right-of-use assets | 10,824 | 11,066 | ||||
| Goodwill | 51,070 | 51,070 | ||||
| Intangible assets, net | 11,481 | 13,424 | ||||
| Other long-term assets | 9,190 | 9,176 | ||||
| Total assets | $ | 301,564 | $ | 297,021 | ||
| LIABILITIES AND STOC KHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Trade payables | $ | 862 | $ | 701 | ||
| Deferred revenues | 2,777 | 3,642 | ||||
| Accrued expenses and other payables | 3,421 | 3,660 | ||||
| Accrued payroll and related benefits | 15,991 | 15,894 | ||||
| Taxes payable | 335 | 88 | ||||
| Operating lease liabilities | 2,505 | 2,393 | ||||
| Total current liabilities | 25,891 | 26,378 | ||||
| Long-term liabilities: | ||||||
| Accrued severance pay | 10,328 | 10,551 | ||||
| Operating lease liabilities | 7,960 | 8,273 | ||||
| Other accrued liabilities | 814 | 662 | ||||
| Total liabilities | 44,993 | 45,864 | ||||
| Stockholders’ equity: | ||||||
| Common stock | 22 | 22 | ||||
| Additional paid in-capital | 230,032 | 228,005 | ||||
| Treasury stock | (30,754 | ) | (39,390 | ) | ||
| Accumulated other comprehensive income | 361 | 94 | ||||
| Retained earnings | 56,910 | 62,426 | ||||
| Total stockholders’ equity | 256,571 | 251,157 | ||||
| Total liabilities and stockholders’ equity | $ | 301,564 | $ | 297,021 |
(*) Derived from audited financial statements
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ex_211833.htm
Exhibit 99.2
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 |
|---|
CEVA, INC.
Third Quarter 2020 Financial Results Conference Call
Prepared Remarks of Gideon Wertheizer, Chief Executive Officer andYaniv Arieli, Chief Financial Officer
November 5 , 2020
8:30 A.M. Eastern
Good morning everyone and welcome to CEVA’s third quarter 2020 earnings conference call. I’m joined today by Gideon Wertheizer, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and highlights from the third quarter and provide general qualitative data. Yaniv will then cover the financial results for the third quarter and also provide qualitative data for the fourth quarter and full year 2020.
I will start with the forward-looking statements.
Forward Looking Statements ****
Please note that today’s discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. Forward-looking statements include guidance and qualitative data for the fourth quarter and full year 2020; optimism about 5G base station RAN deployment in China, relationship with ZTE and opportunities presented by our sensing and connectivity technologies; optimism about the continued momentum in base station & IoT royalties; market traction associated a low end smartphone; and production schedule associated with our ADAS agreement. 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; 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 non-handset baseband license agreements; the effect of intense industry competition and consolidation; and global chip market trends. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 |
|---|
With that said, I will now hand the call over to Gideon.
Gideon
Thank you, Richard. Good morning everyone and thank you for joining us today.
CEVA delivered a very strong quarter, highlighted by record royalties from our base station & IoT product category and licensing agreements with major players in key industries. Before we expand on our third quarter results, I would like to acknowledge the tireless efforts of our talented employees around the world that continue to deal with the challenges COVID-19 presents. Through their hard work, we are successfully growing our business, keeping the commitments to our customers and maintaining the fast pace of innovation and new technology developments. Thank you all.
Total revenue for third quarter was $25.0 million, up 6% year-over-year. Our licensing business continues to be solid, at $12.4 million for the quarter, up 10% year-over-year. Royalty revenue was $12.5 million, up 3% on a year-over-year basis.
We concluded thirteen new agreements during the quarter, of which five were for connectivity and eight were for smart sensing. Six of those agreements were with first-time customers. Target applications of our new licensing agreements include a strategic design win for ADAS with one of the largest automotive semiconductor player, which I will expand on later in the call. Other target applications for our customers this quarter include digital imaging, true wireless stereo earbuds, smartTVs and digital conferencing systems for home use, a growing space as more people are switching to work from home permanently and upgrading their home office setups.
On royalty revenue, we had a strong quarter, driven by record shipments for our base station & IoT product category, formerly referred to as non-handset products. Royalty revenue from this category grew 86% sequentially and 105% year-over-year to reach a record $7.9 million. We have benefitted from expedited 5G RAN deployments in China, which I will touch on later in the call, and from a series of product launches and shipments enabled by our Bluetooth, Wi-Fi and sensor fusion technologies.
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 |
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In our handset baseband category, we saw a strong recovery from our China-based customers targeting low tier 4G smartphones, and feature phones targeted for India and other developing economies. Royalties from premium tier smartphones declined on a year-over-year basis as a new 5G smartphone series launched last month uses modems from another supplier that does not incorporate our technologies. With that said, our technologies remain incorporated in the low-cost smartphone this customer launched earlier in the year, which continues to have strong market traction around the world.
Let me take the next few minutes to elaborate on two key developments in the quarter. The first is a monumental agreement in the automotive ADAS space and the second is the underlying drivers that delivered a step-up in 5G RAN royalties.
The digital transformation in the automotive industry, of which ADAS is a key driver, has led to a dramatic increase in the usage of software and AI to analyze data collected by the cameras and radar sensors surrounding the car. Furthermore, amidst the push by players such as Nvidia and Mobileye toward their own closed and vertically integrated solutions, automotive Tier Ones and OEMs are seeking for an open, high performance technology where they can take advantage of their in-house excellence while not being locked into a certain vendor. Against this backdrop, our powerful DSPs, AI technologies and our collaborative business model set a comprehensive foundation that enable OEMs to become supplier-agnostic and translate their innovation into a competitive edge. In this regard, the unique proposition of our leading-edge SensPro DSP along with our CDNN AI compiler technology were instrumental in obtaining a new comprehensive agreement we signed in the quarter with a major semiconductor player in the automotive space. This agreement is based on a project our customer won with a very large automotive manufacturer in Japan for an ADAS solution for new L2+ and L3 cars which is projected to start production by 2025.
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 |
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On 5G RAN, the transition from Non-StandaAlone (NAS) to StandaAlone (SA) mode of 5G new radio is already underway, in particular, in China. According to government data, Chinese operators have already deployed 480,000 5G base stations as of the first half of this year. This represents about a third of the global RAN market. CEVA is a prime beneficiary of this upgrade cycle in China through our strategic relationship with ZTE. China Mobile, China Telecom and China Unicom have engaged ZTE in large scale for these deployments and as a result, its market share climbed to 30% within those operators. Furthermore, in comparison to 4G, 5G presents higher content and a larger addressable market for us, resulting from the use of active antenna units (AAU) in the base station’s radio units. Deployments of active antenna settings provide operators with a substantial increase in network capacity, data rates, higher energy efficiency and overall lower cost of ownership. The latest advancements in active antenna technologies require massive DSP computing for algorithms such as Massive MIMO and Beamforming, which can be optimally served by our advanced CEVA-XC12 and CEVA-XC16 DSPs. We are therefore presented with additional content and higher volume opportunities, in addition to our proposition for baseband processing. Royalties from active antennas have already made a noticeable contribution to our third quarter royalty reports.
So, to summarize, our third quarter performance demonstrated the continued, meaningful progress we are making across our businesses. Our technologies for sensing and connectivity are fundamental to any intelligent device and will lead the transformation in 5G networks and the automotive space. We are managing our business for the long haul and confident in our growth strategy. Yet, we remain determined and focused to drive efficiency and prudency to cope with the ongoing uncertainty COVID-19 poses. Finally, I’d like to thank again our customers, partners and CEVA’s hard working employees. Your health and safety continue to be our first priority.
With that said, let me hand over the call to Yaniv for financials and guidance.
Yaniv
Thank you Gideon, I will start by reviewing the results of our operations for the third quarter of 2020.
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 | |
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| - | Revenue for the third quarter was up 6% to $25.0 million, as compared to $23.5 million for the same quarter last year. It is the highest third quarter revenue we ever recorded. The revenue breakdown is as follows: |
| --- | --- |
| o | Licensing and related revenue was approximately $12.4 million, reflecting 50% of total revenues, 10% higher than $11.3 million for the third quarter of 2019. |
| --- | --- |
| o | Royalty revenue was $12.5 million, reflecting 50% of total revenues, 3% higher than $12.2 million for the same quarter last year. |
| --- | --- |
| o | Royalty revenue from our base station & IoT product line in the quarter reached a new record high of $7.9 million, up 86% sequentially and 105% year-over-year. |
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| - | Quarterly gross margin was 90% on a GAAP basis and 91% on a non-GAAP basis, both significantly better than what we projected. Non-GAAP quarterly gross margin excluded approximately $0.2 million of equity-based compensation expenses and $0.2 million of the impact of the amortization of acquired intangibles. |
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| - | Total GAAP operating expenses for the third quarter was at the upper-range of our guidance at $22.5 million. OPEX also included an aggregate equity-based compensation expenses of approximately $3.4 million and $0.6 million for the amortization of acquired intangibles. Total operating expenses for the third quarter, excluding equity-based compensation expenses and amortization of intangibles, were $18.5 million, slightly above second quarter level and also, at the upper-range of our guidance. |
| - | Of note, the third quarter 2020 financials included a $1 million tax expense due to withholding tax which cannot be utilized in future years. Third quarter 2019 financials included a $1 million tax benefit as a result of the successful conclusion of a tax audit. |
| - | U.S. GAAP loss for the quarter was $0.7 million and diluted loss per share was 3 cents for the third quarter of 2020, as compared to net income of $0.8 million and diluted net income per share of 3 cents for the third quarter of 2019. |
| - | Non-GAAP net income and diluted EPS for the third quarter of 2020 was $3.6 million and 16 cents, respectively. Non-GAAP net income and diluted EPS for the third quarter of 2019 were $5.1 million and 22 cent, respectively. Third quarter 2020 figures exclude equity-based compensation expenses, net of taxes, of $3.7 million, and the impact of the amortization of acquired intangibles in the amount of $0.7 million. |
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 |
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Other related data
| - | Shipped units by CEVA licensees during the third quarter of 2020 were 349 million units, up 51% sequentially and 20% from the third quarter 2019 reported shipments. |
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| - | Of the 349 million units shipped, 149 million units, or 43%, were for handset baseband chips, reflecting a sequential increase of 50% from 99 million units of handset baseband chips shipped during the second quarter of 2020 and a 12% decrease from 169 million units shipped year over year. |
Our base station and IoT product shipments were a record 200 million units in the quarter, up 52% sequentially and 63% year over year. As a reminder, we have categorized all of our non-handset baseband chips under the umbrella of “base station and IoT” category since the beginning of the year.
As for the balance sheet items
| - | As of September 30, 2020, CEVA’s cash and cash equivalent balances, marketable securities and bank deposits were $153 million. We did not repurchase any shares this quarter and have approximately 498,000 shares available for repurchase. |
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| - | Our DSO for the third quarter of 2020 was 57 days, higher than the second quarter but lower than the level for the first quarter of the year. |
| - | During the third quarter, we used $4.3 million of cash from operations; depreciation and amortizations were $1.4 million and purchase of fixed assets was $1.2 million, higher than the norm, due to larger investments in hardware (computers and servers), as well as engineering development software. |
| - | At the end of the third quarter, our headcount was 398 people, of which 331 were engineers, slightly down from a total of 401 people at the end of June 2020. |
Now for the guidance
As demonstrated by our financial results for 2020 thus far, CEVA’s products and customer diversity enable us to mitigate the disruptions that COVID-19 poses. Amidst continued economic uncertainty, we expect our 2020 total revenue to increase approximately 9% year-over-year to a record annual high of $95 million. We believe the momentum we saw in the third quarter in base station & IoT royalties will extend into the fourth quarter. On licensing, the demand for our connectivity and sensing technologies remains high, and we are relentlessly working to translate these opportunities into licensing revenue.
| CEVA, Inc. Q3 2020 Financial Results Conference Call - Prepared Remarks :: November 05, 2020 |
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Specifically for the fourth quarter of 2020 ****
| - | Gross margin is expected to be approximately 88% on GAAP and 89% on non-GAAP basis, excluding an aggregate of $0.2 million of equity-based compensation expenses and $0.2 million of amortization of other assets associated with the Immervision investment. |
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| - | OPEX for the fourth quarter of 2020 is forecasted to be slightly lower than the last two quarters. GAAP-based OPEX is expected to be in the range of $21.9 million to $22.9 million. Of our anticipated total operating expenses for the third quarter, $3.5 million is expected to be attributable to equity-based compensation expenses and $0.6 million to the amortization of acquired intangibles associated with the Immervision investment. Non-GAAP OPEX is expected to be in the range of $17.8 million – $18.8 million. |
| - | Net interest income is expected to be approximately $0.7 million. |
| - | Taxes for the fourth quarter are expected to be approximately $0.6 million on both GAAP and non-GAAP basis. |
| - | Share count for the fourth quarter of 2020 is expected to be 23. 3 million shares. |
Operator: You can now open the Q&A session
Wrap Up: Richard
Thank you for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the Current Report on Form 8-K and accessible through the investor section of our website at https://investors.ceva-dsp.com.
With regards to upcoming events, we will be participating in the following virtual conferences:
| - | Roth Technology Virtual Event on November 11^th^. |
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| - | Wells Fargo TMT Summit 2020 on December 1^st^ and 2^nd^ |
| - | Barclays Global Technology, Media and Telecommunications Conference on December 9^th^ and 10^th^. |
| - | Oppenheimer 5G Summit on December 15^th^. |
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